Constitutional Crisis

BEYOND THE DEBT CRISIS, A CONSTITUTIONAL CRISIS:

What’s the problem with the debt of the USA? Well, it can be viewed as worse than the debt of most European countries whose debt led to confidence crises (see the second paragraph below).

This debt crisis has become a government by the fools, for the fools, and it is starting to look foolish, even to the fools. It’s also bringing up constitutional questions, namely on the constitution of the USA, which is really very different from that of other democracies.

It’s no happenstance that no country has a constitution similar to that of the USA. A situation like the present one is simply impossible in other democracies, because new elections are automatically called when a budget cannot be passed. Generally it does not even get to this stage, because a no confidence vote is called well before that (as just happened in Italy).

It’s only normal that the legislative branch would be called to execute the law. However, in the USA, the legislature does not have to govern.

A legislature that does not have to govern does not have to be realistic.

Some will say: so what? The history of the USA show an incapacity to adapt to progress. The Civil War in the USA was, by far, the most deadly civil war in the West since the religious wars of the sixteenth and seventeenth centuries (it killed an order of magnitude more than the French revolution, relative to population). Adjustments could not be made in Congress, until a full blown war.

After the war, it took a century to get rid of institutionalized racism. And I have advocated the point of view that, for a century, plutocracy in the USA has been gathering steam. It leveraged World War Two, and related events leading to it, and following it, that it organized. Now global, the plutocracy installed the 2007 crisis, making the People pay for it, before, during and after.

Right now, sequestration is already a disaster (say on long term scientific and medical research). The evolution of employment, and of the median income, are also disasters. All what the plutocrats want is to starve the beasts, and the beasts are us, the Public.

For the plutocrats, the Republic, as long as it exists, is only a machine to make the richest thrive. And bonds, and Quantitative Easing, are crucial that way.

***

MORE DETAILS, & A DEEPER ANALYSIS:

USA debt: The total debt of the government of the USA is 16.7 trillion dollars (more than GDP; the number can look smaller when one looks only the debt “held by the public”, but that’s obviously not the important number).

The cash deficit, under Obama, reached 12.5% of GDP. Now it’s 5% and shrinking, thanks to unsustainable “sequestration”, a sort of amputation of the brain to make the patient lose weight. That, realized the bipartisan research arm of Congress, will actually augment the deficit. Very soon, considerably, and durably.

Many take for granted that a country like the USA cannot default, because its debt is in its own currency. That statement is so absurd, so anti-factual, it’s hard to answer. Countries which defaulted in their own currencies are legions. A recent major example is Argentina, which defaulted in 2001-2002. Notice:

1) the banks of the USA operating in Argentina made like bandits from that default.

2) Argentina is still trying to recover from that shock.

The reason why a damaging default for the USA is hard to imagine are the following;

1) The USA is completely self sufficient in nearly everything. The USA is the largest fossil fuel and gas producer in the world (with 22 million barrels a day). It also has the largest sea empire (slightly larger than France’s!), and resources therein.

2) The USA has by far the most powerful, most autarkic military, perfectly capable of protecting 1)… And more.

3) The dollar is the world’s reserve currency (although a second one has appeared: the euro!) The dollar is also low relative to the euro. Thus a serious down swing in the dollar is unlikely, and anyway, irrelevant, as planet USA is totally self sufficient (see 1))

But, precisely, that makes it possible for the USA to default!

It reminds me somewhat of the relationship between Spain and… China. China needed Bolivian silver (from Potosi), to strike a currency worth something (after disastrous paper inflation under the Yuan). China had silk and many other precious goods.

The interface between the co-dependent empires, was next to Manila. The Chinese established a powerful Chinatown. Way too powerful: the Spaniards at some point took umbrage, and annihilated it, killing all. What did the Chinese do? Well, they came back, and established another mighty Chinatown, crucial to the Spanish empire. And then the Spaniards had enough, and annihilated it, killing all. And the Chinese came back.  

There always will be USA bonds, they will always come back, as long as there is a Pentagon, and it’s mightiest. But there will not necessarily be a democracy in the USA.

Examples are plenty, in history, of republics that became plutocracies. It happened to Sparta. It happened to Athens. It happened to Rome. Even the European empire of the Franks, initially successful because it was less plutocratic than Rome, became riddled with plutocracy, seven centuries later. Florence, started as a republic, also evolved, after two centuries, into a plutocracy. The people loving, enlightened monarchy of Henri III and Henri IV, turned, within a generation, into the horrendous plutocracy of Louis XIV.

Progress can definitively go backwards. History clearly show that republics are the exception, and plutocracies, the rule.

***

Patrice Ayme

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22 Responses to “Constitutional Crisis”

  1. Paul Handover Says:

    Patrice, apologies but I don’t understand how the falling cash deficit augments US debt.

    • Patrice Ayme Says:

      Dear Paul: Same as when peasants, during famines, had to eat the seeds for the next crop. Right now NASA employees are prevented not just to show up to work, but also to work, even at home, or to even read their email. Something similar holds over lots of the federal governmental research system, the world’s largest.

      Notice that, although that was obvious to me, that was not to the likes of the honorable Krugma. The OMB had also ignored the effect for about a year, before noticing it belatedly. Thus the OMB changed considerably its deficit predictions.

      In general, too much deficit reduction is like slowing down a plane to reduce the violence of a potential incoming accident: at some point, the plane falls off the sky. The fundamental reason is that the most important part of the economy is NOT for profit.

      That’s why the armed forces keep on being paid. Rome went down big time when the plutocrats refused to pay for the army (that happened exactly in 400 CE, when the Franks were told they were the Roman army in the NW empire; Britain’s legions were removed in 406 CE; again strictly to save money; later that year on dec 31, the Rhine froze and several German nations, including the Vandals, broke through the Franks; the Vandals went on to Africa, aka Tunisia, and choke off Roma’s wheat supply).
      PA

  2. Paul Handover Says:

    And on a more general note, how do you read the next few years re the USA? Will the huge sharing of thoughts and ideas, a large Internet, have political ramifications?

  3. Paul Handover Says:

    Just seen a piece in the UK’s Daily Telegraph newspaper from the 9th – http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10368306/Factional-conflicts-have-the-power-to-destroy-empires-and-republics.html

    It opens, thus:

    Factional conflicts have the power to destroy empires – and republics

    Ambrose Evans-Pritchard: Bitter fights in Washington are making the US economy look much worse than it is.

    The US Founding Fathers abhorred factions. The 10th Federalist Paper by James Madison in 1787 is a study of how to defend the fledgeling republic against the dangers of organised zealotry, the curse that blighted earlier republics in world history.

    Madison defined factions as groups of citizen “united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community”.

    The bone of contention was thought to be disputes over the “unequal distribution of property”, and so it has proved to be as we see today in the bitter fight between debtors and creditors, or between those who live off government and those who pay for it.

    Madison believed a powerful continental Congress — rooted in Washington rather than state legislatures — would work against factions. Regional diversity would muddy the ideological waters. This is in fact what happened.

    ….. read the rest via the link above.

    • Patrice Ayme Says:

      Dear Paul: Interesting comment in the telegraph… for all it got wrong. As the author said, he just read a history book, and then that gave him a bad feeling.
      Well, by the time of the battle in eastern Anatolia, in 1079 CE, the Roman empire had been militarily degenerated for… 779 years!
      Right now the USA has the world’s strongest military (followed by several of its very close allies/parents!)
      At worst, the USA would default, and that would have barely any impact, in the greater scheme of things, as I explained.

      Actually, quite the opposite:
      https://patriceayme.wordpress.com/2011/09/14/to-save-the-world-please-default/
      PA

  4. Patrice Ayme Says:

    My own essay above on the “Constitutional Crisis”,
    https://patriceayme.wordpress.com/2013/10/11/constitutional-crisis/
    broaches on the same subject, but say things people do not usually say.
    1) the problem is the USA constitution
    2) the USA leadership (the plutocracy) does not give a hoot about default (and I explain why). The USA already defaulted, in 1789 and 1933… And is doing better for it!
    PA

  5. Dominique Deux Says:

    if the US defaulted, it would be wise for it to quickly engineer mass default among other nations. If only to look, well, not so bad; to feel less lonely; to assert leadership. It has the means to do so, of course.

    With the US default having no impact, the dwarfs’ defaults would have to be so many mosquito bites.

    A thoroughly deflated and chastised casino finance bubble would be the more likely outcome. Contrary to the usual banking mantra, cash and credit for the actual economy could not become more depleted that they already are, with the self-anointed “investors” (aka speculators, on account of their short-term limited vision) hogging it all for their dark pools. And all that useless, thrombotic currency froth going up in smoke won’t even add to the greenhouse gases.

    The Republicans could be the unwitting artisans of their masters’ demise…

    • Patrice Ayme Says:

      dear Dominique: I agree 100% with all you say.
      Except on one point. The rank and file of the Tea Party obey its masters (the Koch, etc.). But not wittingly, or willingly: they are manipulated. Many actually are anti-big business, and anti-finance. Recently they lined up against striking Assad, with the enthusiasm of the (pseudo-)extreme left. Some of the theses of some of them are not far from some of mine (they are anti-big banks subsidies).

      The USA defaulted to Louis XVI (thus France) and in 1933 (by like 40% or so). In 1933, debt in old dollars (indexed on gold) in amount X was converted into new dollars in same amount X. But the new dollar was worth 40% less, or so.

      Amusingly, it was made illegal not to cooperate. (In the great country of freedom and business, it was made illegal to own… gold; a bit like now it’s illegal to go on federal land to poop… Although we very much want to…)

      The real dindon de la farce in the 1930s was France, which refused to devaluate and default when everybody else did (as you suggested above). As a result, by 1934-35, all the major countries (USA, UK, Jap, Germany) industrial production had pulled out of the depression… but France kept on sinking…

      There is of course no reason to default whatsoever, except for the unwillingness of the fat cats to pay taxes. That does not mean it’s not a problem; after all, that was the proximal cause of the fal of the Late Roman empire (not to be confused with the Renovated one, later…).
      PA

  6. Ken Says:

    Without oil the US military is nothing. Economics is a game we have been able to play because we had cheap energy for a little while. No more cheap energy and the pentagon becomes very expensive”as it is now” less energy and the reality of 5% of the worlds population dominating the rest of the world comes into serious doubt. Planes aren’t any good without fuel nor are are tanks or ships”hence drones they are cheap to kill with”.America cannot operate it’s bases without cheap energy.Therefor the majority of the military is in oil countries.Pity the troops that will have to walk home as we have already passed peak oil.

    • Patrice Ayme Says:

      dear Ken: Subtle is the Lord, as Einstein would say. And as you say, oil is the key. Short of antimatter, or nuclear energy, no fuel is as energy dense.
      We have indeed passed peak oil. Peak Conventional Oil. PCO.
      However, technology progresses. I think the Queen Elizabeth class carriers (70,000 tons), will not be nuclear. Efficiency had augmented, and the military is starting to think it will never be short of oil.
      Why?
      Because it has been obvious for ten years that fuel could be synthesized. From algae. It works experimentally, and, should fossil fuels become twice more expensive (say), it would not doubt be massively profitable.
      Meanwhile, fracking, that has existed for 60 years, exploded, at least in the USA.
      Fracking is real nasty, but it seems to work.
      The USA is becoming again the world’s largest producer of fossil fuels.
      With 22 million barrels a day, of oil and oil equivalent gas, it’s about twice the old Peak Oil. And about twice Saudi Arabia.

      Pluto, and its abysmal depths, are friends of the USA. Same old same old: the USA rose, a lot because of oil. Starting where fracking is now flourishing (so to speak), in Pennsylvania.
      This changes everything.
      PA

  7. EugenR Says:

    Dear Patrice, you asked if US can default, and you answered “not” because of military strength, energy production capacity and having a reserve currency. From all these answers i take the military. If you have military advantage upon other countries at level of US, energy may be a problem of price but never of availability. As to the position of US$ as a reserve currency it is a weak argument. The US$ may lose its priority (the process actually started) and still the economy will not default. It will cause devaluation of the US$ against the other currencies but in terms of US$ it will stand behind all its debts.

    Then who will pay for the exaggerated US debts? The US public, by losing purchase power foon the US$ they hold in deposits and savings, or earn as wages or any other form of income, and the debtors, who will lose part of the real value of their US reserves. If so, why would country like Chine, Japan or any other country want to give new loans to US? Why China in the past when still the problem of the US debt did not reach the today level didn’t let to appreciate its currency and make it freely floating? After all the Chinese population would enjoy jump in their living standard with such a policy? I really don’t have the answer for that. Probably it is connected somehow to US military power you mentioned above.

    But what if the Chinese decide to change their policy of subsidizing the US consumerism now and with one step? It would create a big economic shock-wave, its consequences is hard to predict. Of course it would happen only as an act of enmity. And here we have again the brute military force, which US as a sole world power not always uses with all the prudence. So if to minimize the lose, the creditors of US will have to let the US to descend from the high tree of debt slowly and carefully, (and it is already happening), while all the world is attentively watching the US movement to down from the very top of the tree.

    • Patrice Ayme Says:

      dear Eugen: good question and point you make about Chinese purchase of USA bonds.

      Many are the reasons for China to buy USA bonds. Diversity is one. But mostly, just as Spain had silver, something China wanted, the USA has Intelletual Property.
      And, even more important, the USA is plutocracy central, China plutocracy secondary.
      Finally, buying USA bonds is like protection money from the godfather. Chinese plutocrats purchased the goodwill of their masters.
      PA

      • EugenR Says:

        Dear Patrice, you asked if US can default, and you answered “not” because of military strength, energy production capacity and having a reserve currency. From all these answers i take the military. If you have military advantage upon other countries at level of US, energy may be a problem of price but never of availability. As to the position of US$ as a reserve currency it is a weak argument. The US$ may lose its priority (the process actually started) and still the economy will not default. It will cause devaluation of the US$ against the other currencies but in terms of US$ it will stand behind all its debts.Then who will pay for the exaggerated US debts? The US public, by losing purchase power foon the US$ they hold in deposits and savings, or earn as wages or any other form of income, and the debtors, who will lose part of the real value of their US reserves. If so, why would country like Chine, Japan or any other country want to give new loans to US? Why China in the past when still the problem of the US debt did not reach the today level didn’t let to appreciate its currency and make it freely floating? After all the Chinese population would enjoy jump in their living standard with such a policy? I really don’t have the answer for that. Probably it is connected somehow to US military power you mentioned above.But what if the Chinese decide to change their policy of subsidizing the US consumerism now and with one step? It would create a big economic shock-wave, its consequences is hard to predict. Of course it would happen only as an act of enmity. And here we have again the brute military force, which US as a sole world power not always uses with all the prudence. So if to minimize the lose, the creditors of US will have to let the US to descend from the high tree of debt slowly and carefully, (and it is already happening), while all the world is attentively watching the US movement to down from the very top of the tree.

        • Patrice Ayme Says:

          Dear Eugen: I think it’s all ultimately about force, and the will to use it.

          The PRC has interest to be entangled with the USA. Bonds achieved that, whatever their value. The more they are devalued, the stronger the bond with USA plutocracy, actually!PA

          • EugenR Says:

            Very nice point of view. I never thought this way. And then if the population they claim to represent starve, it is just a detail for them. At least the plutocracy of the West would not allow this. (Thanks to papa Bismark the very grandfather of plutocracy)

            • Patrice Ayme Says:

              Yes, I intent to write an essay that way, but days have only 24 hours… Just got the Nobel, not noble one. The propaganda leverages the Nobels heavily, in the USA…

              Starvationn just a detial, indeed. When Obama got started 32 million were fed by the state. Now it’s 48 millions (and the criterions have not changed: Obama gave tax cuts only to the hyper rich).
              PA

  8. Patrice Ayme Says:

    dear Eugen: Come to think of it, my position is more exactly that the USA will, would, and can default… And does not give a hoot, sitting, as it does, on its demographics, its empire, its coal, its fracking, its army, and its latent fascism and hypernationalism…

    That does not mean I expect a default this time.

    The very threat of default, is, per se, a form of violence onto the world’s financial system. A foot of the elephant on the thick skull of the rest of the world’s plutocracy…
    PA

    • EugenR Says:

      Yes the world is a bisseur place. I read few years ago, in the middle of the deepest world economic crisis, caused solely by the US economic policy the book of G.Friedman, The next 100 years, where he predicted at the time a very unprobable outcome of the crisis. He predicted that the US will be the winner of all this. I thought then that he must be nuts. But it appears I was the nuts and he was right.

      • Patrice Ayme Says:

        A Harvard prof just published a book “the barbarous years”. In which he argued exactly what I have been saying for years; the USA was born from barbarity.
        Some will see a weakness. I see a strength.
        The Nazis also saw a strength, and tried to rush in a similar program, forgetting that the French, the British and the Russians, were not paleolithic.
        So Pluto is in command.
        Yet, it’s possible to de-Americanize this. As I will argue.
        PA

        • EugenR Says:

          But on the the other hand the mobs are also not trustworthy. Look the Jewish point of view. If not the Tzar then his servant will do the pogrom. And here the Jewish doesn’t mean people or tribe, but people who try to make their living under harsh condition, while let the others to live.

          • Patrice Ayme Says:

            Yes, well, the pogroms were according to mentalities that were taught. Xtianism always hated everything that was not Xtianism. Only the jews half survived because Christ was one of them…
            We have to think moods, not mobs. Because that’s the mood that makes the mob.

            For example the mood of identifying anti-Islam with racism is erroneous. I am anti-Christian, or anti-Islam, in the sense that I reject and heap contempt on parts I do not like. Same with Judaism… In all cases, though, there are many different systems, even within (some forms of Islam I approve 90% whereas some forms of Christianity I reject 96%…).

            Some forms of Judaism, especially in the east, were reacting to racism with racism, and that’s never a good strategy. Although loud and clear condemnation is excellent, it’s best when knowing how it feels in the other guy’s shoes.

            Some of the Jewish sects in Israel (or New York) invite further disaster, same as before. Very far from the spirit of the birth of israel (which I approve of).
            PA

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