Is America Bankrupt?

While the stock markets have recovered following the falls earlier this week, what has happened is reminiscent of what occurred prior to the stock market crash on Wall Street in 1929. Then, in the years leading up to the crash, the stock market fell and railed several times before it finally plummeted. Then what happened that made that crash so disastrous was that so many people had borrowed money to play the market. So when finally the crunch came, people realised that they had no chance of ever repaying that borrowed money.

Many of the same problems that happened then are there today in the American economy. While there is a great deal of personal debt, two million American families are going to lose their homes due to the sub prime scandal, the real problem is the debt that the US government carries. While the US Treasuries borrowings are now bellow three trillion dollars, it is the government debt that is dragging the US into recession.

While unlike an individual or a business, a country will always be able to borrow more, just like an individual all that borrowing has to be repaid eventually.

It was while listening to the radio, and reading about the background of what's happening that I realised why the federal government in the US doesn't want to face up to the realities of climate change. America is all but bankrupt.

This is not as ridiculous as you may think, for many years the US economy has been fuelled by consumer spending. When Bush came to the presidency one of the first things he did was to cut taxes and gave every American tax payer three hundred dollars (I am sure my American reader will tell me if I have got the amount wrong), as with so many right wing politicians, Bush assumes that its only private spending that drives the economy. While in part this can be true, it is where people spend their money and on what that benefits or hinders an economy. For the most part what Americans (and the British) have been spending their money on is cheap imported luxuries. Further much of this consumer spending has been using borrowed money. The package of tax cuts that have been rushed through will give every American tax payer about twelve hundred dollars, but if everyone just uses it to pay off bills and credit, it will do nothing to stimulate the economy.

This is no different to the UK, we have one trillion pounds (two trillion Dollars) of personal debt here. However, the difference here is our government has not been borrowing anywhere as much as the US has. Moreover, the US has been and still is reliant upon borrowing from the Far East, especially China.

Rather like a Mister Micawber figure, Bush is trying to project an image of confidence that everything is fine while knowing that, metaphorically speaking, debtors prison is just around the corner.

This is the fundamental flaw in the US economy. The UK has similar problems, as like the US we have been living the high life on borrowed money. While there are areas of US business that are very successful, the majority of the business in the US is failing to compete. Further, far to many of the major players on the Dow Jones have exported production and jobs to the Far East, especially China. That means that the US economy and the UK, have relied upon consumer spending to keep the money flowing.

The difficulty with that rational is that eventually the bills need to be paid. Further this growth based economics can only work if everyone fools themselves that tomorrow will always be better. The Value of homes will always rise, that you will always get the next pay cheque or that the next new bit of technology will be just so fulfilling.

The unfettered free market global economy that Bush has been following relies upon everyone consuming more and more, the down side of this is the global businesses that this economic model creates have no loyalty to the country that created the company. When the going gets tough then the businesses will just up and leave to wherever the profit is. This is why Bush will not do anything to tackle Climate Change. Even though under the economic model that the US is following pressing for energy conservation would provide most households with as much as this current tax rebate will, but will do so year in and year out, giving every American more dollars in their pocket.

But as Bush is beholden to big business, anything that reduces income to the energy businesses is an anathema to an oil man. Further the ideology of the neo-cons that taxes must be lowered, fails to answer the difficulty of meeting the costs of government. The war in Iraqi is costing one million dollars a day, and to pay for this tax cut the US government will have to borrow money from the money markets.

Eventually that money will have to be repaid, yet federal taxes, before this tax cut, only raised enough money to cover the merger Medi-Care. That means the US has to borrow more and more money to pay for everything else that the US government has to do.

While I don't want to see anyone suffer, America has to start pulling in its belt and getting real about what it can afford to do. Further, they need to start to realise that investing in real Low Carbon technology will actually boost the economy and not harm it. Had the money that Bush has just given away been used to pump prime green industries, it would help the US become a leader in the new technologies needed around the globe and would move the economy forward. This is what Roosevelt did with the New Deal in the 1930s

America cant continue like this, as eventually America will end up going bust.