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Yes, Washington bailed out General Motors, Fannie Mae, AIG and dozens of giant banks. But there's no one on the planet rich enough to bail out America!
Can entire countries actually go bankrupt?
Some already HAVE gone bankrupt! Just a few months ago, Greece literally went bankrupt and was bailed out by the richer nations in Europe. Then, it was Ireland's turn, and it too was bailed out by Europe's strongest countries.
Now, this same crisis is spreading to the United States. But I repeat: There's no country on earth rich enough to bail out America, even if they were willing to do so, which they aren't.
So what do government debt crises actually feel and look like?
Such crises cause national labor strikes like in Spain, Greece and Italy, and massive street protests like those happening all over Europe, including Ireland, Great Britain, and other countries -- even the firebombing of banks and government buildings -- along with demands that the government be replaced. In addition, these debt crises have also caused huge cutbacks in government spending, including massive reductions in retirement and medical benefits, unlike anything we've yet seen in America.
Some people say it can't happen here. And if you're among them, listen to David Walker, former US comptroller general and head of the US Government Accountability Office (GAO). Former comptroller Walker warns that Washington's debts could sink the economy -- and SOON! According to Mr. Walker, "The Greeks engaged in a variety of "creative accounting" practices, and there were a lot of big and bad surprises that caused Greece to erupt.
But Walker than reminds us that the US has been engaging in a lot of this same kind "creative accounting" for years, with regard to the Social Security trust funds.
"Now, we've got major "creative accounting" going on, with US government-sponsored entities Fannie Mae and Freddie Mac. We own a majority of them, but we're not consolidating them into our country's financial statements. We don't consolidate the Federal Reserve into America's financial statements either. Their accounting is separate from that of the country as a whole. They can create out of thin air hundreds of billions of dollars and add it either to their books or the books of their member banks, and it no way registers in the accounting of the federal government.
"And so the bottom line is: We're not Greece. But we could end up with identical problems!" And please notice that Greece's problems included crashing stock and bond prices, 18% interest rates, and riots in the streets!
How soon could it happen here in the US? Walker says next year, 2012! Indeed at this very moment, Congressional Republicans and Democrats are desperately working on ways to cut federal spending. But they now admit that they can't fix the problem without putting the biggest items on the chopping block: Social Security benefits, Medicare benefits and more. No mention is made of ending the wars and occupations in the Mideast and Central Asia, or closing down most of the 800 military bases the US maintains all around the world. It seems that the costs of American empire cannot be touched. Too many US corporations depend on the profits thereby generated. Eisenhower was right when he warned us of the possibility that the military industrial complex could become economically preeminent.
Hence the dilemma:
So, either Washington cuts benefits for old folks -- in which case their income goes down and their medical costs go up ... or Washington fails to cut those benefits -- in which case the deficit explodes, bond investors go on strike, and interest rates soar like they did in Greece. And that's a scenario that could make it impossible for Washington to meet its obligations to the oldsters.
Meanwhile, we are now witnessing America's SECOND great debt crisis, which is even more pressing than the first: Thousands of US states, counties, cities and smaller towns are in even worse shape than Washington is! Our state and local governments owe the poor, the infirm and seniors up to $2 trillion more than they can ever be paid. Plus they also owe more to pension funds than they can ever pay -- a whopping $3.5 trillion.
For the past couple of years, the states have been scraping by on billions of dollars in federal stimulus funds, but now that money is also gone. So the day of reckoning is at hand: A massive chain of state and local bond defaults could begin at virtually any moment. One after another, nearly every state in the country is revealing massive deficits, declaring a financial emergency, and cutting essential services.
There's no overstating how serious or how pressing this crisis is. Why? Because, unlike Washington D.C., the states cannot merely print up the money they need to pay their bills. Unlike Washington, they are bound BY LAW to balance their budgets each and every year.
