It has been a long time since the United States has found itself in default. The federal public debt is $14 trillion — 100 percent of the GDP, and the fiscal deficit will be more than 10 percent of the national product, in the vicinity of $2 trillion. The calculation of the public debt does not include the federal states and municipalities, many of which, among them California, have stopped paying their bills in dollars and instead pays in a sort of local currency, a certificate named IOU.
The United States has failed to pay its public debt for too long because it has previously only renewed it. The principal cause of its increase is the accumulation of interest that is paid with the issuance of new debt. The rate of debt growth has surpassed that of GDP — it has gone from 62 to 100 percent in the course of four years. Therefore, when we say that the United States could incur default, we ignore that it already has.
The most important capitalist power is in default, and the value of its debt in the market has nothing to do with reality. The price of public debt disguises the devaluation of the dollar, a currency that is used globally. If the American debt was valued in terms of Swiss francs, without mentioning it in terms of gold, it would be clear that it has suffered a devaluation sufficient enough to be declared junk debt or in default. The American public debt is worth, in terms of gold, 12 percent (88 percent less) of what it was in 2005 (a rate at which Argentina’s debt fell in 2002, in terms of dollars).
The debt ceiling, nevertheless, is a statute that fixes the debt that the U.S. can incur and that Congress continues to increase every time it reaches the top. This is what is happening now with the ceiling of $14 trillion, but the United States will not stop paying its unpayable debt, nor will it renew the expiring debt. The Constitution demands honoring public debt but doesn’t prohibit devaluation, of course, and reserves the government the right to resort to the devaluation of currency. By arriving at the ceiling without obtaining congressional authorization to raise it, the government will stop funding social programs and even salaries or suspend and lay off employees, but the financial roulette will continue. This situation illustrates the conditionality that financial capital imposes on the capitalist economy, in contrast to what took place in the 19th century, when states faced their crises through default and damage to creditors.
Between Boudou and the Chinese
The American public debt has, nevertheless, some explosive characteristics. The most important is that 50 percent of it is in foreign hands — central banks and private holders. An internal inflation could diminish (devalue) the debt relative to the prices of other assets within the country and operate as a transfer of value to holders of different forms of capital. International creditors (China, Japan, Germany, Brazil) could resort to ridding themselves of the bonds and securities in their possession and hence cause a collapse of the American capital market and international trade. Since the bias in favor of creditors would be enormous, the management of the public debt would be the spark of a global political crisis.
Another characteristic is that the U.S. Federal Reserve, in this respect following the master Amado Boudou, has been buying short-term debt so that today it has 60 percent of it in its safe. This measure injected dollars into the banks and, meanwhile, reduced the supply of government bonds to support its price — proof that the debt is not payable and that its value in the market is fictitious. The Obama administration has the option of suspending the payment of that portion of the debt or circulating it to revive the economy. This, nevertheless, would not only trigger an internal reaction by the large banks but also, with certainty, lead to an outflow of capital.
Obama wants Congress to raise the debt ceiling, a change accompanied by reduction of the deficit within six years. The Republicans are in opposition and are making two counter offers: the rise of the debt ceiling will cover only one fiscal year, and the reduction of the deficit must be more than what Obama promised and emphasize on cutting social spending. The press presents the debt crisis as a confrontation between two types of adjustment, as a competition heading into the 2012 elections or a result of the pressure from the right of the Republican Party. However, it ignores the evidence of the impracticability of the current financial picture in the United States or the obligation to do what many already accept for Greece: the declaration of a default.
The Americans and the Greeks
In capitalism’s current state of financial development, the value of currency determines the price of public debt. The American debt is the next-to-last refuge of capital in the crisis; the last refuge, gold, would be the trigger of global collapse. It would deprive states from the means of financing themselves. The U.S. default reveals the universal character of the collapse of Greece.
Capitalism has arrived at a concentration of economic resources so large that crises may be alleviated through massive spending, which would elevate production, commercial activity and with them, public finances. The problem is that those resources are concentrated in private hands that operate on behalf of their own interests, and financial capital occupies the peak of that economic concentration. Therefore, such spending will impose nationalization or the encroachment of capitalist property by the capitalist state. In contrast to this tendency, the crisis has led to the blooming of an incendiary market: one of insurance against default where investors bet on whether there will be a failure of payments, as if the companies that sell that insurance could meet their commitments in the event of a crash.
Upon entering the fifth year of the crisis, all of the fundamentals of capitalism have been put in question.