At rock bottom, the interlocking political and financial structures of the U.S. are based on trust. Recently, a string of financial failures has shaken the credibility of the U.S. political-financial-industrial complex, resulting in a rapidly spreading failure of trust.
Trust is frayed to the point where, at the end of this week, Speaker John Boehner severed negotiations with President Barack Obama on raising the U.S. debt ceiling and averting financial crisis. At this point, you really couldn’t call the Tea Party a party of “loyal opposition.”
Question: What do you think will happen when the government is forced, starting August 2, to choose which bills to pay and which bills to default on — which promises to keep and which promises to break?
Answer: I wouldn’t be surprised if a Wildcat Debt Strike sweeps across the U.S. like a prairie fire in the fall.
Consider the events that brought us to this convergence:
- Strike One — The financial bubble burst, and Wall Street persuaded the pillars of the U.S. government — the Treasury Department, the President, the Congress — that the world economy would collapse without a sudden government bailout. (Presidential candidates of both parties endorsed the bailout in 2008.) Wall Street extorted billions under TARP, but continued to pay bonuses as usual to Wall Street executives. In 2009, billions more were spent in a giant stimulus package, propping up the profits and cash reserves of corporations and the compensation packages for CEOs.
- Strike Two — The real estate bubble burst, and banks throughout the U.S. foreclosed on mortgages, further driving down the value of houses. As people found their mortgages underwater (that is, the mortgage is worth more than the house), they considered whether or not to continue making the monthly payment. Some homeowners lost jobs and were unable to pay; some calculated that it made no sense to throw good money after a bad house. It is now widely accepted that people can and will walk away from a mortgage. Banks are not willing to modify impossible mortgages, and debtors are not willing to pay impossible mortgages.
- Strike Three — The debt bubble bursts. That comes in August, if the U.S. government decides not to pay its bills, especially its obligations to individual American citizens.
It’s all reciprocal, isn’t it? I’ll play fair with you as long as you play fair with me. As long as my house has value, I’ll continue to pay my mortgage. As long as you pay me, I’ll pay my debts.
Everything depends on our belief in the myths that George Washington will own up to cutting down the cherry tree; and that Abe Lincoln will walk six miles to return a penny.
The entire system could come undone in a cascade of individual decisions to hoard cash and ignore debts. When the government refuses to pay someone — whether it be a Social Security beneficiary, a veteran, a bureaucrat, a soldier, or a Medicare bill to a hospital — that someone will in turn refuse to pay an obligation.
The autumn of 2011 might deteriorate into a general Wildcat Debt Strike, with individuals following the government into spontaneous default on taxes, mortgages, car payments, and most of all, credit card bills.
— John Hayden
- Barack Obama warns of market meltdown if US debt talks fail (telegraph.co.uk)
- Crunch time on debt limit talks (capitolhillblue.com)
- Congressional leaders meet at White House to discuss raising debt limit (dailykos.com)
- Who has a ‘moral obligation’ to pay off our debt? (askthemoneycoach.com)
- Congress Leaders ‘Committed’ to Debt-Limit Deal, McConnell Says (businessweek.com)