The implications of the US economic bust go much further than political dysfunction

Lately, some of my friends have been posting triumphant messages across social media. The focus of their attentions is the ongoing global financial collapse – and their messages are steeped in a misguided Schadenfreude. 

You can celebrate America’s credit-rating downgrade – but know that no matter who you are, no matter where you live – the adverse consequences belong to you too. And like so much else in our present-day economic racket, if you are poor, the consequences of this collapse belong to you more than anyone else.

I think that all reasonable economists (empiricists, not ideologues) agree that Larry Summers and Stanley Fischer’s neoliberal brand of “development” has failed. Today, The Lexus and the Olive Tree stands more for Thomas Friedman’s fatuous grandiosity than it does for the greedy, slavering model of global economic development he sought to describe and promote. Globalization exists – but more as a nexus for communicating the credit-default virus than anything else. We’re beginning to learn, to our profound alarm, that quarantine is technically beyond our grasp.

The United States is at the center of self-propelled zeppelin puttering over a black, jagged, and barren abyss. The United States is at the center of the global economy and credit – the ability to borrow and lend money – is what fuels it.

Like gasoline or coal, credit costs money. Countries, companies, state and local governments, school districts, universities, and football teams all borrow money. And so do most of you.

The cost of the money you borrow is the interest rate assigned to the loan. The interest rate you pay is proportional to the repayment risk you pose to the lender: Are you solvent? Do you have a job? Can you pay me back when you say you will? Will you refuse to pay me?

America is solvent. America has a job. America can pay for the money it borrows. But – this is where politics counts – America may refuse to pay. That’s what the Standard and Poor’s credit-rating downgrade means; American politicians are so dysfunctional that they may choose to allow the country to default on its debt obligations. As the Guardian recently pointed out, this is the singular achievement of the Tea Party – and basically, a broken political system.

In effect, the downgrade is a signal to China and America’s other creditors (likely, your pension fund among them) that they should demand more for the money they lend to the US. “It is your fiduciary responsibility to account for the risk that American politicians may refuse to pay you back; hike the interest rate you demand.”

So what?

America funds its wars by borrowing money. Isn’t it better if the country pays more to war against other people? Might that not make the Americans think twice about borrowing a trillion greasy dollars for a global fireworks campaign? Or about securing the cost of Israel’s access to the global financial markets (debt guarantees)?

Well. Yes. But the problem here is that so much else is linked to America’s borrowing costs. The US has been the world’s most stable and productive (economically) political/institutional unit for so long that many other entities (countries, companies, banks) have adopted the interest rates carried by American bonds (America’s borrowing costs) as a benchmark for what the objective cost of money actually is. The fact today is – for better or worse – that there is no lending mechanism or convention that isn’t pegged to US Treasury yields through a first, second, or third-order relationship.

But why does this matter to you? You don’t borrow money ever. You own your home and car and you don’t live beyond your means.

Rising credit costs impact you in the same way (more or less) that rising oil prices do. The price of everything will go up because the true dollar-cost of producing everything will go up (remember, manufacturers have to pay more to borrow money). That’s saying nothing about the impact of the credit downgrade on currency fluctuations (aside from increased volatility, I have no idea what will happen to the currency exchange markets in the short, medium or long term. This situation is unprecedented).

I avoided big criticisms here to avoid ideological debates about the merits of capitalism versus other economic models (although credit is a feature of all of them – including Islamic). I get shy about using labels when it comes to economics; I think empirical description and piecemeal prescription towards an end (social justice) is far better than trying to conform the world to the various isms that are bandied about.

What is clear, however, is that the current global economic system is failing. I don’t think it’s about operational mechanisms; I believe that the system has been gamed (yes, by fat cats). But, that’s another essay.

My point is just that unless you’re in the habit of spiting in your face, the ongoing collapse of the global economy is nothing to celebrate. One economic lesson worth learning is that we inhabit a mostly incomprehensible and hopelessly complex global system of inter-reliance and co-dependency. We don’t have to like what America does to know that when it falters, normal people everywhere (particularly in the Global South) will struggle harder to survive. That’s something that no liberal should be cheering about.

About Ahmed Moor

Ahmed Moor is a Palestinian-American who was born in the Gaza Strip. He is a PD Soros Fellow, co-editor of After Zionism and co-founder and CEO of Twitter: @ahmedmoor
Posted in Israel/Palestine

{ 21 comments... read them below or add one }

  1. annie says:

    i agree people will struggle alex but let’s face it, the likelihood we will be struggling as much as the people living in the villages underneath the drones operated out of utah is practically nil.the economy of our states is dependant on securing contratcs for fed funds distributed to private enterprise to support the war machine. the american manufacturing industry is on it’s last legs. the globe has been divided into resource regions. our US economy is grounded in ‘security’.

    i am not ‘happy’ about what’s going on with the economy but there needs to be a drastic restructuring. we can’t have children born into debt paying off our last few decades of war. people need to learn to be more self sufficient within their communities. shop locally. trade with your neighbor. try visualizing your life without money. i know that sounds absurd but lots of species do it. we are a rich nation because we kill and steal resources. that has to change.

    • Graber says:

      Thanks for your post Ahmed, and your response, Anne. I tend to be more on the side of Anne. I’m underemployed – food stamps, no med insurance, no dental – and I have no children. I want to see the whole system crumble, and I’m encouraged to see it happening sooner rather than later. I know the building will fall on top of me. But I also know that there is a sky behind that building.

      And in response to Dan Crowther’s post below:
      Yes, as America’s government falls more and more in debt, they’ll be looking for more diverse ways to steal resources from others. But America and Israel are becoming pariah states, and increasingly, we’re seeing the “international community” turn away from the US and Israel, and say, uh, fuck you.

      In light of the fact that the US utilizes such horrifying levels of violence, a lower credit rating could be a really good thing. Basically, fewer countries will want to do business with us.

      I really think the Arab Spring will be coming stateside, too. As I said, I am underemployed and am willing to fight for something better.

      • ToivoS says:

        I know the building will fall on top of me. But I also know that there is a sky behind that building.

        Nice metaphor. I sort of agree with this. But what needs to happen is that debt that cannot be paid will not be paid. This means US banks will have to write off their mortgage losses in a way that allows the existing “owners” to refinance. It means that sovereign debt in those European countries that cannot pay should not be paid. This will spread to credit card and student debt. This will mean that major banks in the US and Europe will fail. It also means that major pension funds will take serious losses. Those losses will affect my future income (I am about to retire) but that is a price that needs to be paid to get the economy moving again.

        In short the world is not coming to an end, but the whole banking system as we know it is.

  2. Dan Crowther says:

    America is dangerous to the world for one reason and one reason only: Americans.
    The greatest danger to the world are not the bankers – they are crooks, but only to the extent that they are allowed to be – no, the real danger to the world is Rural Southern White Anglo-Saxon Protestants (from the US).

    What we’re witnessing in the states isnt just a “dysfunctional political system” or the collapse of the global system because its too complicated, intertwined yada yada yada – we’re witnessing the direct sabotage of that system by Neo-Fascists, who have always wanted to tear the thing down, but havent had the ability to do so, until now. Take a look at what is happening in Athens, or who controls the levers of power in Italy, Spain and Germany – this “revival of nationalism” is headed one place, and we all know it, though we might not want to admit it .This will all become much clearer to the world when we elect Rick Perry to be the next president. A dominionist, christian fascist. We’re headed for more war, more genocide, more suffering and for authoritarian government, worldwide. definitely not cause to celebrate

    • American says:

      “no, the real danger to the world is Rural Southern White Anglo-Saxon Protestants (from the US).”

      Yikes!…wait a minute, I’m not exactly rural but I am a southern I get to call you an anti WASPITE?
      Seriously, if you are talking about dominionist, christian fascist as in the evangelicals I agree but then they are really simpled minded, stupid people for the most part with little power on their own, but valuable to power brokers who can rally their dumbness for political agendas.
      So I would argue that political dysfunction has something to do with it. …absent national leaders who will call out and condemn this kind of insanity—–you have playing field wide open to fascist worshipping cretins and political operatives stirring this up for their own agenda.

      • Dan Crowther says:


        I was trying to stir the pot with that….haha. In regards to our “friends” – they are cannon fodder to be sure, “shocktroops” of the right wing billionaires who fund them – but fascism is sometimes defined by this “uneasy relationship” between the conservative business class, and the fundamentalist “purity” faction, in this case the evangelicals. I would also say that its harder and harder to tell “who is walking who;” the reigns are coming undone, there is very little top down control anymore on the right ( a traditional hallmark of theirs) – just look at the suicide primaries the baggers have run against “moderate” republicans ( NY-23) being the best example. I think the “know nothings” are really about to exert their power, and outside of their traditional patrons auspices…..

    • It isn’t the rural southern wasps who are the most rightwing in the South. It’s the wealthy southern suburbanites who inhabit the vast suburbs around cities such as Atlanta, Nashville, Charlotte, Houston, Dallas, etc. who are the backbone of southern wingnuttery. The south ceased to be a rural area decades ago.

      Actually, come to think of it, somewhat similar to the suburban Minneapolis district of Michelle Bachmann.

  3. Ahmed,

    I liked two things about this article. First, it’s great that you don’t believe in economic “isms”. Second, you managed well to show how all of us may be affected by what happens to the US.

    But one thing I think you got wrong: You’re too optimistic about the true economic health of the US. How can you simply say “America is solvent” and leave it at that? Shouldn’t you mention that the debt is exploding from year to year, and more and more Americans aren’t willing anymore to bail out the government and the banks? Rasmussen said yesterday that only “17% of Americans think that Washington operates with their consent”.

    America is as solvent as the junkie who has to rob an old lady every 30 minutes to stay afloat.

    And more, “America has a job”? What would that be? What great exports does America have left besides weapons and entertainment? Did you somehow not observe that more and more manufacturing is gone to China etc.?

    What keeps America going is financial shenanigans which seek to shake money around and hope that it gets more in the process. Its economic basis is not sound at all, it’s fucked up.

  4. There are things deeply wrong in the financial-political realm of the US and, to a lesser extent, of the EU. I highly recommend this piece by nobel prize winner Joseph Stiglitz:

    link to

    • chet says:

      An excellent analysis.

      Yet it doesn’t answer a question many non-Americans have – how can those whose lives are being so negatively affected continue to vote for the Republican Party whose only policy is to reduce taxes?

      • Dan Crowther says:


        because in large part, the people who vote republican are shielded from the full extent of their policies – most of the “red states” are subsidized (by us dirty fucking hippies up north)
        link to

        And not only that, we got High Definition Television!!! WAHOOO!!!

        It really is a fckin sht show over here.

      • American says:

        I think the answer to your question Chet is in Stiglitz’s article:

        “some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie ”

        The majority of the public doesn’t understand that no matter how big the pie gets, in a corrupt and dysfunctional political and financial system ‘their share’ of the pie will ALWAYS stay small and get even smaller.

        Your average person has tunnel vision—-what their personal situation is at any given time. Their thinking stops right there.
        If they are told that “growth” will provide them with jobs or better lives, as the right wing guest heads of corporate media drum into them, they will fall for it. On the other side if they are told that large outlays of taxpayer money will provide jobs they will be for that too.

        The public is confronted with two tales…that growth will save them or that taxpayer funded jobs will save them. Both of these tales are the result of our ‘political financial system’ created by legislation by political parties who both want to serve their monied donors and entities. The main economic thinking of the Republicans is that little people wouldn’t know what to do with money if they had any, can’t use it wisely, and therefore don’t deserve anything more than subsistence. The Democrats view the public as children they must take care of for their own good and for the sake of their party’s base of support so they use taxpayer money to alleviate their suffering instead of actually fighting to change the political legislation that has enabled the top 1% to suck up 90% of the country’s wealth. Because fighting that might actually step on the toes of some of their donors also.
        So either way the public loses….they are kept down and in addition ultimately bear the cost of whatever government help they do get when the debt created by congress and various presidential adventures hits the wall.

        From Enron, to wars of choice, to bloated, wasteful government programs, to the WS bailouts because of a lax SEC and financial deregulation, to offshoring of US companies, to loophole laws that allow GE and other mega giants to pay no tax, to tax codes that allow those who make millions trading stock to only pay 15% gains tax, to the Supreme court allowing corporations to donate unlimited amounts of money to policians, to free trade for favored countries–all of it was created and can be traced directly to congress and political lobbying and corruption.

        If the American people want a better deal than they better get busy and burn congress to the ground and start over cause those in congress today aren’t going to ‘reform’ themselves voluntarily.

  5. Definitely, the “choice” to adopt a bankruptcy strategy, rather than a reform and restoration strategy, is telling, and very upsetting.

    Adopting the bankruptcy strategy (or glee, on the part of your friends), in finance, and in Israel/Palestinian politics, is to ignore that one lives in the world that we live in.

    There is no magic new world. No magic world in which money is not needed, no magic world in which the “other” will move (or assimilate) to remedy our discomfort. Palestinians won’t magically disappear to conform to a religio-Zionist narrative, or to a nationalist narrative. Jewish Israelis won’t magically disappear to conform to a pan-Arab narrative, or a pan-Islamic narrative.

    Acceptance of the other, as the basis of mutual aid, is the sober path.

    • Mooser says:

      “Jewish Israelis won’t magically disappear to conform to a pan-Arab narrative, or a pan-Islamic narrative.”

      What on earth are you talking about? Once again, you are using a thread to post bigoted lies.
      So you got chased out of the other thread when your complete and utter racism became all too apparent. And here you go again.

      • Mooser says:

        “Jewish Israelis won’t magically disappear to conform to a pan-Arab narrative, or a pan-Islamic narrative.”

        And of course, positing that the general Arab or Islamic narrative is one of Jewish Israeli disappearance, without a shred of proof or specificity, is certainly the way to start “humanising the other”.
        You are one fine piece of work, Witty.

        • Mooser says:

          Oh, never mind, Witty. I see the article is written by a man named “Ahmed”. No wonder you reacted the way you did.
          I guess you require that he disown the genocidal “pan-Arab narrative, or a pan-Islamic narrative”.

  6. American says:

    Just a little reminder on how to think about S&P’s US downgrade.

    S&P maintained a triple AAA credit rating on Lehman, AIG, and every single investment bank and house up to the very day they imploded and WS melted down.

    Does that give you confidence in any of S&P’s ratings?
    That there are rats in the woodpile of this downgrade.

    There were press reports several years ago that the IMF was looking into the US’s financial systems, this was during Bush’s term, and right ‘before’ the WS meltdown, but it was evidently fought off by the FED and Bush adm.
    I haven’t looked to see if the IMF has had any comment on this down grade. Will look later.

  7. Keith says:

    “One economic lesson worth learning is that we inhabit a mostly incomprehensible and hopelessly complex global system of inter-reliance and co-dependency.”

    Yes, that is the reality of neo-liberal globalization, a system created specifically to render us all dependent upon the global financial system under the control of the financial oligarchs. An unsustainable system which puts the future of the species at risk. Our highest priority should be to roll back globalization in favor of local autonomy and sustainability. Also, keep in mind that modern money is no longer a “thing,” rather it is a metaphysical concept, rules and regulations reflecting power, created by computer keystrokes, used to guide and direct activity. The current “crisis” an excuse to crush all resistance to corporate/financial control and lock us in to a two-tiered Third World model of extreme wealth coexisting with massive poverty, a process now underway in the First World countries including the US.

  8. lysias says:

    Germans suffered a lot in the last couple of years of World War Two and in five or so years after it ended.

    But it was only through going that suffering that Germans learned to mend their ways.