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Finance: The World Debt Crisis and the US Debt Situation-Background- 9/11/2
By Lonnie Hicks
Posted: Monday, November 21, 2011
Last edited: Saturday, September 15, 2012
This short story is rated "G" by the Author.
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Updated: 9/8/12 What solutions are being discussed to the World Debt situation. Video below
Updated: 9/4/12 Five triggers which could create a global finance crisis and what to do if it happens.
Updated: 9/2/12
For all the talk about the US debt situation and the world financial situation we Americans are seldom given the plain and simple truth about what caused this debt.

Similarly we are never told who benefited from the accumulation of this debt and who got rich off of it.

American media obscures the facts of the matter.

So I have below connected these dots so as to make things clear about where the debt came from and how banks and the monied classes got rich off of it-- creating the income inequality we see today.

For those interested in understanding the current world debt situation, I also have links below which gives you articles and videos in easy to understand small size chunks.

First, we can look at the US debt as a proportion of our gross domestic product, the GDP is the value of all the goods and services a country produces in one year. In the United States GDP is now about 14 trillion dollars per year.

Now we want to know what percentage of that GDP is debt, who or what caused it and who benefits from this debt and who lost.

The total debt is about 15 trillion dollars and here is where it came from:

1-40% was caused by is caused by the Bush Era tax cuts-- 6 trillion dollars.
We gave tax cuts to billionaires on the theory that if we did so they would be job creators.

Well we see how that turned out.

And these tax cuts are still in effect to this date and we gave the rich these tax cuts while fighting two wars and with recession loaming. The rich kept the money and spent in overseas investing in Asia and Europe and India and left us Americans back home getting poorer and poorer each year.

They took some if it and loaned it back to us,  (who gave them the money in the first place) at high credit card rates and bank fees and for shady mortgages. (There is no justice in this crazy system.)

Now this was the first step in income inequality, Bush tax cuts took from us the poor and gave money to the rich and wall street in the form of these huge tax cuts.

Now if the rich are paying less and less taxes over the last thirty years their tax rate jumped down from 91% to the current 35%. This is literally subsidizing the rich.

And if these rich have been paying less and less in taxes, the middle class has had to make up for what the rich were not paying, and that is why the middle class in this country is going broke. We have been subsidizing the rich.
So this is the major reason we have a deficit in this country. Not from spending too much, but because we have given away tax payers money to the rich-not from "overspending."

And moreover, with these so-called "austerity" programs, the middle class is now going to have to pay for all the losses the rich have incurred as a result of taking our money and gambling with it and losing. They lost it and then turned around and got tax payers to pay for those losses (with our money) by getting bail-outs-again from our money.

You see there is no justice here at all.

2-The second biggest source of the so called deficit is the two wars in Iraq and Afganistan--about 10% of the total debt or 1.5 trillion dollars. But note who benefits financially from these wars, large companies, contractors and those who make tanks, planes and then we blow them up and have to make more. War is profitable for the rich, not us middle class types. Now when the veterans come home the tax payers have to pay medical bills, housing costs, pensions--that is we pay the bills for war while the rich get all the profit from war.
Americans simply have been brainwashed to the extent they don't see this.

3-The third component of the deficit is the money it cost for the bank bail out, (TARP) and the losses of Fannie Mae and Freddie Mac. These are government agencies which back and pay for fully 80% of all mortgages in the United States, this is done of course with tax payer dollars. The banks loan the money but don't have any risk if things go bad--all they do in send the bill for losses in real estate to the US government if you and I don't pay, straight to Fannie Mae and Freddie Mac, that is to us taxpayers, who then have to pay the bills. The real estate bust from 2008 resulted in these two tax-payer funded agencies going bankrupt. They are bankrupt today and we middle class tax payers have to foot this bill while the banks simply walk away from all the losses and get our houses through foreclosures as well.

The Citi-Bank case is illustrative. See link below.

This analysis is not for the faint of heart.

25% of the deficit or 3.75 trillion dollars comes from this source and again the banks and the rich walked away from the housing debacle taking the profits with them and leaving us with the bill.

4- 5% of the deficit 750 billion comes from the money spent on recovery and stimilus packages to clean up the mess the rich have made.

5-The remainder of 3 trillion is interest and loans we have had to make to finance this debt and other deficit spending.

Now take away these factors and the debt of this country would be where it was in 1950 about fifteen percent of GDP. Why because much of this debt was generated by and benefited the monied classes. Didn't help the middle class who wages over this period have been flat. We got nothing out of this
and that is shameful. (Note this does not even count the billions spent since 9-11 on the new terrorism industrial complex which has resulted in 7 of the 10 richest countys in the country being where "security" families live.)

Now it is clear who got rich off this deficit and who has been made poor. That is why there the income inequality in this country actually came from and the story is much the same for most of the western world. The rich get rich off the poor and the middle class. This is the second time this has happened since 1929 in the United States.

So there you have it--the world is not fair.

To see all this in a chart; check out the CNN video report and chart in the link below. (Scroll down to the middle of the page to the video.) There is good information there also on the Super Committee

Now for background on the world situation the most up to date analysis has been done by the BBC. They have done a pretty good job of putting together articles which cover the situation in the western countries.

Notice what is not there: an analysis of China, India, and Germany, because these countries don't have the debt that the other countries do.

Notice as well that the BBC people don't seem to understand that American debt was driven by just four factors: The Bush Tax Cuts and the two wars TARP (the bail out to the banks) and debt assumed by Fanny Mae and Freddy Mac 

 See links below for details.

This link explores the domino effect:

  Pretty grim huh?


More gloom for those who have not had enough.

Note: If the European Central Bank does not bail out Greece and other continental banks we will be impacted. Tomorow I will go into how and then look at what are the likely outcomes for Europe and for us here in America.

Meantime here is a solution which is being floated around.

Best quick guess Greece goes the way of Argentina.

The predatory loan process:

 The US deficit. What are the facts?


 World Debt-Who Caused it-Who Got the Money-and Who has to pay it back.

The world we live in is a construction of the banks using phony debt as a means of control.

So let's have a look at the debt leader of the world-the United States. How did this happen? How did this debt happen?

First let's today settle the question of who or what caused the deficit in the United States in the first place such that the government had to borrow all that money and who got rich of the debt we currently have?

First a little history of debt in this country and then we go to the specifics.

Turns out the greatest contributor to the greatest debt in in US history was George Bush.

See below: Debt increased from 5 billion to 10 billion during his administration the largest increase in American history.

This was the Republican "starve the beast" strategy--create a debt ridden goverment and then under the cover of austerity take back middle class assets, ignoring the fact that two wars made Republican defense contractors, the banks, , the pentagon, the so-called secuity industry and wall street rich.

There is no justice  here.

On top of all this is the claim that the middle class overspent and now has to tighen it's belt because the monied classes simultaneously reduced wages forcing the mddile class to put their wives, children and grannies to work and use their bank high interest rate credit cards to survive.

Why can't the American public see this scam is beyond me.

But a chart is worth a thousand words.

It is clear that the Republicans ran up the debt with bailouts for banks, two wars, and tax breaks for the rich.

I am suggesting this was and is no accident.

And they are poised to do it again because there are billions in profits in it for their constituents-the banks, the pentagon, the so-called security industry, the prison industrial industry, and the war profiteers.

Tomorrow lets go back for more detail and a prognosis on the above which is clearly not sustainable. It will be a re-run of 1929. See the PBS video special on the 1929  debacle to get a look at how it all worked then.

Currency devaluation and a big depression



What will be the triggers for the rest of the year for a possible financial crisis and the consequences in global and US finance?

Well there are several. Lets list a few first and the go back after for the detail.

1. 70% of the trades on Wall Street are by computer. Computer glitches real or manipulated can set off a panic and that can make valuations and pricing difficult if not impossible, including gold, silver and stocks.

2. The Greek default could result in currency to debasement. This would have a domino effect in the west. If not Greece then if Spain asks for a postpone of its austerity programs. Both could trigger in a month or two.

3. The rising price of fuel and food is what actually set off the "Arab Spring" riots. Egypt is at that point again. The most dangerous point for a country as far as bloody revolution is concerned is when seeming gains are followed by severe setbacks.

It was fuel prices and food price increases which set off the Arab spring and it will be rising food and fuel prices that will do it again. How close are they to more increases?


Governments around the world subsidize fuel and food prices already to avoid revolution. These two plus arms purchases are what  they spend their money on.

4. April is the deadline when the US government receipts in taxation come in. If lower than anticipated then expect the US credit rating to drop and interest rates to drop below zero etc., and perhaps a run on US securities and perhaps bonds as well.

5. December 31st. This the "cliff" deadline which I have written about in other places on this site. Up for action are the tax breaks for the rich, taxes on the middle class, tax cuts for the military, and other bread and butter items.

No telling what will happen. Uncertainty can really trigger ancillary events, most unpleasant.

But what should the average citizen do about the above situations? Stay tuned.

Should we be buying gold, go on the gold standard as Ron Paul suggests, allow currency collaspe and start over again, or impeach congress, end fractional banking and wall street gambling on argin, end buying stock buyng on margin on margin-end the Federal Reserve.

Here are some ideas being tossed around and then come back and I will give my suggested solutions/


Well where are we in the never-ending European Debt Crisis and what is likely to happen?

First, there is a clear anti-Merkel trend. Socialists have won elections or gained strength in France, possibilty Holland, in Italy, now it looks Spain is rebelling against austerity as well.

Second, the European Central banks while offering unlimited funds may find that nobody wants those funds with the condtions now attached and the fact of the matter is that more debt cannot cure existing debt.

If that happens what will happen? The possiblilities and outcomes

1. Rolling default. Country after country may opt out of the zone or threaten to do so-getting concessions on the austerity plans-- which it is clear stiffle growth.
The Germans would lose. Yes the Germans would lose because they sell many if not most of their products to the PIIGs. Inflation would occur
and the creditor nations would lose and take the haircut, even if the zone fell apart. After all the Greeks reason, austerity and default start to look alike except default regains Greek soververgnity and that looks good to Greeks and the other nations right now.

2. Expect a planned default- with reverberations in the United States as well. That is why President Obama is promising an increase in exports. He plans to let the US currency float thereby increasing exports. He has to to put some American's back to work. A cheap dollar helps.

3. Meantime the Chinese and the Russians see this coming as well and are talking now about creating trade and currency aggreements between themselves which would insulate them from the dollar and its collaspe.

They are even talking commodity trades not based on currency but a form of barter.  And that could work and if it does other nations could start to immulate it--trouble for the west.

 Meantime a long-awaited audit of the Federal Reserve is out and what is shows is scandalous in what happened during the so-called 2008 crisis.

"The lending suites that were set up for months and years, beyond the initial crisis point, were focused on how to keep banks profitable, not just how to keep them alive. The banks were able to access emergency lending facilities, or change themselves into bank holding companies overnight, to borrow at next to nothing, and if they chose, lend back to the government at a tidy profit. You didn’t have to think at all to make money. And you didn’t have to worry about that toxic balance sheet, because the government was going to help you grow your way out of it. They will also facilitate mergers to help decimate your competition. The money that the banks borrowed for nothing could have just as easily gone to underwater homeowners. There’s nothing special about the banks except that they know the Fed policymakers personally.” David Dayen,"

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Reviewed by Patrick Granfors 12/12/2011
And on and on it goes, with the speculators profiting with each market swing. Today the Dow is down 250 points because of "Europe." Last week it was up 300 for the same reason. The market is fixed. Patrick

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