The Fear Campaign

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“No Way Out of Debt Trap, Gross Says:  U.S. Living Standards Doomed to Fall.” 

         The billionaires on the radical right want Americans to be very afraid for their financial future, and accept draconian cuts in their incomes, benefits and way of life that Republicans in Congress and state legislatures around the country are trying to impose on the bottom 99%.  In his speech in Madison on Sunday, Michael Moore asserted that the wealthy elite have created a climate of fear to overcome public and Congressional resistance to their attack on the middle class:

            “They have created a poison pill that they know you will never want to take. It is their version of mutually assured destruction. And when they threatened to release this weapon of mass economic annihilation in September of 2008, we blinked. As the economy and the stock market went into a tailspin, and the banks were caught conducting a worldwide Ponzi scheme, Wall Street issued this threat: Either hand over trillions of dollars from the American taxpayers or we will crash this economy straight into the ground. Fork it over or it’s: Goodbye savings accounts. Goodbye pensions. Goodbye United States Treasury. Goodbye jobs and homes and future.”

            It’s a good point:  When immediate action was requested, Congress had to demand more than a day to think it over, but thereafter only some in Congress continued to oppose the bailout and hold out for a better deal.

            The latest version

            It’s happening again.  Yesterday, just two days after Moore’s speech in which he insisted that “America is not broke,” the following “news” item and video, sponsored by Scottrade, appeared on Yahoo: 

“No Way Out of Debt Trap, Gross Says:  U.S. Living Standards Doomed to Fall.” 

          The article asserts: “PIMCO founder and co-CEO Bill Gross has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we’ve been ‘relying on the kindness of strangers’ to help cover our debts.”

          Wasn’t that the Bush decade in which the wealthiest Americans collected about $600 billion in tax cuts?  Gross’ argument, if correct, would demonstrate that the wealthiest Americans haven’t cared about America’s solvency.  It would also mean those wealthiest Americans expected people like Bill Gross to scare ordinary Americans into paying for their tax cuts.  

          The report continues: “By ‘strangers’ he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gratitude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.  But now after years of reckless spending, America’s debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort.”

          This is really clever:  Gross is suggesting that Americans, by buying Chinese products with their “hard-earned dollars,” somehow contributed to the national debt!  No, the “years of reckless spending” was the Bush administration spending more than the tax revenues it was taking in, and running up the national debt by some $6-7 trillion.  Consumer spending has nothing to do with that.  Buying goods from China may have contributed to a trade imbalance, but the Chinese ended up with U.S. debt only because it was issued by the Bush Administration.

          In short: (1) Consumer spending does not create government debt; and (2) Bill Gross has not suggested any other problem the alleged “wild spending” by an increasingly impoverished American population could have created.

         Nor is America, somehow, “relying on the kindness of strangers.”  According to Treasury data,  27.9% of U.S. treasury securities were held by “foreign and international” interests in 2008. [1]


As of January, 2010, Chinese holdings of federal debt were about $1.16 trillion, out of $4.44 trillion total foreign holdings.  According to AlterNet, “as of last year, China held 9.5 percent of our outstanding debt. The largest lender to the U.S. government is the people of the United States – we own 42.1 percent of the national debt…”

          Of course, if the Chinese debt were a problem, it is not one of any apparent concern to the wealthy elite,  who saved about $600 billion during the Bush Administration from a tax break they gave themselves, and still enjoy.   In another year or so, the total savings from that tax cut will be enough to pay off the entire Chinese debt.  

          Regardless, there is no reasonable basis for holding the bottom 99% of Americans responsible for the the Republican debt and its consequences.  Still, Bill Gross intends to falsely scare Americans into believing they are going to have to accept less from their government.  According to his report, there is “no way out” for the American people:  

          “The budget crisis situation unfolding at the state and federal government level does not bode well for working men and women in this country. There are really only two choices, says Gross.  And, neither favors your pocketbook:

          Option #1 – Keep spending and do nothing;

          Option #2 – Balance our budgets by cutting entitlements.

          “* * * Meanwhile, neither side has gotten serious about reforming entitlement programs like Social Security and Medicare, which account for more than a third of Uncle Sam’s budget.  If the country cannot come to grips and cut back on entitlement programs, U.S. debt will continue to grow and governments around the world will lose faith in the U.S. dollar. Foreign goods would become more expensive, says Gross, while our standard of living would drop.  Under the second option, if entitlement programs are cut, many Americans would naturally have to learn to live on less and take a hit to their standard of living.  ‘There is really no way out of this trap and this conundrum at this point,’ says Gross.”

Summary of the Scam

         What this “report” is saying boils down to this: American consumers are responsible for the huge level of federal debt; If the debt grows any larger the dollar could be in trouble, and that would make imports more expensive, causing a decline in Americans’ standard of living; However, if we just fix the “entitlement” program “crisis,” which will admittedly mean more pain and hardship for Americans,  we can at least prevent the alternative.

         This is another variation of the “poison pill” Michael Moore alluded to, and it has been splashed nationwide on prime media and the internet.  It is a fear campaign, based on false premises, beginning with the claim that consumer spending is responsible for the debt.  It boils down to an attack on “entitlement programs,” like Medicare and Social Security, programs America should easily be able to afford and which, if eliminated, would seriously harm an American population already reeling from years of hardship caused by the accumulation of their former share of wealth by the very wealthiest Americans.  

          As discussed above, reducing or eliminating these programs will depress the economy even further, and will have little or no impact on the debt.   Increasing taxes of the very rich, however, will stimulate the economy and reduce deficits and debt.  

           To get them to accept the Republican budget cuts and more hardship, the wealthy elite need Americans to overlook two important facts of which many may still be unaware:  (1) America is not broke, and it only feels that way because the richest Americans have drastically increased their wealth at the expense of everybody else; and (2) The federal debt incurred over the last 30 years was part of a process of government overspending that benefited the hyper-rich at the expense of all other Americans.  

            Option #3:  Tax the rich.  

JMH – 3/9/11


[1]  Graph from Wikipedia, data from Financial Management Service, U.S. Treasury Dept.

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