What Is National Debt?
In common parlance, when we discuss the national debt of modern nations, we are typically referring to the total amount of money still outstanding that the government has borrowed from any and all sources. The debt may have been taken on to pay for government workers, social programs, infrastructure, research and development, or any expense that could not be paid by the Treasury Department as it came due. A significant portion of the current $16.74 trillion U.S. national debt (as of June 2013) has been taken on to make up for shortfalls caused by tax cuts for the wealthy, or to pay for the war on terrorism and bailouts for banks and corporations. The debt is issued with the promise that by enabling ongoing accumulation and economic expansion, these debts will be paid with taxes collected in the future.
In technical terms, a distinction is often made between national and sovereign debt. Here, the term “national debt” specifically refers to money that is borrowed from sources within the country. Sovereign debt is borrowed from foreign sources like the World Bank, the International Monetary Fund (IMF) or nation-states like China. For our purposes, we will use the term “national debt” when discussing the total U.S. foreign and domestic debt, and will use “sovereign debt” when discussing the debts of other nations.
Government debt is important for us to understand because it profoundly affects the personal, “household” debt that most of the previous chapters have focused on. Government debt is often used as the justification for cutting government spending on subsidies for housing, health care, transportation, nutrition, and education, increasingly shifting the burden onto the shoulders of individuals and families, who often go into debt themselves as a result. The relationship between individual debt and government debt is not only fiscal, it is psychological as well. Citizens of an indebted state are held up as collective objects of shame in the same way that individual debtors are. A clear example of this parallel can be seen in the debt crisis in Greece, where Greek citizens are collectively depicted as being “lazy,” “spendthrifts,” and “out of control.” Similar accusations have been made against people in the global South whose governments have been at a debt impasse since the debt crises of the 1990s. In battles over deficit spending in the United States, whole sectors of populations including the poor, the elderly, immigrants, and the imprisoned are similarly dismissed as parasites.
Scarcity and Control
When the international financial system collapsed in 2008, many governments were forced to take on significant amounts of new debt. This was due in large part to severe drops in tax revenues and billions of dollars spent to bail out whole sectors of their economies. Meanwhile, interest rates for borrowing soared for those countries in the most distress. Here in the United States, from December 2007 to January 2009, 3.6 million jobs were lost. The decline in employment resulted in the loss of tax revenue and an increase in government spending through social programs like unemployment compensation. This, in addition to the trillions of dollars spent bailing out banks and corporations, led to a dramatic increase in the national debt. To make matters worse, the national debt was already at record highs after thirty years of tax cuts for the rich and corporations as well as wars for oil in the Middle East. Conservative politicians used the debt they were largely responsible for creating to push even harder for cuts to social programs and the privatization of schools and other public assets. These cuts by the federal government trickled down to the states, counties, cities, towns, and other local municipalities.
Economic readjustments of these kinds are happening around the world. In the European Union (EU), Greece, Spain, Portugal, Ireland, and Italy have been forced by the EU to undergo IMF-like austerity programs that cut government jobs, social services, and privatized government-owned properties and services. These policies have a history.
After World War II a new constellation of global power emerged in which the United States became increasingly dominant. Though the transfer of power had already happened in military and industry, the new financial and monetary framework was negotiated at the Bretton Woods summit of 1944, shortly after which the dollar became the new international reserve currency. Importantly, the summit also produced two powerful new international lending institutions, the International Monetary Fund (IMF) and the World Bank. Both were created with the intention of expanding global trade, working in concert to provide loans to countries in need under the guise of alleviating poverty.
In the 1970s and 1980s, large influxes of capital from oil producing nations began flowing into New York investment banks, creating an urgent need for new profitable investment opportunities at a time of global economic stagnation. The solution was to loan the money at high interest rates to credit-starved governments of the global South. When defaults began to occur, rather than allowing lenders to take a loss, the IMF and World Bank were called on to provide “relief” to distressed debtor nations. They offered to restructure countries’ debts but only at a price: governments desperate for relief were forced to implement draconian structural adjustment programs. Large-scale privatization and cuts to social programs and infrastructure projects further impoverished these nations and immiserated their citizens while conveniently opening up sectors of their economies to further exploitative investment (Harvey, 2005). The new loans were themselves often structured in ways that ultimately perpetuated, extended, and increased debt, causing still deeper impoverishment.
These policies and practices reinforced and exacerbated the longstanding patterns of domination and exploitation that were established during the era of colonialism, in effect recolonizing countries that had won sovereignty through anti-colonial struggles. Valiant struggles calling for the abolition of debt in the global South took off in the 1990s and continue today.
The makings of a meltdown
The 2008 international financial crisis was a meltdown of epic proportions. But this was not simply the result of particular abstract economic instruments going awry. A long history of deregulation of the financial industry and Wall Street’s subsequent manipulation of derivatives and other financial instruments set the stage for the most recent economic crisis. Important regulations put in place after the Great Depression were significantly repealed under Reagan, but the deathblow to the U.S. regulatory structure was delivered under Clinton with the repeal of the Glass-Steagall Act. This law separated traditional banking functions from the risky speculation of stock brokerage houses like Goldman Sachs. Treasury secretary Robert Rubin advised the president to repeal the law, then resigned, and was subsequently paid over $10 million a year by Citigroup, the parent company of Citibank. Alan Greenspan, then chairman of the Federal Reserve and fervent champion of unregulated free markets, also strongly supported the repeal of Glass-Steagall, insisting the banks would regulate themselves because it was in their own best interest.
To fully understand the relationship of national debt to our current economic crisis, we must understand the relationship of the Federal Reserve to the government and the financial industry. In addition to regulating the banking industry, all U.S. paper money is issued by the Federal Reserve. (The words “Federal Reserve Note” are printed on each bill.) When the Federal Reserve creates money, it does so by selling treasury bills to banks and private investors. This means that whenever the Fed creates money, it increases the national debt. One might think that an institution with so much direct influence in creating debt that accrues in our name would necessarily be a fully public institution beholden to thorough democratic oversight. In actuality, the Federal Reserve is better described as a half-public, half-private institution. Although the U.S. president appoints the Fed’s chairperson, private bankers are involved in and profit from the operations of the Fed. Private bankers even serve on the Fed’s Board of Directors. And, of course, there is the ever-present “revolving door” which allows government officials to rotate with ease between jobs in the private sector and in government service. These practices, which allowed the banking and financial industries to engage in the reckless and fraudulent speculation that led to the 2008 crash, continue to this day.
In an article titled “Recovery in U.S. Is Lifting Profits, but Not Adding Jobs,” the New York Times described our current situation as the “golden age of corporate profits.” This obscene scenario, where “the economy” is taking off but the majority of us are left waving from the runway, is a direct result of over thirty years of neoliberal policy at work. On July 23, 2012, Forbes reported, “around the world the extremely wealthy have accumulated at least $21 trillion in secretive offshore accounts. That’s a sum equal to the gross domestic products of the United States and Japan added together. The number may sound unbelievable, but the study was conducted by James Henry, former chief economist at the consultancy McKinsey, an expert on tax havens and offshoring.” Why is austerity imposed on nations around the world when profits are skyrocketing and untaxed trillions are being hidden in plain sight? Corporations and the elite have abundance while the rest of us are told to make do with less.
Whatever words we use to name our current economic system, it always ends up with economic crisis and austerity. Before the 1929 Stock Market Crash and Great Depression there were similar crashes throughout the nineteenth century. These cycles have repeated throughout history. Indeed, the crash has made visible the otherwise often-obscured nature of capitalism and its political architecture; it is an extremely unequal social system that metes out rewards and punishments through the continuous and violent imposition of discipline and control.
No one knows precisely what a postcapitalist world would look like but we do understand the necessity of working toward a more equitable society and a healthier relationship with the environment. To achieve these goals, the solution must be international. Strike Debt is part of an international debt resisters’ movement that demands a global jubilee. Thousands of protesters in Iceland put pressure on the government to refuse to pay its fraudulently imposed national debt. Today, after five years, Iceland has emerged from austerity to economic stability after renegotiating with their foreign creditors. Before them, the people of Argentina were responsible for similar measures in their country, and the resistance continues to be widespread. The Pakistan Debt Cancellation Campaign (PDCC) and other groups staged a number of actions including a three-day hunger strike camp outside the World Bank Islamabad Office in 2010, resulting in the Senate passing a resolution seeking debt relief. PDCC has demanded that the government tax the rich and cut military spending as an alternative to accruing further sovereign debt. In El Salvador, people have been calling for an audit of their nation’s debt while fighting against the “Public-Private Partnership Law” (P3), the auctioning off of services like education and health care to foreign multinational corporations. And, as the Campaign for Social and Economic Justice (CSEJ) in Jamaica has proclaimed in a leaflet about the debt of their country, “Much of the debt is odious and illegitimate as any debt audit would reveal. We need a moratorium on both local and foreign debt servicing—it is the only way forward.”
There have been proposals in the United States, Europe, and countries in the global South to create alternative banking systems based on a local, horizontal, and democratic structures. In the United States, the Public Banking Institute is working to create independent state banks to serve local communities similar to North Dakota’s State Bank (see Chapter Twelve). Other plans are more inventive and visionary and would challenge the banking system by removing private bankers from national banks.
The struggle against national debts and financial capitalism has been one of the most tenacious in the last few decades. It has often been identified with “The Battle in Seattle” and the other street battles against the IMF, the World Bank, and the World Trade Organization throughout the so-called developed world—in Ottawa, Geneva, Genoa, and other cities. But in fact, that struggle has been expressed in countless demonstrations, general strikes, urban insurrections, and rural guerrilla wars throughout the global South. For example, the Zapatistas rose up in the southernmost province of Mexico, Chiapas, in 1994 to vehemently reject the North American Free Trade Agreement (NAFTA)—a deal that committed their country to further undemocratically implemented, far-reaching structural adjustments, including deep cuts in social spending and mass-privatization of the communal land of over a million indigenous people.
The struggle against debt is not limited to efforts to liberate individuals; the debt bondage of whole societies is also at stake. Much has been gained in these struggles and there is much to learn from their histories. Indeed, many South American nations have been able to escape the control of the IMF and World Bank, but many have died and others are left in poverty due to debt-justified cutbacks and privatizations. The calls for the abolition of personal and government debts are entwined and while the stakes are high, we also find many allies, past and present, who have joined the fight.
Articles and Books
- Gar Alperovitz, What Then Must We Do? Straight Talk about the Next American Revolution (White River Junction, VT: Chelsea Green, 2013).
- Nicholas Bakalar, “Rise in TB Is Linked to Loans from IMF,” New York Times, July 22, 2008.
- William K. Black, The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (Austin: University of Texas Press, 2005).
- Eduardo Galeano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent (New York: Monthly Review, 1997).
- Michael Hudson, “Why Iceland and Latvia Won’t (and Can’t) Pay for the Kleptocrats’ Ripoffs,” Counterpunch, August 18, 2009.
- Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Picador, 2011).
- David Levitz, “Icelanders Refuse Bank Debt Payoff to Britain and Netherlands,” Deutsche Welle, April 10, 2011.
- Steven McCabe, “The Spectacular Rise, Fall and Recovery of Iceland’s Economy—Are There Lessons for Us?” Birmingham Post, September 19, 2012.
- Geoff Mann, Disassembly Required: A Field Guide to Actually Existing Capitalism (Oakland: AK Press, 2013).
- “The Third World Debt Crisis,” New Internationalist, March 7, 2000.
- Allen, Frederick E. “Super Rich Hide $21 Trillion Offshore, Study Says.” Forbes, July 23, 2012.
- Board of Governors of the Federal Reserve System. The Federal Reserve System: Purposes and Functions. Washington, DC: GPO, 2005.
- Bowers, Simon. “Iceland Rises from the Ashes of Banking Collapse.” The Guardian, October 6, 2013.
- Carney, John. “The Warning: Brooksley Born’s Battle with Alan Greenspan, Robert Rubin and Larry Summers.” Business Insider, October 21, 2009.
- Clark, Andrew, and Jill Treanor. “Greenspan—I Was Wrong about the Economy. Sort Of.” The Guardian, October 23, 2008.
- Dear, Jeremy, Paula Dear, and Tim Jones. “Life and Debt: Global Studies of Debt and Resistance.” Jubilee Debt Campaign, October 2013.
- Harvey, David. A Brief History of Neoliberalism. New York: Oxford, 2005.
- Schwartz, Nelson D. “Recovery in U.S. Is Lifting Profits, But Not Adding Jobs.” New York Times, March 3, 2013.
- “The Third World Debt Crisis.” New Internationalist, March 7, 2000.
- Treasury Direct. “The Daily History of the Debt.” June 6, 2013.
- U.S. Bureau of Labor Statistics. “The Employment Situation—January 2009.” February 6, 2009.