What Do Consumption, T-Bills, Ignorance, and Hubris Have in Common

The “lack of color” in pigment is… white. As in White Supremacy.

Stick with me on this one people. There is some explaining in this post because I want to make sure everyone understands the situation our “leaders” have backed us into.

It’s. Not. Good.

After the publication of the most recent United States National Security Strategy, its pretty clear that the people currently running our country are straight up White Supremacists. Here is what this strategy says about Europe (bold and emphasis mine to pint out critical phrases):

As Asha Rangappa would say, “Hoo boy!” If you didn’t pick up on it, phrases like, “civilizational erasure”, “loss of national identities and self-confidence”, “unapologetic celebrations of European nations’ individual character and history”, “revival of spirit”, and “growing influence of patriotic European parties” are all not-very-well-disguised allusions to the loss of white identity in Europe. If those phrases in support of white supremacy were too subtle for some, the authors of the NSS can’t help themselves and make it very explicit by writing, “Over the long term, it is more than plausible that within a few decades at the latest, certain NATO members will become majority non-European.” And, again, just to be clear, if the authors’ reference was too oblique for some to catch, “growing influence of patriotic European parties” means for-right parties like National Rally in France, Freedom Party in the Netherlands, and AfD in Germany - unapologetic fascist, nativist, white supremacist organizations.

Second, let’s take a quick look at the United States’ economy. Basically, our economy is based on consumption. Roughly 68% of GDP for the US is personal consumption. We can discuss all day whether or not that is a good or bad thing (to me, it’s a crazily unsustainable thing), but one thing is clear: If consumers can’t afford to, well, consume, our economy will go into recession. Big time.

In fact, that is basically the story of the Great Depression (1929 - 1939) and the Great Recession (2007 - 2009).  In simple terms, in both cases, perhaps the main reason the economy imploded was that the people who worked themselves to the bone providing the goods and services we have come to expect in America could no longer afford those same goods and services themselves! For the people who control our wealth and politics, the question then was “how to keep the party going?” In both the Great Depression and the Great Recession, the answer was the same: easy credit, or making it easier for people to borrow money, even if the lender knew that the borrower probably couldn’t afford it.  This worked for a while, but eventually, the gravy train couldn’t pull its weight any longer, and the whole darn thing collapsed. In the 1930s and the late 2000s, the end result was lots of unnecessary pain for a whole bunch of people.

Now we are getting to the meat of the matter. A fair amount of people vaguely know that our country has approximately 38 trillion in U.S. issued debt in the form of short-term T-Bills (with a maturity of 1-year or less), medium-term T-Notes (with maturities of between 2 and 10 years), and long-term T-Bonds (with maturities of 30 years). Who “buys” that debt? Basically, Americans and foreign countries. And by “buying debt” we mean that Americans and foreign countries loan money to the United States government with the expectation that they will earn a return and be repaid in full when the debt matures.

In the past, this was easy because US debt was viewed as “risk free”. However, this has changed. While our debt is still viewed as stable, all three major credit rating agencies have downgraded US debt over the past several years. Lower rated debt (higher risk) has to offer higher interest rates (a higher return to lenders) in order to attract those lenders.

Our current economy, for better or worse, relies on the ability to continue issuing huge amount of debt to willing lenders at favorable rates. Without this, consumption will fall off a cliff (this is a complex subject also involving devaluation of the dollar and the dollar acting as a “reserve currency” - we will ignore that for now).

Now, conventional wisdom has it that China and Japan are the biggest foreign lenders to the United State government. As individual countries, that is true. However, the European Union plus the UK, in the form of its individual member states, is actually - in aggregate - the single biggest foreign lender to the United States.

This is where ignorance and hubris come into play. In its new National Security Strategy, the U.S. essentially dissed Europe while cozying up to Russia and Middle Eastern nations (the ones who have been financing Trump and his family for years). Unlike our current Administration, the leaders of the European Union are not ignorant or full of hubris, and they’ve already recognized the leverage they have over the United States based on their loaning us money:

This would be an economic calamity of seismic proportions. And it is the result of incompetent, ignorant people thinking that their ideology of White Supremacy somehow is enough to make everything “better”. It’s a perfect example of the Dunning-Kruger effect. BTW, as a semi-random aside, contrary to popular belief, Mussolini’s fascism did NOT make the trains run on time.

As Paul Krugman writes today on the threat to our economy and national security, “The call is coming from inside the White House”.