The ‘shutdown’ of the US government and the financial climax associated with a deadline date, leading to a possible ‘debt default’ by the federal government, is a money-making undertaking for Wall Street.
Several overlapping political and economic agendas are unfolding.
Is the shutdown – implying the furloughing of tens of thousands
of public employees – a dress rehearsal for the eventual
privatization of important components of the federal state
A staged default, bankruptcy and privatization is occurring in
Detroit (with the active support of the Obama administration),
whereby large corporations become the owners of municipal assets
The important question: could a process of ‘state bankruptcy’, which is currently afflicting local level governments across the land, realistically occur in the case of the central government of the United States of America?
This is not a hypothetical question. A large number of developing
countries under the brunt of IMF ‘economic medicine’
were ordered by their external creditors to dismantle the state
apparatus, fire millions of public sector workers as well
as privatize state assets. The IMF’s Structural Adjustment
Program (SAP) has also been applied in several European
Will this gamut of deadly macro-economic reforms engineered by
Wall Street and the Federal Reserve be conducive to widespread
civil disorder across the United States?
While the declaration of a national emergency or martial law is
not envisaged, reports confirm that the Department of Homeland
Security (DHS) is currently “engaged in acquiring heavily armored
tanks, which have been seen roaming the streets.” In the words of Ellen Brown, “somebody in
government is expecting some serious civil unrest…”
Flashback to the meltdown of Wall Street in September 2008. In
the wake of the economic crisis, a process of fiscal collapse was
The evolving fiscal crisis had set the stage. It has a direct
bearing on the issue of shutdown of the federal government and
The Bush and Obama bank bailouts led to the appropriation of
$1.45 trillion of US tax revenues. This money was channeled to
Wall Street under Bush’s Troubled Assets Relief Program (TARP)
and Obama’s bailout program initiated at the outset of his first
term. This money was transferred to the banks.
Meanwhile, ‘defense expenditure’ in support of a war
economy had spiraled: $740 billion had been allocated (FY 2010)
to fund a vast process of militarization including America`s wars
in the Middle East and Central Asia.
Of significance, there were several other unreported shadowy
multibillion dollar bailouts which do not appear in government
accounts, not to mention the Pentagon’s black budgets which are
not included in the official expenditure accounts of the
Department of Defense.
According to Aviation Week in a 2009 report, “the
Pentagon’s ‘black’ operations, including the intelligence budgets
nested inside it, are roughly equal in magnitude to the entire
defense budgets of the UK, France or Japan, and 10 per cent of
In the wake of the 2008 financial crisis, a new structure of
public indebtedness had been created. Without accounting for the
‘black budgets’ and ‘shadowy bank bailouts’,
reported defense expenditures plus the bank bailouts amounted to
a staggering $2.35 trillion. Total revenue in FY 2010 was of the
order of $2.38 trillion.
In other words, these two categories of expenditure, namely War
and Wall Street “had eaten up” (together with interest
payments on the public debt) the totality of federal government
The $2.35 trillion included the handouts to the banks plus
military expenditure and the funding of the multibillion dollar
DoD contracts with Lockheed Martin, Raytheon, Northrop Grumman,
British Aerospace, et al.
No money left from public purse to fund regular govt programs
What this warped budgetary structure implied (in FY 2009 and
2010) was that there was no money (i.e. residual funds) ‘left
over’ from the public purse (tax revenues and other sources
of federal government revenue) to fund regular government
All other categories of expenditure including Medicare, Medicaid, social security as well as public investments in infrastructure, etc. had to be financed through debt creation (emission of Treasury bills and government bonds), namely through a dramatic increase in the public debt from $9.9 trillion in FY 2008 to 16.7 trillion (October 2013), a staggering increase of almost 70 percent.
In essence, the federal government has been financing its own
indebtedness through generous handouts to Wall Street and the
military industrial complex.
These developments are also characterized by a widening budget
deficit in the wake of the 2008 financial crash. (See CBO graphs
below, which indicate the figures for the budget deficit as well
as the forecast for 2012-2022).
The Congress Budget Office (CBO) contends that the
‘estimates’ for 2013-2022 are based on revised historical
values of Gross Domestic Product by the Bureau of Economic
Analysis (BEA). This is a nonsensical statement.
Yet the Congress Budget Office (CBO) also acknowledges that “the federal budget deficits [2013-2022] are now expected to shrink dramatically.” These are not our words, but those of the CBO. And these ‘forecasts’ have nothing to do with revised historical values of GDP. They have to do with austerity measures and macro-economic policy.
In a matter of three years, according to the CBO forecast, the
budget deficit will be reduced from 7 percent of GDP in 2012 to 2
percent in 2015.
A budgetary shift of this nature can only be implemented by
‘economic shock therapy’ leading to socially devastating cuts in
public expenditure, which will inevitably result in a wave of
Built into these forecasts is the presumption that drastic
austerity measures leading to major cuts in government spending
will be carried out over a ten year period (2013-2022) thereby
reducing the size of the budget deficit as well as its percentage
ratio to GDP. We are not dealing with statistical concepts, the
CBO forecasts through these 2013-20122 figures a process of
fiscal disintegration and impoverishment of the American people.
The so-called CBO ‘estimates’ for 2013-2022 are based on
the assumption that austerity measures (which have not yet been
formally adopted) will lead to the downsizing, phasing out and/or
privatization of a large number of state programs, including
Medicare, Medicaid and social security. How else would it be
possible to slash the budget deficit from 7 to 2 percent of GDP
in three fiscal years?
Medicare, Medicaid and Social Security represented in FY 2012, 45
percent of total government expenditure (see CBO Chart on Federal
Government Spending for FY 2012, below).
Meanwhile, legislation has been launched in the House of
Representatives to curtail the Food Stamp program drastically
over a 10-year period (FY 2013-2022). “The US House of
Representatives has passed a bill that would slash food stamp
funding by nearly $40 billion over 10 years, kicking 4 million
people off the program next year. The food stamp bill would cut
$39 billion from the Supplemental Nutrition Assistance Program
(SNAP) over 10 years. It would force adults between 18 and 50 to
either work or attend work training to reapply for benefits, and
would also institute drug testing for recipients.”
It is highly unlikely that the budget of the Department of
Defense (19 percent) will be used to reduce the budget deficit.
In a bitter irony, while the Wall Street financial institutions
were the recipients of the bailouts, they are also the creditors
of the federal government, which had been precipitated into a
structure of deficit financing controlled by Wall Street. This
deficit financing – which was facilitated by Quantitative Easing
– is distinct from the Keynesian framework. It is controlled by
the creditors. It does not create employment, it is not
expansionary. It has little bearing on the real economy.
This post-2008 fiscal structure has had a fundamental impact on
the process of debt formation. Tax and other federal government
revenues had been assigned in 2008-2009 to bailing out the banks
while relentlessly funding the war economy, including the
financing through black budgets of a growing number of private
military and security companies (PMSC).
The public debt has increased by almost 70 percent in five years,
from 9.9 trillion in 2008 to 16.7 trillion in 2013 (October 2013
estimate of the debt ceiling, see graphs above).
The various phases of Quantitative Easing (QE) throughout
the Obama presidency were largely intended by Wall Street to keep
the ship afloat, with an increasingly larger share of the debt
owned by the Federal Reserve (in the form of Treasury
bills). The Fed has largely been involved in propping up its
Under QE, tens of billions of dollars are injected into financial
markets. Quantitative easing has not resulted in a positive
stimulus of the real economy. “The real goal of the Federal
Reserve is to guarantee the continual profitability of Wall
Street and the personal incomes of the super-rich.”
The Fed is not a publicly-owned central bank; it is a network of
12 private US banks, with the New York Federal Reserve Bank
playing a key role. Operating under a semi-secret veil, major
Wall Street financial institutions (including the big four) are
the ‘stakeholders’ of the Federal Reserve, which ultimately call
the shots on Capitol Hill. At the outset of the Obama
administration in 2009, the Federal Reserve Banking system (which
is an unaccountable private entity) has been granted increased
authority in its management of the US economy, overshadowing the
prevailing system of public regulation of the financial system,
as well as reinforcing the subordinate role of the US Treasury in
relation to Wall Street.
Policies pertaining to the shutdown of the government and the
statutory debt ceiling are determined by Wall Street and the
Federal Reserve, the US government’s largest creditor. The
Federal Reserve Banks currently hold $2.1 trillion of US public
debt. Japan and China respectively own $1.1 trillion and $1.3
trillion of the US public debt. Based on Jun 2012 figures, the
Federal Reserve owns 16 percent of the federal debt held by the
The New York Federal Reserve Bank (the largest of the Federal Reserve banks) holds a significant portion of the total holdings of the Federal Reserve system, composed of 12 constituent banks. (source: www.nationalpriorities.org)
Were the Federal Reserve to be a publicly-owned central bank,
quantitative easing would have an entirely different dynamic: the
government rather than the Fed (acting on behalf of Wall Street)
would be calling the shots. Under a publicly-owned central
banking arrangement, $2 trillion worth of public debt could be
canceled, thereby creating conditions for the funding of social
The result of these macroeconomic reforms has been mass
unemployment. The American people – including the middle class –
have been impoverished by the Wall Street establishment, which
ultimately decides on debt default and the statutory ceiling
placed on the public debt.
Under pressure from Wall Street and the Federal Reserve, the
choices of the US government are limited to the following
options: “State programs can either be downsized, phased out
or transferred out of the public purse to the private corporate
sector, implying in all cases the layoff of tens of thousands of
No major reforms of the structure of indebtedness are
contemplated by the US Congress, which could meaningfully change
the government’s relationship to the Federal Reserve and its Wall
Street handlers. The creditors ultimately decide.
What are contemplated are marginal modifications of the status
quo including legislation to push the debt limit to December 31st
This token arrangement would temporarily increase the federal
government’s borrowing ability through the issuing of Treasury
bills and government bonds by about $1 trillion. Under this
scheme, however, the powers of the Wall Street Banks and the New
York Federal Reserve would not only be maintained they would be
The ultimate objective is to develop a full-fledged proxy State
under the helm of the financial establishment. Both the Executive
as well as the US Congress are to remain under the control of
The inevitable scenario established in the wake of the 2008
crisis is fiscal collapse, leading to “the possible phasing
out and/or curtailment of social programs, the privatization of
large sectors of public sector activity.”
The fiscal ceiling having now been reached, possibly with a
deadline, the government is being pressured by its Wall Street
handlers – who control decision-making in the US Congress – to
curtail and downsize social programs, as well as initiate the
transfer of public assets and institutions into the hands of
private corporations. There is also a movement to cut as well as
privatize social security and Medicare.
The privatization of public monuments, museums, national parks,
the post office etc. has been raised in recent media reports as a
possible ‘solution’ to the debt crisis. But let us not be misled:
the process of acquisition of federal public property including
infrastructure and state institutions is likely to go much
The public sector is up for grabs. Wall Street will eventually go
on a buying spree picking up state-owned assets at rock bottom
Ironically, the money transferred by the US government to Wall
Street under the bailouts in 2008-2009 can now be used by Wall
Street to buy out state property and assets. What this means is
that the federal government not only finances its own
indebtedness, it is also financing the privatization program (at
taxpayers’ expense), leading to the demise of federal government
This process of privatization of the state is nothing new, it has
been applied in developing countries under the helm of the IMF,
whereby state corporations are auctioned off and transferred into
the hands of foreign corporations. It has also been applied in
Eastern Europe, as well more recently in several countries of the
The proceeds of the privatization program are channeled to the
state treasury to meet outstanding debt obligations. In Brazil in
the 1990s, important state assets in mining and forestry were
purchased by Citi Group, which was Brazil’s largest foreign
creditor bank. Ironically, the proceeds of the privatization of
the assets purchased by Citi Group were channeled back to Citi
Group in the form of debt servicing.
Existing state programs are transferred to private corporations
either through outright sale of state assets or through
outsourcing of government services to the private sector.
Large numbers of government employees would be laid off as a
result of restructuring and privatization. Government services
would be sold to the public at a much higher price.
The takeover of State assets in America is well under way largely
at the municipal and state level. We recall Orange County,
California, which went bankrupt in 1994, Jefferson County,
Alabama, which filed for Chapter 9 bankruptcy in 2011, and more
recently Detroit, Michigan, in 2013. In these and other
county/municipal bankruptcies, public assets, lands and
infrastructure are sold off to private investors. Across the US,
more than 100 municipalities are facing
The bankruptcies of local level governments immediately backlash on pension funds. The
privatization of federal State assets on a significant scale, as
well as the takeover and privatization of public services is the
next stage of this socially devastating economic restructuring
There is another related agenda, which will be the object of a
The uncertainty underlying the government shutdown and debt
default is the object of a wave of speculative activity on major
Wall Street financial institutions not only exert a decisive
influence in the formulation of the administration’s fiscal and
monetary agenda, they also control the movement of currency
markets, commodity and stock markets through large scale
operations in derivative trade.
Most of the key actors in the US Congress and the Senate involved
in the shutdown debate are controlled by powerful corporate lobby
groups including, of course, Wall Street. The latter are those
which ultimately decide on the outcome. They are not only in a
position to influence the results of the congressional process,
they also have foreknowledge of the nature and timing of key
decisions and they are in a position to reap multibillion dollar
speculative gains in the derivative markets by speculating on
policy outcomes of which they have advanced knowledge.
Those who determine the government’s debt policy, namely the Wall Street creditors, also have ‘inside information’ or prior knowledge of the chronology and outcome of the government shutdown impasse. They will make billions of dollars in windfall profits
While Wall Street is instrumental in triggering the debt ceiling
impasse, major financial institutions will also be placing their
bets in large scale speculative transactions.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.