More Debt, Obama Tells the World
TORONTO — Broken store windows have been repaired, burned out cars and debris removed. Security barriers that turned much of downtown Toronto into a fortress are gone, and so has a small army of police and security agents. The hooligans have decamped.
To everyone’s relief, the G8/G20 economic summit held in Toronto and a lake resort two hours north is over.
An army of police and bands of rioters have been replaced by one million visitors feting Toronto’s annual Gay Pride extravaganza, the world’s largest homosexual jamboree. Watching this sober, conservative city dissolve into a gay bacchanal is always entertaining and surreal.
Sustained immigration transformed "Toronto the Good" from a dour Scots Presbyterian backwater into the world’s most multicultural metropolis of over four million in which racial and ethnic groups coexist in tranquility. Cantonese, Mandarin and Punjabi are now the most spoken languages in Canada after English and French.
American visitors look with awe on Toronto’s clean streets, polite citizens, and services that are a model of good urban management.
The late actor, Peter Ustinov, was once asked his opinion of Toronto. After a moment’s thought, he replied, "New York City — run by the Swiss."
The G8/G20 Toronto economic summit cost a staggering $1.1 billion, the most expensive economic meeting in anyone’s memory. That’s over $500 million per day.
This gold-plated summit was designed to boost the standing of Canada’s unpopular, prime minister, Stephen Harper who runs a shaky minority government.
When politicians get in trouble at home, they invariably turn to international affairs to burnish their faded images. Harper, a born-again Christian fundamentalist from Alberta is closely allied to Israel’s hard-right government and a disciple of George Bush.
Harper is trying to give himself the image of a senior international statesman and basking in the glory of Canada’s banks that rode through the 2007-2008 financial crisis with flying colors because they sensibly refused to follow America’s financial debauchery and chicanery.
These days, world leaders have become caught up in frantic rounds of unending political and economic meetings that are as exhausting as unproductive and costly.
All the work for these meetings is accomplished in advance by staffs using phone, email, fax and video conferencing. The carefully-cultivated notion that presidents and prime ministers can fly into a city, meet around a large table for two days, and resolve thorny, complex economic and political issues is a public relations myth.
Heads of states attend these summits for two good reasons unconnected to the actual agreements achieved.
First, such meetings give voters the impression their leaders are actually making progress in dealing with the global financial/economic crisis. Activity is equated with achievement.
Second, safety in numbers. It is by now perfectly clear that savage cuts must be made to the bloated budgets of the G8 industrial nations. The debt binge of the past decade left a mountain of dangerous obligations for private parties and governments.
The time to "de-leverage," as Wall Street calls puncturing the debt bubble, is at hand. The heart-stopping scare of 2007—2008, and risks that a global financial meltdown could again occur, are forcing most governments to slash spending.
Many major European governments have announced plans for deep budget cuts to bring their debt loads down, it is hoped, to a sustainable 3% of GDP.
This is causing voters to scream and, in the case of beleaguered Greece and Spain, demonstrate and riot. Politicians, caught between threats of financial meltdown and angry voters, seek the safety of numbers in these economic summits, adopting a common front they hope will convince voters that slashing spending is what everyone is doing.
The International Monetary Fund used to perform this helpful mission by mandating spending cuts that politicians did not have the courage to enact. What the G8 really need, of course, is a short-term economic dictator who will slash spending and ignore ensuing protests.
France offers a particularly interesting example of the current financial squeeze. While vowing budget cuts and adding only two years to its absurdly low retirement age of 58—60 years (or 50 in the case of certain professions), the Sarkozy government has been dithering and coy about making really painful cuts. France’s total private and government debt has reached over 300% of GDP. Spending cuts are urgent.
But 55% of French workers are directly or indirectly employed by the government. For labor public unions, "l’etat, c’est nous."
As a result, cutting down these public sector unions that dominate and often terrorize France risks political suicide for whatever government holds power.
In fact, public sector unions are now the biggest problem facing the G8. These unions became bloated during the days of credit addiction, when cheap loans created a bubble economy. Today, they can no longer be afforded, but their power remains immense.
So G8 leaders are also trying to form a common front against these entrenched public unions that are undermining the economies in which they operate. Greece offers the most striking example.
But the biggest of all the debtors, the United States, was notably understated at the Toronto conference. President Barack Obama flew in on Air Force One, a Boeing 747, at vast expense and much air pollution, to urge higher spending (and thus more debt) to stimulate economies. European nations rejected this plan by debt-addicted America. Treating the malady of too much debt with more debt does not make sense — except to the hopelessly addicted.
The biggest fear at Toronto was that while Washington fulminates against China, it was doing nothing to curb its mammoth debt, and continuing to inflate the debt bubble, thus endangering the world economy.
In the US, government debt per person, calculates the Economist, has soared from $16,000 per person in 2001 to $34,000 today. Government debt has reached a frightening 360% of US GDP.
In Britain, government debt trebled in the same period. Britain’s new Tory government has announced plans to slash some $9 billion of spending.
But as the US economy continues to stumble, and risk another fall back into severe recession, President Obama could not summon the political courage or Congressional votes to substantially cut government spending or to curtail the parasitic drain on the economy of America’s bloated financial industry which has become the real power in Washington.
Obama failed to cut America’s gigantic, trillion-dollar military budget, which represents close to 50% of total global military spending. Instead, he increased it.
The US is financing its wars in Iraq and Afghanistan (now costing $7 billion monthly), and growing military operations in Pakistan and Yemen, on borrowed money, leaving the bill for the next generation of unlucky taxpayers.
Add another $33 billion this year for Obama’s Afghan "surge." A nation addicted to financial gambling and war will have a very hard time bringing itself back to fiscal reality.
The world’s battered economy can’t be healed until its biggest debtor reforms its ways — but there is no sign this will happen anytime soon.
July 6, 2010
Eric Margolis [send him mail] is contributing foreign editor for Sun National Media Canada. He is the author of War at the Top of the World and the new book, American Raj: Liberation or Domination?: Resolving the Conflict Between the West and the Muslim World. See his website.