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Michael Miller


By Michael Miller
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Hit the Ceiling, Hit the Wall

Ghosts of the Future who are reading this column next week, you know so much more than I can know right now. [This column was written July 22.]    

The consensus feeling among analysts had been that there would be an agreement made in Washington on the debt ceiling. That has started to change as this is being written, with numerous reports of intrigue and internecine maneuvering in party caucuses and the growing realization that there are about 60 representatives who are ready to steer us towards the sun, crank up the music and watch the pretty colors. The Treasury Department and the Federal Reserve are now in active preparation for the possibility of the U.S. government running out of the money it needs to fulfill its authorized and legal obligations. They are now trying to assure worldwide markets that no matter what is cut or closed, payments will be made to bond investors.

Some damage has already been done. The whole idea of bond ratings, which help determine the yield or interest governments must pay for the loans that keep them afloat, is to give confidence to investors that they will be paid in full and on time. Even if a deal is made, even if no payments are lost, we have planted the idea everywhere that a U.S. default is a very real possibility the next time.

Confidence in the dollar and in America as an investment is a psychological thing. By the middle of the First World War, the Allied war effort was financed out of New York and by the end the United Kingdom was strapped. Americans were disgusted by the war and were happy to let the British pretend for another quarter century that London was still the economic and political capital of the world. American hegemony in world affairs will be officially over in the minds of everyone in the world but Americans if we throw away that AAA bond rating. I was taught in school that it was the American Century, but it will be only 65 years old next week.

In their new trade deal, the Chinese and Russians will be using their own currencies, moving away from the dollar. OPEC’s new president is an Iranian official who has long advocated moving the petroleum markets away from the U.S. dollar as exclusive currency (“Petrodollars”). It is the American dollar’s status as the world’s “reserve currency” that allows us to run high deficits, which allows us to have our debt denominated exclusively in dollars, which allows us to print unlimited dollars, which allows us to inflate our way out of debt. Most of Europe, locked into the Euro, can’t do that.

The implications of all this dreary stuff reach down right to your local public library, your village, your water district, all of it. Surely County Executive Mangano realizes that if government bond yields (interest that must be paid) go up more than just a little, then regardless of what happens in next week’s referendum, the only arenas he’ll be building will be made out of toothpicks on his kitchen table.

The timing of it all couldn’t be worse. Decisions made in Washington and Albany have steered us into a place where really, really bad scenarios are very possible. At a time of structural economic contraction, semi-permanent public austerity will cripple proven methods of generating sustained and dependable economic activity. We are reining in the ability of local governments to maneuver and adjust tax rates to changing conditions.

This is not just a takedown of some specific programs, but of the very concepts that propelled the greatest Middle Class expansion in the history of Western economics and smoothed out the continuous cycle of boom and depression. They didn’t call them the Panics of 1837, 1857, 1873, 1893, 1907 and 1929 because it looked cute on a bumper sticker.

We are on course to make the worst possible decisions at the worst possible time. I’m hopeful, oh Spirits of Tomorrow, that this can still work out with minimal pain or disruption. If not, Long Island districts may eventually be auctioning off middle schools on eBay.

Michael Miller is a freelance writer, designer and strategic consultant who has worked in state and local government. Email: