Is the U.S. economy a pyramid scheme?
August 9, 2011 · By John Feffer
Has the U.S. economy turned into a pyramid scheme?******
During this period of grave economic difficulty, U.S. corporations have made unprecedented profits. In 2010, corporate profits accounted for 14 percent of national income, the highest proportion ever, according to Commerce Department figures. Companies are, quite frankly, rolling in cash: "While the U.S. government is running record deficits, chief executive officers have more money than ever after boosting cash for 10 straight quarters to $963.3 billion, 58 percent more than in December 2007 near the start of the credit crisis," writes the San Francisco Chronicle. The truly depressing part of the story is that these companies are not using their profits to hire more workers. They're either sitting on the cash or investing it overseas. Meanwhile, small businesses have been hit hard by the crisis, and workers have been hit harder still.
The Obama administration can't, however, ignore China, which holds over $1 trillion in U.S. debt. "China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," reads an editorial from Xinhua, China's government-run news service.
Internationally, the use of the dollar as the chief world currency sustained a degree of confidence in the U.S. economy. But the reign of the dollar might be soon to end. The head of the Dagong Global Credit Rating, a Chinese version of Standard & Poor's, recently predicted that the dollar will soon be "gradually discarded by the world," and the "process will be irreversible." Never heard of the Dagong Global Credit Rating? It downgraded U.S. crediting rating before Standard & Poor's did. Once again, the Chinese were out in front of us.The Chinese are understandably upset by this turn of events. For a decade, America has been essentially eating a free lunch: lavishing money on the military, fighting several wars concurrently, and cutting taxes on the wealthy. We assured our investors that we knew what we were doing. We showed them lots of pretty documents. We made plenty of impressive promises. Now the investors are getting antsy. They're worried that the second dip will be much deeper than the first. The Chinese will take a hit, but they'll also probably take over the restaurant.