THE BLOG

Is the United States too Big to Fail?

05/30/2009 05:12 am ET | Updated May 25, 2011

In 1970 Soviet dissident Andrei Amalrik wrote a highly controversial book entitled, Will the Soviet Union Survive until 1984? The book was vociferously criticized by Kremlinologists, who maintained that the mighty USSR, superpower rival to the United States, was simply "too big to fail." Back in 1970, it was considered the height of lunacy to envision the demise of the Soviet colossus.

Well, Amalrik was off by seven years, but otherwise he was remarkably prescient. How was it possible for him to be correct and the legions of Soviet experts so wrong? The primary reason is that Andrei Amalrik understood what the so-called experts did not: there is no such thing as "too big to fail." That applies to countries and empires as well as companies. The United States of America included.

The Global Economic Crisis has savaged the economy of the U.S. along with much of the rest of the world. In response to the most severe economic contraction America has experienced since the Great Depression, the Obama administration is going into debt to fund massive economic stimulus programs. Yet, as extravagant as those stimulus programs may appear on the surface, they are marginal in comparison with the trillions of taxpayer dollars both the Bush and Obama administrations have made available to subsidize Wall Street and the major actors in the financial industry, to in effect save them from the consequences of their own follies. The mantra of both the current and previous administrations is that these Wall Street entities are "too big to fail," meaning if they are not provided with whatever taxpayer-funded credit they demand, a systemic financial collapse would ensue.

The price being demanded -- and obtained -- by the oligarchs of Wall Street, combined with the economic destruction unleashed by their reckless greed, is expanding the national debt of the United States at a frightening pace. An example of this disastrous fiscal trend is the recent announcement by the U.S. Treasury Department that for the second quarter of 2009 the United States government will need to borrow $361 billion to pay its bills, compared with $13 billion for the same period in 2008. For all of 2008, the U.S. budget deficit was approximately $455 billion; in the third quarter alone of 2009 it is projected to be $515 billion, and that is probably an overly optimistic estimate.

In addition to the $750 billion TARP program to bail out banks and Wall Street, approved last October by Congress, untold trillions of dollars have been provided or promised to the financial industry by Treasury and the Federal Reserve, off the books of the official budget. A most recent estimate puts this figure up to $13 trillion, nearly equal the entire GDP of the United States. The official national debt of the U.S. now tops $11 trillion, and may surpass the GDP within two years. In addition, state, county and local governments across the country are sinking into an ocean of red ink. In effect, the entire credit worthiness of the United States has become the "lender of last resort" for the "too big to fail" entities. The financial elites of America are no doubt uncorking their champagne bottles, as their privileged excesses are held whole through the ultimate backstop -- the indebtedness of not only the current generation of Americans, but also their children and perhaps even their grandchildren. It appears that the oligarchs are so devoid of historical understanding, they fail to recognize that this subsidization of their Wall Street empire of credit default swaps and gargantuan compensation packages can only be sustained if the United States can forever go into debt. And in order to believe that the U.S. is ultimately "too big to fail," they have to be equally ignorant of basic mathematics, the ultimate irony for the supposed magicians of high finance.

But what if a point is reached when the rest of the world is no longer willing to lend its scarce capital to the United States, and subsidize its Wall Street bailouts and extravagant military industrial complex? No doubt, the oligarchs would then use their political muscle to enact higher taxation on middle income Americans. This may come in the form of higher consumption taxes; however, a growing possibility is the hidden tax of inflation. A dirty secret that is increasingly being discussed by economists in quiet corners is that there is no way the United States can possibly pay for the servicing of its massive, expanding national debt without resorting to inflation.

What the financial and political elites have not analyzed are the consequences for America's social cohesion and viability should the nation's exploding debt burst beyond the point of containment. For unlike AIG, Citigroup and Goldman Sachs, the United States does not have the option of calling upon others to rescue it from its own excesses, with the justification being that it is "too big to fail."

It strikes me that most Americans, not only the financial elites but across the nation's social fabric, have a distorted image of how their country fits in with the rest of the world amid the global economic crisis. In a chilling parallel to our times, Amalrik writes about the paralysis of isolation as a factor that would eventually bring about the collapse of the Soviet Union. In 1970 he wrote, "This isolation has created for all -- from the bureaucratic elite to the lowest social levels -- an almost surrealistic picture of the world and of their place in it. Yet the longer this state of affairs helps to perpetuate the status quo, the more rapid and decisive will be its collapse when confrontation with reality becomes inevitable."