US PUBLIC DEBT AND AMERICA'S SOCIAL DOWNSIZING

In the last three years, the US Federal Reserve has dropped interest rates sharply and doubled the money supply to stimulate growth. This is exactly the kind of policy Milton Friedman who has a profound influence on FED Chair Ben Bernanke's policies of injecting several trillion dollars into the economy, mainly into the financial sector to make sure it survives along with the existing social order and political system.

The cost of the bailout from 2007 until 2011 to US federal and state governments is unknown; depending on the source, from $7-8 trillion dollars to as little as $3.5 trillion. The real cost may not be known until we have a clearer picture of what the federal government needs to do to bailout states suffering huge deficits. Nevertheless, easy money supply has helped corporate  profits rise from current production to 29% or $1.68 trillion for 2010, according to the Commerce Department.

There is a disconnect between the thriving private sector that caused the latest global recession and tghe public sector that as a result of bailing out the private sector is suffering massive debt. Besides the federal government confronting a massive debt that has kept the dollar weak in relationship to the euro and other currencies, 44 states are faced with massive debt that has piled up in the last four years.

If we add the budgetary shortfall of the mild recession of 2002-2004 to the recession of 2008-2011, the total debt of states is more than three quarters of one trillion dollars. This would not be a problem if it were not for Tea Party Republicans in Washington as well as governors that advocate reducing the debt by deep cuts in state services, cuts in salaries and benefits of public employees, and incentives to businesses.

Historically, state fiscal problems linger a few years after the national economy has recovered, and for states with weak economies mainly in the south this is a problem that translates into depressed conditions from which it is difficult to recover. Although the latest unemployment and jobs-creation figures are not as pessimistic as the markets had anticipated, official unemployment above 9% is indicative of massive underutilized capacity and low tax receipts for both state and federal governments, as consumption of large-ticket items, including depressed real estate remains at historically low levels.

One solution is to continue trimming down social programs, entitlements, and reducing wages and salaries until there is little left to squeeze from middle class and working class America. This is the path that Tea Party Republicans are carving out and trying to test before the national election of 2012 when Obama and the Democrats face the voters for a showdown with Tea Party Republicans. While it may seem silly to some that Tea Party fanatics can indeed prevail, they should not be underestimated, as they have thrown out there an African-American to stop anyone from accusing the Tea Party faction of racism when attacking Obama.

Before he was elected to the House of Representatives, lieutenant colonel Allen West served as an adviser to the US army in Afghanistan. After an investigation of his interrogation 'techniques' involving prisoners in Iraq, he retired to save the army the scandal. As though his own anti-Islam record and remarks were not enough, while he was running for congress, he hired Joyce Kaufman who had suggested in 2007 that illegal aliens committing crimes should be hanged.

In January 2011, West, and African-American, angered American Islamic groups and the Congressional Black Caucus, after spewing more anti-Muslim rhetoric to prove that he was a Tea Party loyalist. At a recent rally, he did not disown comments from the audience who stated that Obama was not sufficiently pro-Israel and that Democrats 'have joined radical Islamists'.

West did not stop there. He recently suggested that government must stop rewarding 'bad behavior' by extending unemployment benefits that discourage people from seeking employment; reforming social security benefits, medicare and medicaid that absorb 40% of the budget; abolishing the IRS and federal income tax, providing tax cuts to philanthropist billionaires. In February 2011, West, who had argued in favor of press censorship - he later argued that he really mean to say the 'censure not censor' - joined the Tea Party Caucus that had supported his candidacy and provide legitimacy to this ultra-right-wing organization to masquerade as multicultural.

The Tea Party is arguing that the US government and the states are bankrupt, and that the real debt if entitlements are considered could be as much as nine times higher than the statutory debt limit of $14.3 trillion.

That the federal government and the states are indeed confronting a massive debt is self-evident, as is the reality that the FED has used its power to keep the economy stimulated while the European Central Bank has kept a much tighter monetary policy, hoping to be more competitive against the dollar as a reserve currency in the longer term.

The disagreement is what is the best solution out of the debt crisis. Monetarism like German-imposed policy on the EU is clearly not something the US FED is following. However, like its EU counterparts, the US is following a policy of weakening the social welfare state, imposing downward economic mobility on the middle class and labor and strengthening the strongest businesses in the private sector, beginning with financial institutions. This is economic policy made with clear political goals that will results in the reconfiguration of the social structure.

The GOP has now made it official: $4 trillion in cuts during this decade, mostly from social programs that include entitlements. Chairman of the House Budget Committee Paul Ryan dismissed Obama's proposal for freezing nondefense discretionary spending, proposing instead deep cuts amounting to $400 billion annually. This would put another nail in the coffin of the social welfare state, while strengthening corporate welfare by forcing future retirees to purchase private health insurance that the government would subsidize.

Once the social structure is adjusted where there is a small and weaker middle class and a larger and weaker working class, there are consequences for the political arena as well. The American people know as does the entire world what the wizard financial fraud king Bernie Madoff stated, namely that the banks were behind the colossal scandals that led to the global recession of 2007-2011. It is up to the people to hold their politicians accountable for rewarding the banks that caused the global recession, instead of holding them accountable. America's social downsizing is inevitable if the voters continue to remain docile.