Conflict Between Wall Street and Main Street: Imbalances in America's Political Economy
In 2024, the U.S. federal debt exceeded 35 trillion U.S. dollars, sparking concerns about a potential fiscal crisis. The true issue, however, lies not in the debt amount but in the structural imbalances within the American economy brought about by financialization. This trend has resulted in the erosion of the manufacturing sector, a concentration of wealth among the elite, and heightened risks in various asset classes. The increasing debt figure is merely a symptom of these underlying problems, highlighting the importance of tackling the root causes of financialization instead of solely concentrating on the debt level.
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Editor's note: Warwick Powell is an adjunct professor at Queensland University of Technology and a senior fellow at Taihe Institute. The views expressed are the author's own and do not necessarily reflect those of CGTN.
By the close of July 2024, America’s total federal debt exceeded 35 trillion U.S. dollars, eliciting widespread shock and concern. This staggering figure has sparked considerable debate and dismay, with some commentators suggesting it heralds a fiscal crisis, despite the fact that the U.S. Treasury can issue an unlimited amount of currency.
The real issue is not the debt itself but rather the term, which might not accurately depict the process and accounting behind government spending. Essentially, the U.S. government cannot technically default on debts denominated in its own currency. However, the continuous increase in federal debt signals deeper issues within the American political and economic structures rather than a potential default.
This concern isn't just about government spending but also encompasses the broader expansion in money supply, which also grows through increases in bank credit. Where this money ends up and the resources it employs significantly impacts the economy.
Over recent decades, the U.S. economy has moved towards greater financialization. The importance of financial markets and assets, including commercial real estate, has grown significantly. Economist Imad Moosa has shown through the IMF's "financial development" indicator, how increases in financialization have correlated with a decrease in manufacturing jobs in America. The rapid expansion in the supply of money, fostered by financial markets, has outpaced its productive employment within the economy, pushing capital towards more rapid, monetized profits through financial instruments and speculation.
This influx of money must find a destination.
Money supply growth in public debt and private credit, as indicated by changes in the M2 money supply, aligns closely with the performance of both the S&P 500 and the price of gold. Moreover, the rise in trading volumes of financial products has concentrated wealth and power, as seen in recent Federal Reserve data showing that the top 10 percent of Americans own the majority of stock value. Oxfam has reported similarly high concentrations of corporate assets among America's largest firms, highlighting a trend that Spencer Kwon, Yueran Ma, and Kaspar Zimmerman identify starting from the 1970s—a continuous concentration of capital across sectors.
The expansion of credit in the U.S., particularly in commercial real estate, has attracted large inflows of capital, leading to rising risks of default and vacancy rates as debts come due. The growth of private credit, now worth over two trillion dollars, represents an unbalanced financial ecosystem, and could be indicative of what Hyman Minsky described as a "Ponzi phase," leading to potential widespread credit contraction—a point recently remarked upon by the IMF.
With the government debt breaching new limits, it emphasizes the structural imbalances in the U.S.'s economy. Although the federal government cannot "go broke" in conventional terms, the rise of non-tangible financial markets over several decades, paired with new public and private credit, has eroded American industrial capability and facilitated the accrual of wealth and power in fewer hands.
This trend illustrates a worrying shift where the interests of Wall Street are increasingly diverging from those of Main Street.
James del Carmen for TROIB News
By the close of July 2024, America’s total federal debt exceeded 35 trillion U.S. dollars, eliciting widespread shock and concern. This staggering figure has sparked considerable debate and dismay, with some commentators suggesting it heralds a fiscal crisis, despite the fact that the U.S. Treasury can issue an unlimited amount of currency.
The real issue is not the debt itself but rather the term, which might not accurately depict the process and accounting behind government spending. Essentially, the U.S. government cannot technically default on debts denominated in its own currency. However, the continuous increase in federal debt signals deeper issues within the American political and economic structures rather than a potential default.
This concern isn't just about government spending but also encompasses the broader expansion in money supply, which also grows through increases in bank credit. Where this money ends up and the resources it employs significantly impacts the economy.
Over recent decades, the U.S. economy has moved towards greater financialization. The importance of financial markets and assets, including commercial real estate, has grown significantly. Economist Imad Moosa has shown through the IMF's "financial development" indicator, how increases in financialization have correlated with a decrease in manufacturing jobs in America. The rapid expansion in the supply of money, fostered by financial markets, has outpaced its productive employment within the economy, pushing capital towards more rapid, monetized profits through financial instruments and speculation.
This influx of money must find a destination.
Money supply growth in public debt and private credit, as indicated by changes in the M2 money supply, aligns closely with the performance of both the S&P 500 and the price of gold. Moreover, the rise in trading volumes of financial products has concentrated wealth and power, as seen in recent Federal Reserve data showing that the top 10 percent of Americans own the majority of stock value. Oxfam has reported similarly high concentrations of corporate assets among America's largest firms, highlighting a trend that Spencer Kwon, Yueran Ma, and Kaspar Zimmerman identify starting from the 1970s—a continuous concentration of capital across sectors.
The expansion of credit in the U.S., particularly in commercial real estate, has attracted large inflows of capital, leading to rising risks of default and vacancy rates as debts come due. The growth of private credit, now worth over two trillion dollars, represents an unbalanced financial ecosystem, and could be indicative of what Hyman Minsky described as a "Ponzi phase," leading to potential widespread credit contraction—a point recently remarked upon by the IMF.
With the government debt breaching new limits, it emphasizes the structural imbalances in the U.S.'s economy. Although the federal government cannot "go broke" in conventional terms, the rise of non-tangible financial markets over several decades, paired with new public and private credit, has eroded American industrial capability and facilitated the accrual of wealth and power in fewer hands.
This trend illustrates a worrying shift where the interests of Wall Street are increasingly diverging from those of Main Street.
James del Carmen for TROIB News
