What everyone needs to know about macroeconomics

All politics boil down to economics.  As far as college majors go, Economics is the "why" of politics and Poli Sci is the "how".  Once you know who stands to profit from a specific thing then you can watch who lines up for or against that thing, and know who is owned by who.  So here comes a bold statement which I'll spend the rest of this post explaining.

The richest people in the country profit when the United States fails.

Finance 101: Risk, Bonds, and Interest Rates.

A bond, in financial terms, is a contract for a loan of money.  If you buy a bond from my company, it means that you will pay me (for example) $1,000 today and I will pay you that money back plus some interest in the future.  You, as an investor, need to make a decision about which company you will make this contract with.  Obviously you want the safest investment, but maybe a bigger payoff might be worth a bigger risk?  This is exactly the sort of decision investors make.  Companies will then offer interest rates on their bonds that reflect the risk of the investment in order to entice investors.  Thus...

Interest rates indicate risk.

We can all see this in our dailiy lives.  Car and home loans to risky people carry hefty interest rates.  "Insurance for anybody" places have exhorbitant rates.  It's all about risk.  

So what is the safest investment out there?  The US Treasury Bond.  The US has never defaulted on its debts and is unlikely to lose its sovereignty, so it is the global standard for financial stability.  (Regardless of what we see on TV.)  It is so stable that other financial markets are built on top of it, using the "T-Bond" rate or "Bond Rate" as the basis of their calculations.  If you have owned a credit card then you have heard about the "Prime Rate".  The Prime Rate is calculated by taking the Bond Rate and adding some number of percentage points to it.  So when the Bond Rate goes up, so does your credit card payment.

Who holds the bonds?

The fear-mongers like to tell you that China holds the majority of our bonds, and thus are some sort of "majority shareholder" in our country.  It's not true.  They do own a little bit, but most of it is owned by our own people.  When I say our own people, what I mean is corporations and financial institutions.  And who owns THEM?  Usually more financial institutions.  Repeat and repeat and eventually you'll end up with something like a hedge fund or some "bank" you've never heard of that is controlled by someone you probably have heard of.  Someone like Warren Buffet or George Soros or the Koch brothers.  In short...

The richest of the rich control most of the US Treasury Bonds on the market.

Regardless of how many layers of companies and banks we're talking about here, the rich people control the bonds.  So from here forward I'll skip the middle men and refer to them directly.

So how do they profit?

Holding a treasury bond is like treading water financially.  Having it doesn't make you rich.  Any other investment you make is going to make you money faster.  It just keeps the money you put into it safe from inflation.  Mostly.  That's meat for a different post, but for now we're just going to say that Treasury Bonds keep your wealth current for the times, but do not increase it.

What happens if that interest rate were to suddenly go up?  Those bonds could be sold for more money than they were purchased for, and the sellers would cash in very nicely.  How might that happen?  At a normal company a bad product launch or the death of the founder might cause rates to go up as the company's future is less certain than it was before.  Countries are more stable, and the US is the most stable of all.  But we're not immune.  

Just a couple of years ago we saw our elected representatives hold the country's reputation for stability hostage.  Remember that the entire world relies on us to be their rock, financially.  When our economy tanks, so does everyone else's.  It wasn't the first time that we saw a "Debt Limit" fight happen with the sitting President.  But it was the first time we got our credit rating downgraded.  (A credit rating is the score a bunch of professionals give to bonds to let investors know how risky they are.)  

Why did it go that far?  Was it really the case that the ideological differences between the Republicans and the President brought them to this impasse?  It wasn't.  While there are a few notable statesmen out there, most of our politicians reverse themselves on their ideology so often they make a Tilt-A-Whirl dizzy.  So what was it then?

Bringing it all together

If the US is seen to have an increased risk of defaulting on it's obligations, then our interest rate must go up.  That's just math.  When it goes up, the people who hold the bonds can sell them for a profit.  We're talking Trillions here, collectively.  Crazy crazy money.  Where does that money come from?  You and I.  It's like this...

You -> Loan Company (mortgage, etc) -> Bank -- (Buy)--> T-Bonds --(Sell)--> Koch Industries 

Everyone to the left of "T-Bonds" on that line gets hurt when the Bond Rate goes up.  Everyone to the right benefits.  Which side is now allowed to make unlimited donations to financial campaigns?  Both, technically. But you can see whose money is going to who by what they're trying to do to our Bond Rate.  People serve their masters.  It's always a matter of trying to help their masters profit.  Watch what people do to see who they feel their masters are.