While the PRIVATELY OWNED banks are being bailed out for the sake of “institutional stability,” the hard-working American family and the children they raise are told that the economic malaise is their fault.

Something is happening here and there that suggests that the easy ride of finance and capital through this Great Recession may not last.

There is a momentous debate occurring among economists that is becoming the equivalent of Ptolemy vs Copernicus and the arguments over the value of leeches in curing the sick.

After going to one of the AmericaSpeaks community conversations Saturday, I’m even more confident that the deficit crisis being promoted by the Peter G. Peterson Foundation, AmericaSpeaks, the National Commission on Fiscal Responsibility and Reform, and the Obama Administration, as well of much the world’s global elite is a fantasy. There is no truth to it, and it is a dangerous fantasy, because if one believes it, then that can be a self-fulfilling prophecy. The austerity they recommend for the long-term can make the slow growth and difficult times they project come true. It can catch us all in a nightmare of their making. The “reasoning” behind their fantasy is simple enough.

In Part One, I addressed the question of whether the AmericaSpeaks argument showing that increasing deficits, debts, and public debt-to-GDP ratios is a real problem America needs to solve make sense. I concluded that their reasoning doesn’t show there’s a real problem because they assume that interest rate levels for Government debt instruments are determined by the market because deficits require dollar for dollar financing by debt instruments. However, this assumption is false because the Government can, if it chooses, spend without issuing debt, and implementing this choice, in turn, can drive interest rates toward zero, so that, in fact, Government interest costs can decrease over time on those debt instruments the Government does choose to issue.

Class warfare is being waged on the people of the world. It’s time to hit the streets, and say enough is enough.

Deficit terrorism has lately turned to deficit hysteria. With Germany leading the way, most Eurozone countries appear ready to implement austerity programs. The United Kingdom, under its new Conservative/Liberal overlords, appears to be taken with austerity too. And Canada, Australia, New Zealand and Japan have all jumped on the bandwagon. But it doesn’t look like this bandwagon will include Brazil and Argentina. They’ve had their fill of austerity, and the prescriptions of the IMF, and they’re not taking on neo-liberal ideology again any time soon. The question is what should the United States do?

These days, if you work for the WaPo, lip service to deficit hawkism is becoming a job qualification. The New York Times is more divided on things. Krugman has been on a crusade against austerity and has had some good blogs recently, Bob Herbert had a great one on jobs the other day, and the editorial page actually opposed the growing chorus for austerity.

But Bobo, on the other hand, is offering the theory that we are ending the period of fiscal stimulus and moving into the period of fiscal consolidation, and is, assembling “evidence” from various studies that austerity has often been “associated” with great economic gains.

The administration’s roll-out of its austerity program for Americans fits a pattern we saw in health care reform, in the run-up to the Stimulus bill, in cap-and-trade, in financial reform, whatever. The Administration always operates from the top down, and then tries to mobilize support from the bottom. It decides what it wants to do and then brings interest group/think tanks like the Peterson Foundation to bear to reinforce its narrative in the non-Government sector. The think tanks collaborate with the Administration to set the parameters of public debate in the media. Much of the netroots joins the chorus. If needed parts of the public are mobilized to support the received view through Administration-friendly “progressive” organizations, and real solutions to real problems get shut out of sight and out of mind.

In the fiscal responsibility/reform drive the narrative is that we (the US Government) will run out of money (US Dollars), and won’t be able to borrow it, because interest rates will be too high; or get it through taxation, because raising taxes is deflationary. So the only way not to run out and leave some dollars for our children is to cut Government spending and at least decrease the debt-to-GDP ratio.