I can explain... @ 08:15 pm
Debt Ceiling Debate Provides Cover for Historic Attacks on New Deal Programs
July 25, 2011
Job growth has collapsed in the last two months, with the official U.S. unemployment rate rising to 9.2%. Since 2008 we have entered a period of high structural unemployment with the economy stagnating and unable to effectively pull out of the recession. Yet the politicians in are not talking about jobs. Instead, they are playing a dangerous game of chicken with the August 2 deadline to raise the federal debt ceiling.
The debt ceiling is normally raised with little fanfare. But the Tea Party and the Republicans are demanding drastic cuts to social programs for ordinary people. They are not alone. Obama is also proposing deep cuts. Raising the debt ceiling has become captive to attempts by both parties to push through cuts that give them a political advantage.
A variety of proposals for deep cuts and a number of slight tax increases have emerged out oftalks with key legislators only to be shot down by House Republicans, who have refused to accept anything that includes tax increases or even closing tax loopholes.
With the August 2 deadline looming and neither party able to make an agreement, a possible fallback position has emerged to avoid a historic U.S. government default. The most talked-about plan is one hatched by Senate Republican leader Mitch McConnell. This would allow the president to raise the debt ceiling without congressional approval but allow House Republicans a symbolic vote against the plan as long as the president proposes cuts to offset new borrowing.
But before we can get to that point, some background is necessary. House Republicans managed to pass their symbolic and outrageous “cut, cap, and balance” bill on Tuesday July 19 only to meet with a swift defeat in the Senate. This would cut $5.8 trillion over 10 years, cap future spending, and require Congress to approve a constitutional amendment to balance the federal budget before raising the debt ceiling by $2.4 trillion. If it had passed the Senate, the president had promised to veto it. Needless to say such a plan would all but kill off an economy where private sector spending is extremely tight, and where consumer spending is incapable of providing enough impetus to allow the U.S. economy to emerge from this debt-laden and weak “recovery.”
If a limited fallback deal like the McConnell plan goes through and the president successfully lifts the debt limit, an extended debate over a deficit-cutting plan will continue. Before the emergence of the McConnell plan, President Obama himself offered the cruelest austerity measures: a four trillion-dollar cut in the deficit over ten years, including three trillion dollars in deep cuts to Social Security, Medicare, Medicaid, and other federal spending – the most popular social programs that were until recently considered off-limits. This plan of Obama was to be combined with one trillion dollars in new revenue. This would come in part from ending a few of the most egregious tax breaks for the wealthy. Yet it would leave in place the Bush tax cuts to the rich as well as be combined with possible reductions in the top corporate tax rate.
The prospect of reaching a deal on such a large plan was considered dead until shortly after the defeat of the “cut, cap, and balance” bill. Some momentum was building for a similar plan drawn up by the “Gang of Six” bipartisan Senate group . Things seemed to be heading toward an agreement until Speaker of the House John Boehner left the negotiations because the plan was to include limited revenue increases. According to the Washington Post, this was a plan that would have not only included massive budget cuts, it would also have cut the top tax rate for the wealthiest individuals and corporations. Having failed once again to come to an agreement, uncertainty has deepened, and the McConnell fall-back plan seems like the likely way out.
Why is Obama demanding such deep cuts?
The drastic attacks on Social Security, Medicare, and Medicaid announced by Obama represent a massive shift in policies by Democrats. Over the last 80 years they have built a base of support among workers, the poor and disadvantaged, and progressive movements by giving lip service to policies that, if enacted, would help the poor and workers. These new budget proposals by Obama are a bolt of lightning that will start to shatter the widespread myth that Democrats are friends of workers and the poor.
Obama’s approach is cynically designed to garner Republican cover and support for the deeply unpopular cuts to Social Security, Medicare, and Medicaid. That’s because the Tea Party House Republicans could be counted on to demand a plan like the “cut, cap and balance” bill which makes even deeper cuts and includes absolutely no revenue increases, not even a limited tightening of tax loopholes. Under this scheme, any liberal dissenters could be bypassed.
Having adopted deeply conservative policies already, Obama does not have to follow these Tea Party policies to the letter to satisfyand big business. The Tea Party Republicans in the House have become so extreme that even the U.S. Chamber of Commerce, the Business Roundtable, and other business executives released a letter rebuking their short-sighted behavior and demanding they raise the debt limit immediately. Obama had even offered Republicans what David Brooks called “the deal of the century” – three trillion dollars in cuts for a trillion dollars in new revenue. Yet Republicans rejected it, demanding ”no revenue increases.”
Tea Party Republicans in their eagerness to placate their right-wing base, forget that their zeal to gut social spending is not as popular as they might think. When cuts in Medicare came up for a test of voters in aspecial election, the candidate who professed such zeal lost. A July 17 Washington Post/ABC News poll found that 72% of Americans support raising taxes on the rich and that the same amount are opposed to any Medicaid cuts. Majorities are also opposed to cuts in Social Security and Medicare.
Under his present “centrist” strategy, Obama has gambled that he can win the 2012 elections by posing as the wizard of a “grand bargain”, and by posing as the adult in a room filled with crazy Tea Party Republicans.
It’s instructive to see what he said at a recent press conference: “[W]e have these high-minded pronouncements about how we’ve got to get control of the deficit and how we owe it to our children and our grandchildren. Well, let’s step up. Let’s do it. I’m prepared to do it. I’m prepared to take on significant heat from my party to get something done. And I expect the other side should be willing to do the same thing - if they mean what they say, that this is important” [emphasis author’s] (“President Obama on Deficit Reduction: ‘If Not Now, When?’”, http://m.whitehouse.gov/blog/2011/07/11/p
Obama’s broader goal is to win over Wall Street and signal he’s prepared to promote a broad pro-big business agenda of continued austerity once reelected into a second term. As far back is 2009, David Brooks reported in his column about a conversation he had with senior http://www.nytimes.com/2009/03/06/opinio
This is not the “hope” or “change” that tens of millions of Americans voted for.
Krugman goes on to say: “That’s three of the right’s favorite economic fallacies in just two sentences. No, the government shouldn’t budget the way families do; on the contrary, trying to balance the budget in times of economic distress is a recipe for deepening the slump. Spending cuts right now wouldn’t ‘put the economy on sounder footing.’ They would reduce growth and raise unemployment. And last but not least, businesses aren’t holding back because they lack confidence in government policies; they’re holding back because they don’t have enough customers — a problem that would be made worse, not better, by short-term spending cuts.”
How come these arguments about government “living within its means” were never made when Wall Street got its bailout, when trillions were spent on wars of occupation in the last decade, or when Obama institutionalized Bush’s tax cuts? Stepping back, it’s amazing how the corporate politicians and corporate-dominated media around the world have managed to pull off a major coup - switching attention from anger at Wall Street and high unemployment to the need to cut the deficit as the biggest problem.
Given the extreme weakness of the private sector economy, only a massive jobs program of public works could begin to attack high unemployment in a serious way. But this would of course require shifting fiscal priorities away from protecting Wall Street and corporate profits and towards ordinary working people and the poor. We have seen that there is no shortage of money to satisfy the needs of the super-rich investors and CEOs. So we must conclude that it is a political choice on the part of the Democrats and Republicans as to who deserves more support: the wealthy magnates of finance and industry or the vast majority of Americans who actually create all the wealth through their labor.
Armageddon – The Real Danger of Default
In other words: Social Security, Medicare, and Medicaid checks may not be paid out, but the big banks, investors, and foreign governments that loaned money to the U.S. to create the national debt will be prioritized to ensure they continue getting their debt service payments.
Nevertheless, if the U.S. Treasury is eventually forced to stop paying its creditors, that would trigger a dangerous bond market crisis that could sink the global economy back into a slump. Legions of investors and creditors holding U.S. debt could begin a massive sell-off, collapsing the dollar and together with it the credit markets which are the life blood of the modern capitalist global economy. This is what they are concerned about.
The ongoing crisis of families and individuals being foreclosed upon, unable to find jobs; declining wages, disappearing benefits, and layoffs in the public sector - all of that can wait. But not the bond markets. These corporate CEOs and bond-holders, whose unelected power holds economies ransom, are willing to cause massive cuts in social spending in, , , and the U.S., because they “must” receive their interest payments.
A wave of fury has grown among working people around the world against austerity programs, resulting in strike action, mass demonstrations, and other direct action. Just last month, 750,000 British public sector workers held a one-day strike to reject attacks on their pensions and other austerity measures.
Build a national movement against ALL cuts
Both parties are beholden to Wall Street, the big bankers and investors. They argue we need massive cuts to pay off the national debt, which is now over $13.5 trillion. About $4.5 trillion is “inter-governmental loans” which is a nice way of saying they’ve raided Social Security and Medicare to pay for military spending. $9 trillion is held by private investors, mainly banks and billionaires, looking to get rich off interest payments.
Providing working people with homes, living wage jobs and health care should take priority over paying back money to rich investors who take low-interest loans from the Federal Reserve, then buy back government bonds and charge taxpayers higher interest! We should cancel the debt, only repaying creditors with proven need like retirees.
Corporate economists object to this. They argue that cancelling the debt would produce a financial crisis, with banks refusing to make future loans to government. But this only underscores how the entire financial system is totally reliant on taxpayer money to stay afloat. The big banks and hedge funds are essentially parasites sucking the lifeblood out of our public finances. These financial institutions should also be brought under public ownership and democratic control, with their massive ill-gotten assets invested in green jobs programs, rebuilding crumbling urban centers, infrastructure, health programs, and other social needs.
You will never see the corporate-controlled Democrats or Republicans propose such measures unless they are forced to by a huge mass movement of workers, young people, poor, and retirees. That is why we need to build an anti-corporate, working-class political alternative that fights in the streets, workplaces, campuses, and neighborhoods - and in elections as well. In the elections, we can start by running independent working-class candidates who will stand on a no-cuts, no-concessions, tax-the-rich platform – backed up by the anti-cuts movement, progressive organizations, and unions.
The need for a socialist program
If Wall Street and big business refuse to accept our demands, we should take the big banks and major corporations into public ownership under the democratic control of the vast majority of the public. Instead of economic decisions being made based on the interests of big business, a democratic planned economy could instead address the needs of the majority - by creating millions of living wage jobs, and providing everyone with decent healthcare and housing.
For more facts on the budget deficit, see Budget Myths 101 - Understanding the Debate on Taxes, Deficits and Jobs by Chris Gray and Ty Moore.