US: Debt ceiling debate provides cover for historic attacks on New Deal programs

Job growth has collapsed in the last two months, with the official US. 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 Washington 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

Job growth has collapsed in the last two months, with the official US. 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 Washington 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 programmes for working 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 of White House talks 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 US 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 US 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 programmes 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?

While the agenda of Republicans is designed to shore up its right-wing base in preparation for the upcoming presidential elections, there has been a wide-ranging discussion on the motives behind Obama’s policies.

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 is 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 satisfy Wall Street and big business. The Tea Party Republicans in the House have become so extreme that even the US 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 a New York special 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 is 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?’”, The White House Blog, 7/11/11).

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 newspaper column about a conversation he had with senior White House advisors in which they related that Obama “is extremely committed to entitlement reform and is plotting politically feasible ways to reduce Social Security as well as health spending” (“When Obamatons Respond,” New York Times, 3/5/09)

This is not the “hope” or “change” that tens of millions of Americans voted for.

Obama’s conservatism

What is most astonishing is the speed with which Obama has dropped the argument that creating jobs is the most immediate and pressing policy goal. Instead, he has adopted some typical Republican talking points about spending cuts. New York Times columnist Paul Krugman quotes Obama saying: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs” (“What Obama Wants,” 7/7/11)

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 are not holding back because they lack confidence in government policies; they are holding back because they don not 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 is 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 programme 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

The needs of working people, the unemployed, and the poor are never granted the kind of priority that is being given to the debt ceiling debate by the corporate media and the politicians of the big business parties. However, there is real danger if the debt limit is not raised. If Congress does not pass a bill raising the ceiling by August 2, The Economist magazine laments: “the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers” (“America’s Debt: Shame on Them,” 7/7/11).

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 US to create the national debt will be prioritized to ensure they continue getting their debt service payments.

Nevertheless, if the US 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 US 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 Greece, Ireland, Spain, and the US, because they “must” receive their interest payments.

A wave of fury has grown among working people around the world against austerity programmes, 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

The dynamic mass struggles in Wisconsin this spring against Governor Walker’s anti-worker, anti-union policies demonstrate the way forward. We need to build in the US a national anti-austerity, anti-cuts movement that puts blame for the deficits and unemployment where it belongs: on Wall Street and big business. The movement should take up demands such as the following:


  • No to all cuts on workers, the poor and social services. Instead, end all the wars and slash military spending.
  • Enact massive taxes on Wall Street, big business, and the very rich.
  • Pass single-payer healthcare to save hundreds of billions of healthcare dollars now wasted on wild-eyed industry profits and unaccountable private bureaucracies.


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 have 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 programmes, rebuilding crumbling urban centers, infrastructure, health programs, and other social needs.

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

In the end, even a powerful movement of ordinary people will be limited in how much it can do within the confines of capitalism. The capitalist class will resist with all its might any attempt to really end the corporate welfare system of tax breaks, bailouts, and wars for profit. Big bankers and investors would retaliate by threatening to withdraw their deposits in the US and seriously restrict future investment. We need to build a movement that has the power to enforce these measures: a movement for democratic socialism that says that if capitalism cannot afford our basic needs, we cannot afford capitalism.

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.


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