The American debt ceiling debate

WHAT IS THE DEBT CEILING?

The United States public debt limit stands at US$14.3 trillion dollars. This was an increase from US$12.394 trillion by the Democratically-controlled Congress on 12 February 2010. This US$14.3 trillion represents the most amount of money that the Unites States government can borrow without receiving additional authorisation from the Congress. Under US law, when the national debt reaches a certain limit or ceiling, the Congress must authorise the raising of the debt to a higher limit in order for the government to continue to borrow more money. The United States’ actual accrued debt exceeded the US$14.3 trillion mark in May 2011. The current debt as of 27 July 2011 is US14,349,973,387.96.

The United States Department of the Treasury (equivalent to a Ministry of Finance) is authorised by Congress to issue such debt as is needed to fund government operations (per each federal budget) as long as the total debt does not exceed the statutory ceiling. Since 1979, the House of Representatives without debate has automatically raised the debt ceiling when passing a budget, except when the House votes to waive or repeal this rule. During the profligate military spending of the Reagan administration 1981-1988, the debt ceiling was raised 18 times. George W. Bush raised the debt ceiling seven times in order to fight against peoples of Afghanistan and Iraq. Article I Section 8 of the United States Constitution gives the Congress the sole power to borrow money on the credit of the United States. More importantly, the 14th amendment of the US Constitution states simply that, ‘The validity of the public debt of the United States…..shall not be questioned.’

The Obama administration wants to raise the debt ceiling to US$16 trillion. When the US economy went into a recession in 2008, as a result of the financial crisis on Wall Street and the subsequent bailout it received, President Obama attempted to assist the real economy by increasing fiscal spending to help maintain levels of domestic demand. These acts coupled with formal inclusion (in the budget) of the US$10 billion per month that the US government is spending on two wars have increased the debt. These expenditures along with the maintenance of the tax cuts enacted by President Bush are the primary reasons why President Obama’s administration has sought an increase in the debt ceiling. However, for the first time in decades the conservative forces of the US are using this debt ceiling debate to create a false sense of fiscal crisis and thus, use the false fiscal crisis to pursue their desire to force greater cuts to Social Security, Medicare and Medicaid. These are entitlement programmes for the majority of the population, particular for the poor and elderly.

Working with Tim Geithner, the Secretary of the Treasury, the government gave 2 August 2011 as the deadline to raise the ceiling, or otherwise the government, would not be able to pay its bills. While other options do exist (such as the president invoking the 14th Amendment to the Constitution), this doomsday scenario reflects how elements in the Democratic Party are also fuelling a false sense of crisis. Meanwhile all around the world this debate is awakening billions of people to the reality of the present state of the US economy. Thanks to this debate, the world is now discovering what the US economy is really about; not what they imagined it.

This false crisis serves to conceal the real issue: That the debt ceiling debate is really another gambit to step up class warfare against the majority of American citizens and the planet by the growing political power of the top one per cent of US society. Raising the debt ceiling has never been contingent on the cutting of social safety nets for the poor and elderly while the rich enjoy tax breaks, corporate welfare and subsidies. Neither has it been on the condition of ending funding for the kind of public investments needed to transform the outdated economic arrangements. The debt ceiling is about paying for spending already approved by previous congresses and presidents.

Wall Street and the bond rating agencies are threatening to downgrade the US triple AAA rating – should the US default on its debt – in order to pressure a deal between the Republicans and the Obama Whitehouse. Republicans want deep cuts in entitlement programmes for the poor, elderly and infirm, and everyone is talking about depressions and recessions, while the masters of the universe (the Wall Street barons) are doing just fine.

The debt ceiling debate is manufacturing a phony crisis because the question of the trillion dollar military budget is not being vigorously discussed. More importantly, the deficits increased because of the collapse of the housing bubble and the massive sums expended to rescue the financial institutions. The population needed to be educated on the scams of the banks and their responsibility for this economic crisis. Additionally, there is no serious discussion of having the incomes of billionaires taxed at the same rates as the wages of workers, just as are no talks about breaking up the banking and derivatives cartels. In order to suggest that the Democratic Party is considering an imposition of taxes on those who earn more than US$250,000, President Obama has been mentioning this figure in press conferences and in the media but there has been no serious effort to generate a comprehensive analysis and programmes to educate the working people on the need to tax the rich. A three per cent financial transaction tax (FTT) on America’s wealthy derivatives dealers in the US$600 trillion industry will go a long way to making a dent in the budget deficit. By focusing on re-election, the Obama administration seems to have no leverage or control, and is moving so far to the right that the poor are suffering even more. The progressive left must organise to set the agenda by educating the people on the dangers of wars and more militarism to save the rich.

CLASS WARFARE AND CONSERVATISM

In a normal economy, a country that is as indebted as the United States must find ways to balance its books and pay its debts. The rules that were established by the IMF that countries should live within their means do not apply to the United States because as the super power, its debt is denominated in dollars and the US can print its currency at will. This was not the original policy. Under Article 9 of the Agreement of the International Monetary Fund (IMF), the US is supposed to back up its currency with gold.

However, since 1971, the US dollar is supported by their military. Most countries keep their reserves in dollars so that the US can run up a huge debt, with the consequence of devaluing the hard-earned reserves of those countries with US dollar reserves. The Europeans attempted to get out of this domination of the dollar by establishing the euro. Presently, the US holds about 64 per cent of the international reserves and the Europeans hold about 20 per cent. In the past three years as the capitalist crisis deepened all over the world, European workers have been struggling against so-called austerity measures taken by their governments. These measures are imposed on working peoples so that banks and other speculators do not have to take the financial losses they have incurred. The public discussion of the Greek crisis and the attempts to salvage the situation has placed great strains on the euro. There are some in the US who would like the Euro to collapse, because its very existence threatens the status of the dollar as the international reserve currency.

However, just when the class struggle was getting hotter in Europe with workers marching onto the streets of Athens, Dublin and Madrid, the Chinese President Hu Jintao announced at the end of June that China would increase its support of the euro. The Chinese President pledged to spend billions of whatever it took to prop up the single currency: the euro, just as it is simultaneously propping up the dollar. With this assurance, on Thursday 21 July 2011, the leaders of the European Union announced a rescue plan to save the Greek economy. The real rescue here was that global capital (especially the French and German bankers), backed up by Chinese capitalists, who stepped in to ensure that capitalism would remain powerful as a force against the working class. The Chinese government holds US$1.8 trillion of the US debt and is a major creditor for the US capitalist classes.

THE BANKERS AND THEIR POLITICIANS

Because capital is global, the capitalists do not have loyalty to any one society. Through offshore banks and computer-generated movement of funds, these capitalists operate beyond the laws of governments. Prior to the present era of neoliberal globalisation, one could speak of national capitalists, but today, capital has only one loyalty: To save the system, regardless of the costs to humanity in famine, hunger, wars or destruction of the environment.

The outrage caused by the bank and mortgage fraud in 2008 had temporarily placed the bankers and hedge fund managers on the defensive. This was the period when the government had to bail them out and transferred over US$14 trillion to them. In this political climate, the Senate passed the Dodd-Frank amendment aimed at regulating the financial services industry.

The financial crisis of 2007–2010 that destroyed major securities firms, froze credit markets and eliminated US$26.4 trillion in stock market value around the globe led to widespread calls for changes to the financial regulatory system. In June 2009, President Obama introduced a proposal for a ‘sweeping overhaul of the United States financial regulatory system in 75 years.’ The subsequent law, The Dodd–Frank Wall Street Reform and Consumer Protection Act, was signed into law by President Barack Obama on 21 July 2010.

Under this law, there was to be government oversight through:

1. The consolidation of regulatory agencies, elimination of the national thrift charter, and new oversight council to evaluate systemic risk
2. Comprehensive regulation of financial markets, including increased transparency of derivatives (bringing them onto exchanges)
3. Consumer protection reforms including a new consumer protection agency and uniform standards for ‘plain vanilla’ products as well as strengthened investor protection;
4. Tools for financial crises, including a ‘resolution regime’ complementing the existing Federal Deposit Insurance Corporation (FDIC) authority to allow for orderly winding down of bankrupt firms, and including a proposal that the Federal Reserve (the ‘Fed’) receive authorisation from the Treasury for extensions of credit in ‘unusual or exigent circumstances’
5. Various measures aimed at increasing international standards and cooperation, including in this section were proposals related to improved accounting and tightened regulation of credit rating agencies.

These stipulations were not yet signed when the bankers went into overdrive and spent millions on lobbyists to undermine and whittle away the legislation. The bankers regrouped and supported the most conservative sections of the US society, and ensured the victory of nearly 100 new conservative members of Congress in November 2010, with the majority propped up by the Tea Party. Republican Senator Mitch McConnell stated that the number one task of the new Congress was to ensure that Barack Obama was not re-elected.

The much publicised crisis about the debt ceiling championed by the Republican law makers is not just a tool to deepen the economic crisis with the aim of dashing Obama’s re-election bid. By using as bargaining chips in the debt ceiling debate corporate welfare, tax protection for Wall Street and the wealthy, many of the Republican law makers have given the American people no reason to doubt that they are errand men and women for bankers and corporations. It was these same Republican law-makers who frustrated Obama’s appointment of Elizabeth Warren as head of the US Consumer Financial Protection Bureau (CFPB). The fact that Warren’s credentials presented her as someone who would be tough on the criminal activities of banks that prey on American consumers made the Republican lawmakers block her confirmation for the job.

THE TIMIDITY OF OBAMA

Obama has refused to lead and expose the criminal activities of the banks. During the Savings and Loans Crisis of the 1990s, hundreds of bankers were arrested, but in the aftermath of the 2008 collapse, only Bernard Madoff and a few underlings were sent to jail. The banks had been involved in massive fraud but they operate as a law unto themselves. The Justice Department under Obama continued the traditions of the Clinton administration – being deferential to the banks and agreeing that the banks could police themselves for fraud. With the intense campaigning by the banks against the Dodd-Frank legislation, the Obama administration has now retreated on most of the provisions of the Dodd-Frank legislation. Obama sent a signal of his surrender to Wall Street when he nominated former Ohio Attorney General Richard Cordray as the head of CFPB instead of Elizabeth Warren, who served as Assistant to the President and Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau. The central mission of the CFPB, which resulted from the Dodd-Frank act and began operation on 21 July 2011, is to make markets for consumer financial products and services work for Americans – whether they were applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products. Warren had worked hard for the establishment of this agency to oversee the banks.

Earlier, after Obama gave in to the opposition from the conservative lawmakers opposed to true financial reform in Congress, in order to make sure that Wall Street received the message that he is not their enemy, Obama appointed William Daley as his chief of staff. Daley came directly from J. P. Morgan Chase & Co, where he worked closely with JPM Chase’s chief executive officer, Jamie Dimon, who is competing to be known as the number one banker internationally.

Obama then appointed the CEO of General Electric, Jeffrey Immelt, to lead a new White House panel, The President’s Economic Recovery Advisory Board, to advise the government on how to help American companies create more jobs. The New York Times, on January 21, 2011 had the headline ‘Obama Sends Pro-Business Signal With Adviser Choice.’ This appointment by Obama was a direct slap in the face of the working class because GE had become central to the financial services industry and received a bailout. GE also admitted that it did not pay any federal corporate taxes in recent years, outsourced jobs overseas and become a leading supporter of policies enabling the growth of speculative markets internationally. The appointment of Immelt was the clearest sign of Obama’s capitulation to the masters of the universe. A clear position on new jobs for a post-industrial society must come from the progressive sections of society because Obama and his advisers have shown that the conditions of the majority is not their primary focus.

THE BANKERS AND WALL STREET – ARE THEY UNTOUCHABLE?

As the economic crisis deepened for the majority of the citizens of the world, the American citizens began to feel the pain as state and city governments laid off workers, closed schools, hospitals and slashed budgets in order to stay afloat. Balanced budget provisions requiring states not spend more than they earn has been added to all of the states in the US (except Vermont). However, the state governments around the country were beholden to capital and preferred to attack the living standards of workers rather than imposing taxes on the very wealthy. The belief in trickledown economics meant that the society believed that the richer the rich became the better for society. So, for example, the State of New York presently collects a very small tax on each stock transfer, but then rebates the tax (which now in excess of US$16 billion annually) back to Wall Street speculators. The Stock Transfer Tax is hardly noticeable to anyone who invests in Wall Street, primarily hitting those who treat the stock markets as casinos, making hundreds of trades daily. This same New York state government that remits US$16 billion annually to the speculators is now involved in massive cuts in the state budget.

Like the federal government, New York and many other states work on behalf of major corporations by providing subsidies to them. The biggest subsidy is through the spending of billions to defend the interests of capital. This is on top of the billions of dollars in subsidies to the fossil fuel companies that are engaged in destroying the environment. The Obama administration has failed to listen to sections of the peace and justice movement that are calling for a financial transaction tax and for a major cut in the military budget. In the negotiations between the Republicans and the Democrats over the debt ceiling, the Obama administration suggested that it would save US$1 trillion over the next ten years by ending the wars in Afghanistan and Iraq. The Republicans rightly called this a gimmick because the ruling class in the United States knows that the real power of the US rests on the assumed power of the military. Hence, the military budget of over a trillion dollars is sacrosanct. There are numerous projects that can be slashed right away in the military/financial sector, but the Obama administration sent out word to its supporters that raising issues such as slashing the trillion dollar F-35 Joint Strike Fighter Jet project would harm the Obama administration with independents. This military toy being produced by Lockheed Martin is projected to cost nearly a trillion dollars including development, production and support costs.

Instead of heeding the warnings of the workers of the country who were protesting against the capitalists, Obama sought to appease the capitalists. While workers in Wisconsin, Michigan and Ohio were fighting to save their livelihoods, Obama established what he termed ‘bipartisan negotiations’ to reach an agreement with the Republican leadership in an effort to stitch together a band aid solution to the major deficit question. Instead of taking a vigorous lead to fully clarify to the people the real consequences of the wars and the subsidies to the financial masters of the universe, Obama sought an agreement with the Speaker of the House of Representatives. The debate about the ceiling was unnecessarily linked to the larger issue about slashing the federal budget. Once the Republicans took over the House of Representatives in November 2010, there has been a concerted effort to impose the ideas of Ayn Rand. These ideas hold that the rich must not be taxed because they create wealth and that there should be a reduction in the role of government.

The Republicans believed in a cuts-only approach, i.e. cut Social Security, cut Medicaid and cut Medicare. Before the implosion of Wall Street in 2008, there had been a big push by former President George W. Bush to privatise Social Security and to take this entitlement away from the people. This position of attacking the living standards of the working people became clear when the Republicans refused to discuss the question of taxation on the rich or closing loopholes where they evade paying taxes.

There is no need to link the budget debates to the debt ceiling legislation, but President Obama entered into negotiations with the Republican Speaker of the House, John Boehner, so that he could look good to Wall Street. After months of secret negotiations, Obama agreed on making spending cuts to entitlements. But this was not enough. A charade of negotiations ensued for a month whereby the Secretary of the Treasury, Timothy Geithner, set the date of 2 August 2011 as the date where the debt ceiling had to be raised or the US would default on its debt.

As the 2 August 2011 deadline neared, Tim Geithner gave another date saying that by July 22, Congress had to have passed debt ceiling legislation so that the legislation could go through the Senate and be on the desk of the President by August 2. That July 22 date passed and as the reality of this game became clearer, the US bond rating agencies entered the discussion indicating that the credit rating of the United States would be downgraded if there was no agreement. This is the same bond rating agency that had given excellent ratings to Lehman Brothers and AIG in 2008. It is the same group that props up the activities of the banks and financiers.

BRINKMANSHIP AND CLASS WARFARE

Before the July 22 deadline, the various Democratic Party plans could be summed up as follows:

Cut US$2.7 trillion in federal spending and raise the debt limit by US$2.4 trillion in one step – enough borrowing authority to meet Obama's bottom-line demand. The cuts include US$1.2 trillion from across a range of hundreds of government programs and US$1 trillion in savings assumed to derive from the end of the wars in Afghanistan and Iraq.

There was very little difference between the Democratic plan and that of the Republicans. The major difference was that instead of raising the debt limit by US$2.4 trillion in one go, the Republicans wanted the limit for US$1.2 trillion for six months, and requiring that in another six months (in the middle of the Presidential campaign) Obama and the Democrats would to go back to the Congress for another long drawn out debate on the debt limit.

On Monday night, 25 July 2011 three days after Geithner sent the warning of the need for a Congressional vote, President Barack Obama addressed the US public to alert them to the state of the negotiations.

In his 15 minute speech outlining the dividing lines between the Republicans and the Democrats, he said, ‘The first approach says, let's live within our means by making serious, historic cuts in government spending. Let's cut domestic spending to the lowest level it’s been since Dwight Eisenhower was president. Let's cut defense spending at the Pentagon by hundreds of billions of dollars. Let's cut out waste and fraud in health care programs like Medicare. And at the same time, let's make modest adjustments so that Medicare is still there for future generations. Finally, let's ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions.’

All the scare talk about the government not being able to send out social security cheques if there was no deal was being promoted in the media despite the reality that social security is in the black and not in the red. The question of the social security cheques going out was not the real issue. The real issue was the fact that Obama and the leaders of the Senate had conceded on all of the points of the Republicans (cutting entitlement programmes), if they agreed to the debt ceiling extension and postpone the debate until after 2012.

In short, there has been a postponement of the real discussions on alternatives: Cutting the military budget, arresting the fraudsters of Wall Street and taxing the rich.

Obama again failed to lead and was instead begging.

But by this time, the begging was too late. The charade and theatre of the US debt ceiling debate had reached every nook and cranny of the globe. Citizens all over the world were now paying attention and were not waiting for the bond rating agencies to make decisions about their future relationship to the US dollar.

The Republican Speaker, John Boehner, emboldened by the timidity of Obama rejected compromise and requested prime time billing, the same as that received by the President of the United States. The corporate media obliged and the Speaker reiterated the Ayn Rand platform of the Tea Party forces with the same old budget proposals. The Republicans called their plan,’cut, cap and balance.’

Robert Greenstein, President, Center on Budget and Policy Priorities said that the proposal of Boehner was an extension of class warfare because House Speaker Boehner’s New Budget Proposal ‘would require deep cuts in the years immediately ahead in Social Security and Medicare benefits for current retirees, the repeal of health reform’s coverage expansions, or wholesale evisceration of basic assistance programs for vulnerable Americans.’

Greenstein added that:

‘To secure US$1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties (including House Budget Committee Chairman Paul Ryan's plan) have ruled out; 2) repeal the Affordable Care Act's coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get US$1.5 trillion in entitlement cuts in the next ten years.’

The Boehner plan contains no tax increases. The entire US$1.8 trillion would come from budget cuts.

Meanwhile the dithering and brinksmanship continued without a real discussion of alternatives. Serious economists such as Michael Hudson and Paul Krugman dismissed the games that were being played and said that there would be a deal. The debt ceiling would be raised one way or another.

For the working people, the question was how much the deal would intensify their pain. Instead of openly saying that the role of government is to defend the rich, there is the language of austerity. This calls for the rolling back of the social democratic gains of the working peoples since 1935 FDR legislative era, with the cutting back of Medicare, Medicaid, and Social Security. Internationally and locally, capital is forcing down wages. Today in the United States there is an attack on collective bargaining and an outright effort to destroy trade unions. The capitalists are outsourcing jobs (which results in a labour surplus and lower wages), and driving up the prices of food and energy by depreciating the dollar.

GLOBAL CAPITALISM AND THE CHOICES FOR HUMANS

When it is said that capitalism is in crisis, it needs to be underlined that this crisis is multifaceted. It is not only a crisis of accumulation. This crisis manifests itself in the food crisis, the financial crisis, the environmental crisis and an intellectual crisis. This last point means that in debates about austerity and the environment some sections of the left want the discussion to remain within the confines of the capitalist system. It is only from some sections of the environmental justice movement where there is awareness that there must be system change if the planet is to be saved.

Capitalism is now global and the capitalists are not worried by the debates in the US. They are global until there is a need for the socialisation of losses as when they called on the government to bail them out in 2008. The capitalists no longer rely on national armies because they have a vast army of private contractors. Recently, the head of Blackwater (now called Xe) announced from the United Arab Emirates the global capabilities of their military forces for hire. When the children of the workers in the regular army refuse to come out to put down protest of workers, the bankers will deploy their private armies. The capitalists do not want regulation of any kind, only regulations against workers.

In fact, Moody’s, one of the bond rating agencies, called for an unlimited debt ceiling for the United States. The capitalists will move their resources around the world and will ensure that governments do their bidding. Working people all over the world are resisting, from Cairo in Egypt to Athens in Greece to Wisconsin in the US. The capitalists will pressure the US government the same way that they have pressured the governments in all other parts of the world to do their bidding.

In this present tussle between global capital and the international working classes, the Chinese capitalists are becoming the arbiters in throwing their weight behind capitalism internationally. In the global class divide, sections of the Chinese leaders are working for a three-tiered international currency system. Hence, until that moment when the Renminbi will be on par with the dollar and the Euro, the Chinese capitalists will prop up the European and US bankers and at the same time prop up the dollar and the euro. Yet, all of these calculations on the future of capital will be affected by the laws of unforeseen circumstances. Capitalism is now global but reaction and counter-revolution takes place in national boundaries. Just as how one gun man can be inspired by conservative ideas to kill dozens in Norway, so the conservatives in the US want war. These yearnings for war will have serious consequences for humanity. It was not insignificant that this Norwegian neo-conservative was calling for global war to save white supremacy.

The peace movement internationally must intensify their efforts to dismantle capitalism. President Obama is playing games in order to be re-elected. But the capitalist crisis is not waiting for a US election. Moreover, what will be the use of being re-elected in order to do the bidding of capital? The Wall Street magnates will want Obama re-elected only because his face will give capital the legitimacy to enact ‘austerity measures’. The peace and justice forces must intensify their campaigns against capitalism and war internationally. Peace and justice forces must remember that wars are always the last resort to ensure that the working classes kill each other.

BROUGHT TO YOU BY PAMBAZUKA NEWS

* Horace Campbell is professor of African-American studies and political science at Syracuse University. He is the author of ‘Barack Obama and 21st Century Politics: A Revolutionary Moment in the USA’. See www.horacecampbell.net.
* Please send comments to editor[at]pambazuka[dot]org or comment online at Pambazuka News.