|Written by Alejandro Iturbe, Gabriel Massa|
|Thursday, 12 January 2012 22:07|
This article was originally published in The International Courier – issue # 6 – September 2011.
The background of this is the difficult economic situation that the country is living in, given the context of the continuation of the international crisis. This crisis started in the U.S. in 2007, and after the bankruptcy of Lehman Brothers, where the country had the worst falls in GDP and industrial production in decades. There was the threat of a new Great Depression, as initiated in 1929, and the financial-banking system was on the verge of bankruptcy.
The huge packages of money for financial markets, first launched by Bush and then augmented by Obama, totaling 13 billion dollars (almost the country’s annual GDP), managed to avoid the bankruptcy of the financial system and cut the dynamics of the “inclined plane” of the economy. In the same way as before the US had been the major driver of financial speculation, the US State now acted as an “insurance company” for the financial system at the expense of over-indebtedness of treasury bonds.
A fragile recovery period was initiated, whose peak was in the first quarter of 2010 (+2.9%). But momentum slowed rapidly and led to what economists call an “anemic growth” and in decline: the economy grew 1.9% in the first quarter of 2011 and 1.3% in the second. Recall that Paul Krugman estimated that it takes 2.5% annual growth in order for unemployment not to increase.
This dynamic creates a hopeless situation for the 14 million unemployed (more than 9% of the workforce, according to official figures), the more than 10 million underemployed and the over 40 million people who depend on state subsidies. And it shows that big companies and banks in the country are not investing to boost production within the U.S., although they have seen their profits rise by increasing the exploitation of workers through low wages and the harsh working conditions achieved in the last period (like the restructuring agreement of General Motors). The bourgeoisie continues its speculation in the various domestic and international “financial markets”.
A “vacuum” in trouble
Thanks to its economic, political, and, military hegemony and that its currency is the international “reserve currency”, the U.S. acts as a “vacuum” of the wealth in the world. Some mechanisms of this “vacuuming” are fairly straightforward: looting of raw materials and natural resources, and profit remittances/consignments of multinational corporations. Others are more indirect, such as the sale of Treasury bonds guaranteed by the federal government. Major exporting countries of the world, including China, Germany, Japan, India and Brazil, buy US currencies for its own reserves.
This large amount of money obtained through bond acts as “fuel” for the U.S. economy to finance imports, covering the budget deficit, and essentially, feeding the markets of financial speculation. Since the outbreak of the economic crisis and the situation of near-bank bankruptcies, the issuance and sale of Treasury bonds had a dramatic increase. The money paid was used in huge packages that filled the “holes” of the banks and big companies.
At the same time, this increase took the total government debt to the limit of what was authorized by legislation and a new law was necessary to raise that limit. This debate expresses and, in turn, worsens the political crisis that U.S. imperialism now lives in and of imperialism in general.
The crisis comes from before
It is necessary to see that this crisis has deep roots. The failure of “Project Bush”, with its political and military defeats in Iraq and Afghanistan, created a relationship of forces unfavorable to imperialism and fueled the outbreak of the economic crisis. The American bourgeoisie, in the 2008 elections, bet on Obama as their new “change of face” and adopted new tactics to gain time and, in turn, seek a way out while navigating these difficult domestic and international waters.
How to deal with the economic situation?
Within this framework, the legislative debate on debt put the U.S. on the brink of default and showed the eyes of the world of the political crisis on the main imperialist bourgeoisie. The crisis can be analyzed on two levels.
The first is conceptual: what policy to apply given that the evidence economy was slow and was in a recessive dynamic? Until last year, Obama implemented the policy of expanding the monetary base without limits (and continuing to sell Treasuries to support it) to power the economic circuit. Even after his defeat in the 2010 legislative elections, he made a last stand in this regard: the issuance of 600,000 billion dollars so the government can buy Treasury bonds and thus devalue the dollar to increase exports and decreasing imports. But the U.S. trade balance deficit not only did not improve but worsened. Obama’s policy had failed. Paul Krugman was arguing that the stimulus came from mega-packets had been “insufficient” and another was needed. But his proposal was now completely isolated.
Republicans, on the other hand- while using the Tea Party as a battering ram- maintained the policy that to extend the debt limit, each new dollar must have its counterpart in federal budget cuts, all the while keeping tax exemptions on corporations and the rich. Obama accepted the cuts, but with an eye toward re-election, called for an end to some tax breaks and to give him some budgetary room to give some concessions.
The bill that passed showed that the Republican proposal triumphed in its essence and this means a policy change of the U.S. imperialism to deal with the crisis: its abandoned Krugman’s position and now moves on to a much more restrictive policy : in the next two years, the federal government will have to cut spending by 900 billion dollars. This is something that will surely have recessionary effects in the U.S. and in the world.
The political crisis enters the scene
The second factor is much more political. As we said earlier, the debate on debt expressed, and, in turn, aggravated the political crisis that U.S. imperialism lives in today. The whole U.S. political system, based on the interplay between the two bourgeois parties (Democrat and Republican) and the balance of powers between the president and Congress, has gone very bitter and damaged. Consecutively, this political crisis exacerbated the economic perspectives because of the “mistrust” that it generated.
Obama and the Democrats, who were already weakened by their defeat in the legislative elections of 2010, have further weakened. They have begun losing their electoral base, who now believe that the president has “betrayed his promises.” He is increasingly becoming what is called a “lame duck” – someone with little real power- and whose chances of being reelected in 2012 seem to be diminishing.
The Republicans have gained electoral weight, but they also live in a situation where millions are underemployed and where over 40 million people depend on state subsidies. To add to that, big corporations and banks in the country are not investing to boost production within the U.S. – although they have seen their profits rise due to the increased exploitation of workers through low wages and the hardening of working conditions achieved in the last period (recall the restructuring agreement of General Motors). The bourgeoisie continues the speculation in the various domestic and international “financial markets”.
A “vacuum” in trouble
Thanks to its economic, political and military hegemony, and that its currency is the international “reserve currency”, the U.S. acts as a “vacuum” of wealth in the world. Some of the mechanisms of this “vacuum” are fairly straightforward: looting of raw materials and natural resources, and profit remittances of multinational corporations.
Others are more indirect, such as the sale of Treasury bonds guaranteed by the federal government. Major exporting countries of the world, including China, Germany, Japan, India and Brazil, buy them as a reserve of their own currencies. This large amount of money obtained through bonds act as “fuel” for the U.S. economy to finance imports, covering the budget deficit and essentially feeding the markets of financial speculation.
From the outbreak of the economic crisis and the state of “virtual” bank bankruptcy, the issuance and sale of Treasury bonds saw a dramatic increase. The money paid was used in huge packages that filled the “holes” of the banks and large companies.
At the same time, this increase took the total government debt to the limit of what was authorized by legislation and a new law was necessary to raise that limit. This debate expresses and, in turn, worsened the political crisis that U.S. imperialism and imperialism in general is now going through.
The crisis comes from before
It is important to see that this crisis has deep roots: Chiefly, the failure of “Project Bush” with its own military and political defeats and its subsequent crisis after the defeat of “Project Bush.” Some analysts say this is divided into at least three sectors: the “classics” (the old Republican right advised by Bush Sr.), the team who accompanied Bush Jr. in the “new American century” project and, now, as a phenomenon, the Tea Party.
According to Mitt Romney, former governor of Massachusetts and the Republican figure most likely to win the next presidential election and most in-line with the “classics”, he was in favor of agreeing with Obama’s [debt-ceiling] proposal, but could not because the cost would have been broking the coalition the Republican Party has transformed into.
It is possible that this political crisis expresses structural differences within the U.S.’s imperialist bourgeoisie, which is being aggravated by the economic crisis. This is creating an increasingly bitter struggle of the various sectors of the bourgeoisie to not only make the workers’ pay for the crisis but also their own rivals. For example, the financial sectors, traditionally identified with the Democrats, want to shrink the deficit of the State, partly by reducing the military budget. They were willing to give concessions and a little “breathing air” to Obama. Even great investors like Warren Buffet and George Soros said they were willing to pay more taxes.
For their part, defense contractors (the “military industrial complex”) joined together with Republicans to push for reduced aid to banks in crisis and maintain military spending. They discuss the rhythms of the withdrawal from Afghanistan and Iraq and what role to play in post-military intervention, and what investments will be in that plan.
Large industries, meanwhile, demand a stronger onslaught on wages and working conditions in order to increase their “competitiveness”.
In the tug of war over the debt ceiling, Democrats and Republicans (and bourgeois sectors that support them) sought to defend their interests and to “set the field” for the presidential elections of 2012 and thus carry out their projects. Obama came out clearly defeated.
The Tea Party
In this political crisis the Tea Party has played a core role of the extreme right (in actuality it is a coalition of groups). The Tea Party has a social base of merchants, small industrialists and white workers, with a strong participation of the religious right, which has gained much weight in the Republican Party. The main reference point for this sector is the former Republican candidate for vice president, Sarah Palin.
Faced with growing popular discontent over Obama’s administration inability to solve the problems caused by the crisis, especially unemployment, the Tea Party has been proposing the classic recipes of the Right: blame the foreign workers, especially Latinos, and China for “stealing “jobs and businesses from Americans, and propose an aggressive policy of” defense “.
In terms of the federal budget they, on the one hand, propose the destruction of the “welfare state”, oppose the defense of the environment, push for sustaining and increasing military spending and, in turn, call for the reduction of overall taxation.
In an almost comical note, they described as “socialist” (in the U.S. this is a very serious accusation) the measures of Obama’s health reform and public pensions. It is clear that Obama’s policy is nothing “socialist.” By contrast, he’s attacked workers and their conquests (the public health system has been serving fewer and fewer people, and pensions and wages continue to fall). But his attack has been a gradual one (and he wanted to raise some taxes on corporations and the wealthy, so he could argue that all sectors are having their share of sacrifices). The Republicans propose a much harder attack and have been using the Tea Party as a battering ram.
This organization is still small. For now, no major sectors of the American bourgeoisie are proposing it as a serious alternative power.
The response of workers
The political and economic crisis has been refueled and deepened. On the one hand, it increases the polarization of the clashes between different factions of the American bourgeoisie. On the other, a vote in Congress will increase the attacks on workers by reducing the federal budget.
The most affected sectors are health and public education, along with aid to the unemployed and the homeless. This is a fierce attack on the popular sectors.
Will the masses of workers and the peoples of U.S. react as California’s educational community and the state of Wisconsin did? The response of the workers will depend on whether or not there is a rise of the masses, and of its rhythm. Should this rise, the U.S. will be close to Europe in the field of class struggle- the most important element.
These fights and other acts of resistance in different places in the U.S. could be signs that the working class is beginning to wake up and give their own response to the crisis. A positive sign of this is that the following slogan has become important: “Save the education, health, retirement and achievements of workers and not the banks.”
We intend to reflect this incipient process of labor and popular resistance and to inform a Trotskyist and revolutionary response to the crisis through the report of Florence Oppen, a member of the sympathizing section of LIT-CI in the U.S., we publish below.