According to the U.S. government, Aug.
2 is a do-or-die day: By then either lawmakers and the president
reach a deal to raise the ceiling on the national debt or the United
States government will go into default. If the government defaults on
its obligations to the
banks and other creditors, its ability to further borrow to meet its
expenses will be compromised. Knowing the priorities of the
capitalist government, one can be sure that working people would take
the first hits in the form of delayed benefit payments and paychecks.
Background
It is not unusual for governments to
spend at a deficit—the national debt of the United States goes back
to the days of the American Revolution. Borrowed money comes in the
form of bonds and securities of shorter maturities sold to
investors—as well as to governments holding U.S. dollars as
reserves—at a particular price with a promised return in the form
of interest.
Because of the risks to the dollar and
the government’s credit rating inherent in taking on more debt than
can be serviced out of tax revenue, Congress has placed limits,
periodically raised, on the amount of debt that can be carried. The
debt ceiling, then, is nothing more than a maximum set by Congress on
how much the federal government can owe.
Currently, the debt limit is $14.29
trillion, which is approaching the annual gross domestic product of
the United States. The U.S. government i s projected to surpass that
ceiling on Aug. 2. If the limit is not increased or if a plan to
reduce the federal deficit isn’t put in place by that date, the
actual outcome is unknown, but it is claimed by capitalist
politicians and media that the country would lose its top credit
rating, which would make it more difficult and expensive to borrow,
and that the value of bonds and other fixed-income assets would fall
pushing interest rates up.
This, in turn, could result in the
economy falling into a deeper recession, or alternatively, accelerate
inflation if the Federal Reserve were to engage in a third round of
“quantitative easing”—in effect running the printing press—to
finance the government’s deficit.
Ultimately, such an inflation could
lead to a drastic increase in interest rates, as occurred in the
1970s, and a severe depreciation if not outright collapse of the
dollar. In either event, not even the most ardent of capitalist
apologists could pretend that the economy is truly recovering from
the Great Recession.
In the past, Congress has routinely
increased the debt ceiling whenever necessary and could do so again,
which makes this a completely contrived crisis. In fact, the crisis
has been cooked up by both capitalist parties to provide a rationale
for deep cuts in social spending across the board. The vital Social
Security, Medicare and Medicaid programs are especially targeted,
with the Republicans and Democrats playing hard cop and soft cop,
respectively. The victims will be poor and working people of all
ages.
President Barack Obama is at the center
of it all. He has veto power over any Congressional proposal, and is
working with the various factions to come up with a “compromise”
that will couple major cuts to social programs with a modest tax
increase for the rich.
A recently
released study by Brown University estimates the full cost of the
wars in Afghanistan, Iraq and Pakistan will be between $3.7 and $4.4
trillion, which is a fraction of the spending
on the military overall. One
might think that ending wars and reducing the military budget would
be the obvious place to cut spending. But reflecting the requirements
for maintaining the U.S. empire, neither Congressional leaders of
either party nor President Obama are contemplating any serious cuts
to the military budget or ending the occupations of Afghanistan and
Iraq and ceasing aggressive actions against Libya and other countries
attempting to follow an independent course.
What is causing the ballooning
national debt?
The national debt, all $14.29 trillion
of it, does not exist because of profligate spending on social
programs. It was not caused by public works projects, aid to
students, Medicare, Social Security or any other initiative to help
working people. In fact, Social Security as a program funds itself,
does not contribute to the debt and continues to run a large surplus.
The national debt exists because of the
programs the capitalist class created to help itself. Trillions of
dollars are directly attributed to the bailouts of Wall Street and
other corporate criminals at the heart of the economic crisis.
Trillions more are for the capitalists’ wars—Afghanistan, Iraq
and Libya in the current context, but also every attack, overt or
covert, on oppressed nations, going back generations, as well as for
the two hugely expensive inter-imperialist wars of the 20th
century.
Compared to the largesse the capitalist
class grants itself by controlling the mechanisms of government,
social programs are a relative drop in the bucket. Indeed, social
programs have been under attack for decades as part of a cruel,
double-edged strategy to redistribute to the rich ever more of the
social wealth while making workers who produce that wealth ever more
desperate and reliant on the capitalists.
It should be no surprise, then, that
Obama and his advisors have been planning to eviscerate Social
Security and Medicare almost since they came to power in 2009. The
famed National Commission on Fiscal Responsibility and Reform, a
“bipartisan” commission formed by the president in 2010 (a
different group, the so-called “Gang of Six,” is furthering the
commission’s work during the current debate), was composed of men
hostile to Social Security and Medicare, and its findings clearly
pointed to these and other vital programs as being at the heart of
the nascent debt crisis.
Of course, all the commission members
are capitalists, and of course the capitalists’ solution to
economic stagnation is to reduce social spending to more easily cut
taxes on the rich—or as the Republicans prefer to say, on the “job
creators.” They will never think about seriously cutting military
spending or incrementally raising taxes on those who live in luxury
at the expense of working people.
The debate in Congress over the details
of the plan that will raise the debt ceiling is just a screen that
obscures the real issues at stake. While it is not known when they
will reach a deal and what the exact terms will be, the broad
outlines of the deal are already obvious: They will agree to
implement further cuts to social programs.
Once again, the working class will pay
for the crisis of capitalism. Meanwhile, one faction of the
capitalist political establishment will boast about having saved
future generations from wasteful spending while the other will boast
about having fought against even more draconian cuts to social
programs.
Capitalist economic and financial
crises are not natural catastrophes. They result from a certain set
of social relations designed to benefit the capitalists at the
expense of working people. The only real solution to the problems of
national debt and underfunded social programs is to make the rich pay
for their crisis. Working people are through paying the tab for Wall
Street’s practices. Tax the rich now, and overthrow their criminal
system tomorrow.
