The Economic Consequences of US Debt Default

Teapublican Fantasies
by JACK RASMUS


The economic ignorance of the Teapublican faction of the Republican party in the US House and Senate is perhaps exceeded only by the similar ignorance of its economic advisers.

Appearing in the public press in recent days is the latest ‘brilliant’ Teapublican view that a default by the US government on paying interest on its debt would not have a negative impact on the US or global economy.

Both the US and global economies are already slowing noticeably, with the Federal Reserve in the US continuing to downgrade and lower its estimates of future US growth, and the IMF doing the same for growth rates in China and the rest of the world. The Teapublicans claim a US debt default would not impact these already negative trends.

While it is true that the US government will not completely run out of money with which to pay its debts on October 17, 2013, as Treasury Secretary, Jack Lew, has publicly stated, it is equally true that it will definitely do so sometime between October 24 and early November. Thereafter, some funds will continue to come into the government, but not nearly enough to pay all its bills. That will force the Obama administration to choose between what it will pay: either bondholders who own US debt or grandma and grandpa on social security. Teapublicans no doubt want to force Obama to make that ‘Hobsons’ Choice’ (i.e. damned if you do and damned if you don’t). Teapublicans will argue he should pay the bondholders first, and forego paying social security. It’s their way to start cutting social security before they even negotiate an official reduction in it with Obama.

To quote one Teapartyer’s statement today, Republican Representative, Joe Barton, of Texas: “We have more than enough cash flow to pay interest on the public debt, so there is no way we’re gong to default on the public debt unless the president of the United States intentionally does so”.

Such statements by lesser known Teapublicans were followed up today in the business press with an article by Teapublican notable, Paul Ryan. Ryan made it clear that the focus of the debt ceiling discussion was to provoke further concessions by Obama on Social Security-Medicare cuts. US House radicals thus are attempting to put Obama in a negotiating box: either he agree to cut Obamacare or to cut Social Security-Medicare.

What the Teapublican faction in all their economic ignorance don’t understand, however, is that the psychological effects of a default—or even a near default—on the US and global economy will prove significant. One does not have to wait for a complete default for that to happen.

What then are some of the possible impacts?

First is the prospect of rising interest rates. Interest rates have already begun to rise, starting on a base that has already risen since the US Federal Reserve’s bungled attempt to signal over the past summer its intent to begin reducing (tapering) its Quantitative Easing (QE) $85 billion a month liquidity injections. That Fed ‘faux pas’ has already driven up long term rates by more than 1%, thereby causing an abrupt halt to a very timid US housing recovery earlier this year. In the past month banks and mortgage servicing companies have already announced thousands of layoffs in their mortgage departments, signaling the virtual end of that housing recovery. Further interest rate hikes, short and long term, on top of the Fed’s recent bungling—which will now certainly occur as the default approaches—will all but ensure the end of any housing recovery in the US.

Short term rate increases will most likely accelerate further throughout the month of October. That includes, in particular, Treasury bill rates which will in turn impact other rates. ‘Other rates’ include the critically important ‘Repo Market’ rates. Destabilizing the repo market is a dangerous game. It is likely the locus for the next financial crash, the analog to the subprime market that was the center of the last financial crash. Teapublicans are thus playing a dangerous game, one that may well in a worst case scenario precipitate another financial instability event on the scale of 2008.

Rising interest rates also mean the end of the latest stock price and junk bond booms. In itself, that doesn’t affect average folks much. But the psychological impact of a rapid decline in asset prices can, and does, spill over to consumer and business spending. That leads to layoffs, in a US job market that is, at best, producing only part time, temp, and low paid jobs as it is.

Rising rates and an even weaker job market in November-December will translate into slowing consumption, which is already showing signs of weakness in August-September. Retail sales in general will weaken still further as a consequence of the debt ceiling default, as will an already ‘long in the tooth’ auto sales cycle.

The negative impact of debt default on consumption is already becoming evident in recent weeks. A Gallup Poll in recent days showed consumer confidence dropping precipitously. While some argue confidence surveys are typically volatile and unreliable as indicators of consumer spending, that is not as true for abrupt and significant movements in confidence indicators. That may now be happening, as the public begins to focus on the dual crises events.

The recent Gallup poll in question fell to -35 from a prior -15. This compares to -56 during the August 2011 worst period of that prior debt ceiling debacle. During the worst period of October 2008 the index was -66. Already falling significantly early in the current crisis, one can estimate where the -35 current poll will be by October 17-24 should the crisis not be resolved by then. We will almost certainly be in the August 2011 territory, when the third quarter US GDP nearly went negative (and did so if the GDP deflator was substituted with the CPI index for that quarter).

Globally, the approaching debt ceiling crisis has already provoked widespread public responses by foreign governments, warning a potential default by the US would have dire consequences for US debt holdings and future purchases. China, Japan, and the IMF have all raised warnings in recent days. If default occurs, then US bond rates will rise even further and faster than at present, raising a real question whether they will continue to purchase US Treasury debt when the price of their holdings are declining significantly in the wake of a default.

There are also important implications of a default (or even near default) for the Eurozone’s own current economic recovery and its still very fragile banking system.

Yet another negative impact globally will be a decline in Euro exports. A default situation would result in the US currency losing value, causing a further rise in the already fast appreciating Euro currency. That trend would challenge German and Euro export growth and therefore that region’s tepid 0.3% last quarter’s recovery.

Another problem potentially to grow worse is the Euro banking system. The Eurozone’s version of QE-the LTRO liquidity injection policy of the past year amounting to more than $1.5 trillion-will soon need another LTRO II injection by the European Central Bank in a matter of months. In addition, more than $1 trillion of the LTRO I will need to be refinanced soon. Nearly all the major banks in Italy, for example, have yet to repay anything of their share of the LTRO $1.5 trillion and will need further liquidity in coming months. Rising interest rates from a debt default in the US will spill over to Europe, thus raising the costs of LTRO II, as well as the financing of much of LTRO I. That will cause further fragility in the Euro banking system and economic recovery there, especially for the highly fragile Italian banks.

For Japan, its recent export gains would also slow, at a time when it has decided to raise taxes while suspending structural economic reforms.

Currency volatility in emerging markets would also intensify from a debt default in the US, likely causing a retreat once again in real growth in those markets, just a few months after their recent ‘stop-go’ provoked by US Fed QE policy uncertainties this past summer.

Throughout the past 18 months, this writer has forewarned that a fragile US economic and global recovery-not nearly as robust as some maintain-is susceptible to a ‘double dip’ recession in 2013-14 should one or more of the following negative ‘tail events’ occur: first, a renewed banking crisis in the Eurozone or elsewhere; second, significant further deficit cutting in the US; and thirdly a continued drift upward in US long term interest rates as a consequence of QE tapering or other events. While it appears the Euro banking crisis has temporarily stabilized—except for Italian banks perhaps—the deficit cutting and interest rate trajectory in the US are very real and serious trends that may yet precipitate a descent into a double dip condition in the US economy.

And if the Teapublican faction in the US House of Representatives managers to prevent a resolution of the debt ceiling issue into the latter part of October, then the economic consequences for both the US and global economies will be severe, and may even prove sufficienet to precipitate a double dip recession in the US.

Is Homeland Security Preparing for the Next Wall Street Collapse?

Ellen Brown

Activist Post

Reports are that the Department of Homeland Security (DHS) is engaged in a massive, covert military buildup. An article in the Associated Press in February confirmed an open purchase order by DHS for 1.6 billion rounds of ammunition. According to an op-ed in Forbes, that’s enough to sustain an Iraq-sized war for over twenty years. DHS has also acquired heavily armored tanks, which have been seen roaming the streets. Evidently somebody in government is expecting some serious civil unrest. The question is, why?

Recently revealed statements by former UK Prime Minister Gordon Brown at the height of the banking crisis in October 2008 could give some insights into that question. An article on BBC News on September 21, 2013, drew from an explosive autobiography called Power Trip by Brown’s spin doctor Damian McBride, who said the prime minister was worried that law and order could collapse during the financial crisis. McBride quoted Brown as saying:

If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco [a grocery chain] and their cards aren’t being accepted, the whole thing will just explode.

If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves. 

And as soon as people see that on TV, that’s the end, because everyone will think that’s OK now, that’s just what we all have to do. It’ll be anarchy. That’s what could happen tomorrow.

How to deal with that threat? Brown said, “We’d have to think: do we have curfews, do we put the Army on the streets, how do we get order back?”

McBride wrote in his book Power Trip, “It was extraordinary to see Gordon so totally gripped by the danger of what he was about to do, but equally convinced that decisive action had to be taken immediately.” He compared the threat to the Cuban Missile Crisis.

Fear of this threat was echoed in September 2008 by US Treasury Secretary Hank Paulson, who reportedly warned that the US government might have to resort to martial law if Wall Street were not bailed out from the credit collapse.

In both countries, martial law was avoided when their legislatures succumbed to pressure and bailed out the banks. But many pundits are saying that another collapse is imminent; and this time, governments may not be so willing to step up to the plate.

The Next Time WILL Be Different

What triggered the 2008 crisis was a run, not in the conventional banking system, but in the “shadow” banking system, a collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but are unregulated. They include hedge funds, money market funds, credit investment funds, exchange-traded funds, private equity funds, securities broker dealers, securitization and finance companies. Investment banks and commercial banks may also conduct much of their business in the shadows of this unregulated system.

The shadow financial casino has only grown larger since 2008; and in the next Lehman-style collapse, government bailouts may not be available. According to President Obama in his remarks on the Dodd-Frank Act on July 15, 2010, “Because of this reform, . . . there will be no more taxpayer funded bailouts – period.”

Governments in Europe are also shying away from further bailouts. The Financial Stability Board (FSB) in Switzerland has therefore required the systemically risky banks to devise “living wills” setting forth what they will do in the event of insolvency. The template established by the FSB requires them to “bail in” their creditors; and depositors, it turns out, are the largest class of bank creditor. (For fuller discussion, see my earlier article here.)

When depositors cannot access their bank accounts to get money for food for the kids, they could well start breaking store windows and helping themselves. Worse, they might plot to overthrow the financier-controlled government. Witness Greece, where increasing disillusionment with the ability of the government to rescue the citizens from the worst depression since 1929 has precipitated riots and threats of violent overthrow.

Fear of that result could explain the massive, government-authorized spying on American citizens, the domestic use of drones, and the elimination of due process and of “posse comitatus” (the federal law prohibiting the military from enforcing “law and order” on non-federal property). Constitutional protections are being thrown out the window in favor of protecting the elite class in power.

The Looming Debt Ceiling Crisis

The next crisis on the agenda appears to be the October 17th deadline for agreeing on a federal budget or risking default on the government’s loans. It may only be a coincidence, but two large-scale drills are scheduled to take place the same day, the “Great ShakeOut Earthquake Drill” and the “Quantum Dawn 2 Cyber Attack Bank Drill.” According to a Bloomberg news clip on the bank drill, the attacks being prepared for are from hackers, state-sponsored espionage, and organized crime (financial fraud). One interviewee stated, “You might experience that your online banking is down . . . . You might experience that you can’t log in.” It sounds like a dress rehearsal for the Great American Bail-in.

Ominous as all this is, it has a bright side. Bail-ins and martial law can be seen as the last desperate thrashings of a dinosaur. The exploitative financial scheme responsible for turning millions out of their jobs and their homes has reached the end of the line. Crisis in the current scheme means opportunity for those more sustainable solutions waiting in the wings.

Other countries faced with a collapse in their debt-based borrowed currencies have survived and thrived by issuing their own. When the dollar-pegged currency collapsed in Argentina in 2001, the national government returned to issuing its own pesos; municipal governments paid with “debt-canceling bonds” that circulated as currency; and neighborhoods traded with community currencies. After the German currency collapsed in the 1920s, the government turned the economy around in the 1930s by issuing “MEFO” bills that circulated as currency. When England ran out of gold in 1914, the government issued “Bradbury pounds” similar to the Greenbacks issued by Abraham Lincoln during the US Civil War.

Today our government could avoid the debt ceiling crisis by doing something similar: it could simply mint some trillion dollar coins and deposit them in an account. That alternative could be pursued by the Administration immediately, without going to Congress or changing the law, as discussed in my earlier article here. It need not be inflationary, since Congress could still spend only what it passed in its budget. And if Congress did expand its budget for infrastructure and job creation, that would actually be good for the economy, since hoarding cash and paying down loans have significantly shrunk the circulating money supply.

Peer-to-peer Trading and Public Banks

At the local level, we need to set up an alternative system that provides safety for depositors, funds small and medium-sized businesses, and serves the needs of the community.

Much progress has already been made on that front in the peer-to-peer economy. In a September 27th article titled “Peer-to-Peer Economy Thrives as Activists Vacate the System,” Eric Blair reports that the Occupy Movement is engaged in a peaceful revolution in which people are abandoning the established system in favor of a “sharing economy.” Trading occurs between individuals, without taxes, regulations or licenses, and in some cases without government-issued currency.

Peer-to-peer trading happens largely on the Internet, where customer reviews rather than regulation keep sellers honest. It started with eBay and Craigslist and has grown exponentially since. Bitcoin is a private currency outside the prying eyes of regulators. Software is being devised that circumvents NSA spying. Bank loans are being shunned in favor of crowdfunding. Local food co-ops are also a form of opting out of the corporate-government system.

Peer-to-peer trading works for local exchange, but we also need a way to protect our dollars, both public and private. We need dollars to pay at least some of our bills, and businesses need them to acquire raw materials. We also need a way to protect our public revenues, which are currently deposited and invested in Wall Street banks that have heavy derivatives exposure.

To meet those needs, we can set up publicly-owned banks on the model of the Bank of North Dakota, currently our only state-owned depository bank. The BND is mandated by law to receive all the state’s deposits and to serve the public interest. Ideally, every state would have one of these “mini-Feds.” Counties and cities could have them as well. For more information, see http://PublicBankingInstitute.org.

Preparations for martial law have been reported for decades, and it hasn’t happened yet. Hopefully, we can sidestep that danger by moving into a saner, more sustainable system that makes military action against American citizens unnecessary.

The Ongoing War: After the Battle Over the Cliff, the Battle Over the Debt Ceiling

 Robert Reich

“It’s not all I would have liked,” says Republican Senator Lindsey Graham of South Carolina, speaking of the deal on the fiscal cliff, “so on to the debt ceiling.”

For Republicans, the battle over the fiscal cliff is only a prelude to the coming battle over raising the debt ceiling – a battle that will likely continue through early March, when the Treasury runs out of tricks to avoid a default on the nation’s debt.

The White House’s and Democrats’ single biggest failure in the cliff negotiations was not getting Republicans’ agreement to raise the debt ceiling.

The last time the debt ceiling had to be raised, in 2011, Republicans demanded major cuts in programs for the poor as well as Medicare and Social Security.

They got some concessions from the White House but didn’t get what they wanted – which led us to the fiscal cliff.

So we’ve come full circle.

On it goes, battle after battle in what seems an unending war that began with the election of Tea-Party Republicans in November, 2010.

Don’t be fooled. This war was never over the federal budget deficit.

In fact, federal deficits are dropping as a percent of the total economy.

For the fiscal year ending in September 2009, the deficit was 10.1 percent of the gross domestic product, the value of all goods and services produced in America. In 2010, it was 9 percent. In 2011, 8.7 percent. In the 2012 fiscal year, it was down to 7 percent.

The deficit ballooned in 2009 because of the Great Recession. It knocked so many people out of work that tax revenues dropped to the lowest share of the economy in over sixty years. (The Bush tax cuts on the rich also reduced revenues.) The recession also boosted government spending on a stimulus program and on safety nets like unemployment insurance and food stamps.

But as the nation slowly emerges from recession, more people are employed — generating more tax revenues, and requiring less spending on safety nets and stimulus. That’s why the deficit is shrinking.

Yes, deficits are projected to rise again in coming years as a percent of GDP. But that’s mainly due to the rising costs of health care, along with aging baby boomers who are expected to need more medical treatment.

Health care already consumes 18 percent of the total economy and almost a quarter of the federal budget (mostly in Medicare and Medicaid).

So if the ongoing war between Republicans and Democrats was really over those future budget deficits, you might expect Republicans and Democrats to be focusing on ways to hold down future healthcare costs.

They might be debating how to make the cost controls in the Affordable Care Act more effective, for example, or the merits of moving to a more efficient single-payer system, as every other advanced country has done.

But they’re not debating this, because the federal deficit is not what this war is about.

It’s about the size of government. Tea-Party Republicans (and other congressional Republicans worried about a Tea-Party challenge in their next primary) want the government to be much smaller.

“My goal,” says conservative guru Grover Norquist, “is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.”

What’s behind this zeal to shrink government? It’s not that the U.S. government has suddenly become larger. In fact, non-military government spending relative to the size of the U.S. economy remains the smallest of any other rich nation.

Apart from the military, Medicare and Social Security account for almost everything else the federal government does – and these programs continue to be hugely popular, as Republicans learn every time they threaten them.

The animus toward government has more to do with the growing frustrations of many Americans that they’re not getting ahead no matter how hard they work. Government is an easy scapegoat, utilized by much of corporate America to convince average Americans to cut taxes, spending, and regulations.

The median wage continues to drop, adjusted for inflation, even though the economy is growing. And the share of the economy going to wages rather than to profits is the smallest on record.

Increasingly it’s looked like the game is rigged, especially when people see government bailing out Wall Street (the Tea Party movement grew out of the bailout, as did the Occupiers), and handing out corporate welfare to big agriculture, big pharma, oil companies, and insurance companies.

The outrage grows when average working people are told – wrongly — that a growing portion of Americans don’t pay taxes and live off government handouts.

The battle over the fiscal cliff is over but the trench warfare will continue.

Treasury Dept. warns of ‘extraordinary measures’ amid fiscal cliff deadlock

(The fact the Democrats are playing along with this fake fiscal cliff lowers the little credibility they had almost down to nothing. Both parties are using this scare tactic to justify cutting social security and the people aren't going to fall for it.--jef)

By Dominic Rushe, The Guardian
Wednesday, December 26, 2012

Barack Obama cuts short holiday to tackle budget crisis as country faces breaching its $16.4tn debt limit

US Treasury secretary Tim Geithner warned on Wednesday he would have to take “extraordinary measures” to avoid a default on the US’s legal obligations as the country is set to breach its $16.4tn (£10.16tn) debt limit.

In a letter to Congress, Geithner said the debt ceiling would be reached on 31 December and that the Treasury could raise $200bn (£124bn) to fund government spending as a stopgap measure. But he warned that the current impasse over the fiscal cliff budget crisis meant it was uncertain how long that money would last.

“Under normal circumstances, that amount of headroom would last approximately two months.

“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner warned.

In the two-paragraph letter Geithner also warned that “the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain.”

A similar row over increases in the debt ceiling in the summer of 2011 led to a historic downgrade of the US’s credit rating and panic on stock markets around the world.

The Treasury secretary’s warning comes as Barack Obama prepared to cut short his Christmas holiday in Hawaii, with the intention of returning to Washington in the hope of restarting the stalled budget talks.

Discussions with House speaker John Boehner collapsed last week after the top ranking Republican launched his own “Plan B” aimed at tackling the year-end budget crisis. But Boehner’s plan also fell after members of his own party threatened to block any deal that would raise taxes.

Boehner and other senior Republicans released a statement on Wednesday saying: “The lines of communication remain open, and we will continue to work with our colleagues to avert the largest tax hike in American history, and to address the underlying problem, which is spending.”

Obama is hoping to pass a stop-gap deal through the Senate, where he has some support from Republicans. The president wants to implement measures that would raise taxes on those earning over $250,000 (£155,000) while preserving most of the other tax cuts under threat, delaying spending cuts and extending unemployment benefits for the long-term unemployed.

Boehner said the Senate would have to make the first move before the House would commit to voting on any bill. He said two bills had already been put forward to tackle the crisis.

“If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House. Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments,” he said.

The Treasury said it can free up around $200bn (£124bn) by taking four “extraordinary measures.” Nearly all the measures relate to peripheral investments that the Treasury makes in certain funds.

In essence, the Treasury will act like an indebted consumer who stops running up his credit card when he already has more bills than he can pay. The result: the Treasury will not cut its debt, but only stop spending until its credit limit is raised again. Only Congress can raise the debt limit.

The department took similar measures last year, when the US passed the debt ceiling limit in May and Congress didn’t increase it again until August. The most remarkable of the extraordinary measures includes allowing the Treasury to redeem, or stop, any investments in two major pension funds.

The first is the civil service retirement and disability fund. The CSRDF, as it is known, is a kind of pension fund that provides defined benefits (stock market-linked retirement incomes) to retired and disabled federal employees.

The US Treasury puts about $6bn (£4bn)a month into the fund – not in cash, but in Treasury securities. The Treasury would either redeem some of those securities or suspend new payments. It could also choose to continue to make payments to the fund, but if the debt ceiling is not raised within two months, the Treasury would have to stop.

The second major pension fund is the government securities investment fund, or G Fund, which is part of the federal employees’ retirement system thrift savings plan. Like the CSRDF, the G Fund is invested in special securities. But, because the G Fund matures every day, the Treasury can immediately free up money by suspending the whole thing. Suspending the G Fund will do the most to make room for the Treasury, freeing up $156bn (£96bn) of the $200bn (£124bn) it’s aiming for.

After Congress raises the debt ceiling, the Treasury has to make up for all the payments it missed to the pension funds, so none of the employees will be hurt.

The Treasury will also temporarily stop issuing state and local government securities or SLGS – bonds it created to help state and local governments reinvest any profits made from issuing regular municipal securities.

Since state and local governments are not allowed to reinvest their profits in other, riskier kinds of investments, the Treasury gives them SLGS bonds as a way of holding their money safe.

But stopping SGLS bonds won’t cut the country’s debt; it will only avoid adding to it. In its most minor move, the Treasury will stop contributing to the exchange stabilisation fund, which it uses to buy foreign currencies. The public debt of the US is increasing at about $100bn per month, the Treasury said.

How We Got Here With the Economy and How to Get Out

Sunday, January 1, 2012 by CommonDreams.org
by Robert Freeman

It’s easy to get fixated with small-bore issues on the economy, even if they don’t seem so small-bore at the time. Stimulus packages. Bailouts. Debt ceilings. Deficit commissions. Payroll tax-cut extensions. They seem like life and death issues while they’re being fought out.

But, in fact, they are distractions from the one real question that dominates all others, which is this: for whom should the economy be run? Should it be operated “to promote the general welfare” of 297 million people, the 99 percent? Or should it be run to benefit 3 million, the one percent?

Right now, the answer is that the economy is a machine, with the government as its operator, for transferring two hundred years of accumulated national wealth to those who are already the most wealthy, the one percent. And we should be clear about two things: this is a choice; and it’s working. The rich are getting much richer while everyone else is being stripped of their incomes, their assets, their retirement security, and all the elements of the social safety net enacted since the Great Depression.

Until we confront the fact that the collective impoverishment of the many for the selective enrichment of the few is a choice — the consequence of an explicit policy regime going back 30 years — nothing will change. But if we can muster the maturity to confront this fact, that we are here by choice, and find the courage to act on it, we might yet be able to save the country. If we do not, then we are surely lost.

To understand how we got here, we need to quickly review the economic history of the last sixty years. Then we can discuss what to do going forward.

At the end of World War II, the U.S. bestrode the world like a colossus. Its only industrial rival, Europe, had blown its brains out 30 years before, in World War I. And it did it again, in World War II, with Japan joining in. In the history of the world, there has never been such asymmetry in power between one country and all the rest.

It was U.S. capital that rebuilt its allies’ economies, through the Marshall Plan in Europe, and through military spending in Asia. U.S. factories boomed, to service not only its own vast and ravenous market, but those of all the rest of the world. All the equipment (and much of the food) to rebuild the industrial world came from America.

It was truly the Golden Age. There was enough wealth so that capital, labor, and government could all drink deeply from the seemingly inexhaustible spring of capitalism.

But by the 1960s something began to go wrong. Our allies’ economies had by then been rebuilt, and with the newest equipment and technologies. Theirs were more efficient than ours. The Volkswagens and Toyotas that would later become a tsunami began to trickle in. Same with the Sonys and Panasonics in consumer electronics. Shipbuilding, steel, machine tools, industrial electronics and other major industries began to migrate out of the U.S. and into the hands of foreign companies.

At the same time, the then-99% began to place serious claims on national resources, and to insist on being a player in major national decisions.

Lyndon Johnson launched the Great Society program withthe goal of eradicating poverty. The women’s rights movement, the civil rights movement, the anti-Vietnam War movement, and the environmental movement all proved dramatically effective in redirecting national priorities and resources away from those favored by the wealthy elites and toward those of the rest of the people.

In other words, at exactly the time the profits of corporations were under assault by growing international competition, the people began to claim a greater share of society’s fruits. It couldn’t square. There was not enough output from the faltering economy to both satisfy people’s expectations of middle class affluence and economic security and capital’s demands for higher and higher returns. Something had to give.

Equally, the elites who had run the country for decades were indignant at the presumption of a mangy mob of un-bathed, pot-smoking, long-haired, bra-less, draft card-burning, tree-hugging hooligans who didn’t even have a job but wanted a seat at the table of national decision-making (sound familiar?). They were certainly never again going to allow such a scabrous cabal to decide that the country should not fight a major war (Vietnam) that was so enriching to the elites who had lied the country into it.

So the elites decided to take “their” country back.

The election of 1980 was the real watershed in modern American history. Ronald Reagan ran for president promising to cut taxes, increase military spending, and balance the budget — all at the same time. He called it “supply side economics.” His rival for the Republican nomination, George H.W. Bush, called it “voodoo economics” which, of course, it was. But people bought it and Reagan proceeded to rearrange economic power more substantially than at any time since Roosevelt enacted the New Deal.

Reagan cut marginal tax rates on the wealthy from 75% to 35%. At the same time, he dramatically increased military spending. The result was entirely predictable: with less money coming in but more going out, the government began to run massive deficits. Where Jimmy Carter’s worst deficit was $79 billion, Reagan was soon running deficits of $150 billion a year, year after year and increasing.

By 1992, the end of George H.W. Bush’s presidency, the annual deficit had reached $292 billion. In only 12 years, the supply side “revolution” had quadrupled the nation’s debt, from $1 trillion to $4 trillion. And this, in a time of peace and prosperity.

But that was always the hidden intention of supply side economics, to bind the nation to massive debts, debts from which it would never be released. Despite their sanctimonious pretenses, Republicans love debt because they are lenders. When there is more demand for debt, as when the government borrows hundred of billions of dollar a year, it commands a higher price, which is interest. This is simply supply and demand. And if you’re a lender, higher interest rates are better. This is why, even though Republicans controlled the White House for 26 of the past 40 years, they never once in any of those years produced a single balanced budget.

Bill Clinton came to power in 1993 but proved an ambiguous leader, at least from standpoint of economics. He once described himself as “an Eisenhower Republican” which seems fair. He did raise marginal tax rates on the rich, but only from 36% to 39%. (They were at 75% under the real Eisenhower.) For this, he was pilloried as a socialist. Worse, after the fall of the Soviet Union he cut military spending as a percent of GDP to the lowest level since before Vietnam.

With lower military spending, slightly higher taxes on the rich, and a technology-driven economic boom, Clinton was able to pay down the deficits left to him by Bush I. By 1997, the government actually produced budgetary surpluses, the first since the 1960s. The consequence was a 40% fall in long term interest rates. Again, it was simply supply and demand. With less demand for borrowed money, rates fell.

This is the real reason Clinton was so relentlessly hounded by the right. It wasn’t because he was being serviced by a stalking intern, though he played into that one with astonishing recklessness. It was because he interfered with the three primary mechanisms for transferring wealth to the already-wealthy: tax cuts, massive military spending, and skyrocketing national debt.

The rest of Clinton’s economic legacy is far less positive. He pushed through NAFTA, pitting blue collar workers from the industrial Midwest against workers in Mexico making $1 an hour. He “ended welfare as we know it,” destroying an essential element of the social safety net. He enacted telecommunications “reform” that ended up as grotesque consolidation in the nation’s media, to where five companies now control more than 80% of the nation’s media.

But by far the most damaging of Clinton’s economic accomplishments was the deregulation of the finance industry. He overturned Glass-Steagall, the Depression-era law that separated commercial and investment banking. Together with his deregulation of derivatives, what Warren Buffet called “financial weapons of mass destruction,” this opened the economy to what would be the financial mad house of the first decade of the twenty-first century.

George W. Bush took office in 2001 and would serve the very wealthy in six important ways:

• First, he cut their taxes substantially, first in 2001 and again in 2003. Over their life, the Bush Tax Cuts for the top 1% will cost more than it would take to restore Social Security to solvency forever.

• Second, he massively increased military spending with his fraudulently-justified and incompetently-prosecuted War in Iraq, and his equally-over-hyped and phony Global War on Terror.

• As with Reagan, these two actions produced his third gift to his “base,” as he called the rich: massive deficits. He turned Clinton’s budget surpluses into deficits within one year. He would eventually double the national debt in only eight years, from $5.6 trillion to $12 trillion.

• Fourth, he helped major industrial corporations move some seven million high paying manufacturing jobs out of the country, to low-wage countries where they could pay less for labor while putting downward pressure on American wages.

• Fifth, he turned a blind eye as the financial industry carried out one of the greatest economic frauds in American history: the housing bubble. 

• Sixth, and most drastically, he bailed out the banks and their owners.

Bush’s ideological soul-mate, Alan Greenspan, Chairman of the Federal Reserve, held interest rates at historically low levels to induce a boom in housing. This created illusory “wealth” that served to distract and pacify the working class as their jobs were being shipped overseas. He turned a blind eye to massive fraud in mortgage lending so that busboys, bartenders, gardeners, and day workers could buy homes they could never hope to afford. And he encouraged the securitzation of mortgages so that banks could offload the toxic sludge to unsuspecting buyers around the world. It was all so carefully engineered.

However, as had happened in the 1960s, something started to go wrong. Incomes began to fall as jobs were shipped overseas. The Iraq war caused oil prices to jump from $26 a barrel the day Bush took office to over $100 a barrel. It was a massive gain for the oil companies, his family’s business, but the inflationary effect coursed through everything in the economy. The busboys couldn’t make the notes on their houses, so started unloading them. But there were no “greater fools” left to buy them so prices started a downward avalanche which is still under way.

Since the height of the bubble in 2006, more than $8 trillion of housing wealth has been wiped out. Eleven million homes have been lost to foreclosure. More than one in four mortgages are underwater, with more owed on them than the home is worth. The share of home equity owned by homeowners themselves is now at the lowest level it has been since World War II. The balance has been transferred from the owners to the mortgage holders, the banks.

But the banks, in an almost psychotic orgy of greed, had leveraged their equity 30-to-1. They borrowed 30 dollars for every one dollar they held in capital. It makes for prodigious profits when prices are rising. If they go up only 3% (1/30) you double your investment! But if prices fall by 3%, your capital is wiped out. That is what actually happened. Housing prices, inflated far beyond what a rational market could bear, fell for the first time in American history. The banks went bankrupt. That was the financial collapse of late 2008.

Fortunately for the banks, Bush and his Treasury Secretary, Henry Paulson, formerly head of Goldman Sachs, were there to bestow the sixth and greatest gift on the wealthy: they bailed out the banks and their owners.

They arranged for the Treasury and the Federal Reserve to buy the banks’ toxic sludge so they wouldn’t have to take any losses on it. They paid 100 cents on the dollar for crap securities that that couldn’t fetch 20 cents on the dollar in open markets. They gave the banks trillions of dollars of loans at effectively no interest. And they allowed the banks to print trillions of dollars which they then used to inflate commodity and stock markets around the world, greatly enriching their wealthy owners.

What Bush and company didn’t do was require any givebacks from the banks. No equity. No firings. No changes in bonuses. No regulation of explosive derivatives. No restructuring of “too big to fail.” No settlements with consumers for intentionally defective mortgages. No re-investment in the economy they had plundered. And certainly, no prosecutions for any of the willful perpetrators of the Greatest Economic Collapse Since the Great Depression.

By 2009, Barack Obama inherited an economy in free fall, for which he is perhaps owed some sympathy. But his policy responses have been inept at best, complicit at worst.

He carried through with Bush’s bailout of the banks, passed phony “financial reform” which changed nothing, and studiously refused to prosecute any wrong-doing. He pushed through a tepid stimulus package where fully one third went to tax cuts for the wealthy. And he groveled to get a payroll tax cut that, in fact, does more to damage Social Security than anything any Republican president has ever managed.

In many other ways, however, Obama has proven to be Clinton II, or Bush III. He staffed his economic team with the very intellectual lights — Robert Rubin, Larry Summers, Tim Geithner, Ben Bernanke — who had engineered the Collapse, ensuring that capital’s right to pillage would not be qustioned. He went back on his word to fight for a public option that would have lowered the cost of health care insurance. He waved through the Bush tax cuts, not once but twice.

He never attempted anything so ambitious as a Rooseveltian jobs program. He made sure the Copenhagen climate talks failed so as to not burden American industrialists. He more than tripled Bush II’s deficits. And in his most damning assault on the economic security of more than 80 million Americans, he “put Social Security on the table” as part of his budget negotiations. With “friends” like this we should pray for enemies. At least we would know them for what they are.

Which brings us to today.

Over 56 million people are in poverty. The Census Bureau reports that half of all Americans (!) are in or near poverty. Almost 30% of those in the middle class have fallen out of it, and the rate of collapse is accelerating. A smaller share of men have jobs today than at any time since World War II. The past ten year’s wage gains have been the worst for any ten year period in the nation’s history, even worse than during the Great Depression.

The national debt that stood at $1 trillion when Reagan took office now exceeds $15 trillion. Debt as a percent of GDP is higher than it was in 1929, the year before the Great Depression. Meanwhile, corporate profits are at record highs, with corporations sitting on $2 trillion in cash, not investing it in the economy. They have $1.3 trillion parked in offshore tax havens like the Cayman Islands, out of reach of U.S. tax collectors.

Who could have imagined we could have fallen so far, and so quickly? Actually, in retrospect, it all makes sense. As wealth was steadily transferred upward and incomes were undermined, the damaging effects were masked by increased recourse to debt, both public and private. And the debt itself served to both accelerate and consolidate the transfer. But eventually the burden of payments became too much for an enfeebled workforce to carry and the whole thing came crashing down.

Any meaningful recovery will require a major investment by the federal government. The combination of lost incomes and lost consumer wealth have undercut the ability of consumers to generate demand, leaving the government as the only agent in the economy with the capacity to do the job. Clearly, private markets are not going to do it. Indeed, corporations have learned how to prosper mightily by crushing their American workers, a truly dysfunctional state of affairs that cannot stand.

The government should invest in the nation’s infrastructure which the American Society of Civil Engineers rates a “D”, down from “D+” only three years ago. This would employ potentially millions of now-unemployed workers, turning unemployment checks into tax payments to the Treasury. It would also bring the platform on which all the rest of the economy operates up to twenty-first century standards. Fortunately, the government can borrow long term at 2%, a fraction of the payback from such investments.

I’ve written elsewhere about a Manhattan Project-like investment in a green economy. Such an investment would revive employment, restore American competitiveness, help pay down the national debt, reduce our crippling dependency on middle east oil, and reduce carbon emissions into the environment. In all of these ways, it would be a win for virtually everybody in the economy, everybody in the nation, and for much of the planet.

I say “virtually” because it would not benefit those who have wrecked the economy and profited so mightily in the process: the money lenders, who would see less demand for borrowed money; the weapons makers, who would face a less hostile world; and the oil companies, whose crippling grip on the economy would be reduced. And we shouldn’t have any illusions about how hard these forces will fight to ensure that nothing changes. They will, and unless we fight back, well, nothing will change.

It is important to state once again that virtually all of the predation, all of the plunder of the last thirty years has been a policy choice, primarily enacted by Republicans, but more and more abetted by Democrats who have thrown in for a piece of the action. It’s also important to understand that nothing has changed in carrying out the agenda. Obama is as much about true “Hope” and “Change” as Bush was about “Compassionate Conservatism.” In fact, he and his wealthy masters are accelerating the looting.

Military spending is still growing at almost double digit rates after a decade of such increases. He is clearly going to put the knife into Social Security and Medicare when re-elected. He clearly has no plan, no “grand narrative” to restore the nation to prosperity. He clearly will not, can not, go after the banking industry, his biggest underwriter. And he gives all the signals of starting a war with Iran, which will make Iraq look like a silly child’s board-game gone awry.

The wealthy elites, fronted by Obama, have effectively abandoned the U.S. economy and the American people who are trapped inside. What this means is that the elections of 2012 are the last chance for the American people to reclaim their economic security, to fight off the neo-feudal servitude that is being foisted on them, and reclaim their political self-determination. As you can see from the above, most of the damage to the economy is the result of political decisions made to carry out nefarious economic ends. And they’ve worked.

We desperately need to elect a reliably progressive Congress to serve as an effective counterweight to the hopelessly corrupt, craven, and cowardly Obama and company. We need to demonstrate that it is people, not money, and not rigged voting machines, that still matter most in American elections. We need every man, woman, and child on deck with a sense of existential urgency that if we do not reclaim our country now, it will be lost forever. For it will.

In the American Revolution, Thomas Paine declared, “We have the chance to make the world anew.”

He was thinking of the escape from the European world of economic feudalism, social privilege, and political autocracy. Today, we have one last chance to save that “new world” from the retrograde civilization it pulled itself out of, but whose claim on it has never been renounced.

If we can muster a Paine-like courage to fight and win this new Revolution, the Revolution to Save the Country, we shall be worthy of respect equal to that which we reserve for Paine and his fellow Founders. If we do not, we will get what we deserve. As with so much of the past thirty years, it’s our choice.

The Debt Debacle and the Decline of Empire

Sisyphus on Wall Street
By THOMAS H. NAYLOR

Underlying the endless posturing, bickering, and mean-spirited name-calling associated with the recent Congressional debt ceiling debacle were three important unstated issues – size, excessive globalization, and imperial overstretch, issues which were never even mentioned during the heated Congressional debate.

First, the United States has simply become too big to govern. Second, it has exported too many jobs over the past three decades to China, India, and the rest of the world. Third, it is engaged in too many wars and has too many military bases (over 1,000) in too many countries (153).

Just as the Kremlin found it impossible to manage 280 million people in the former Soviet Union from one central bureau in Moscow, so too are the White House and the Congress finding it increasingly difficult to control 310 million Americans from Washington, D.C. Also, not unlike the former Soviet Union, the United States has a single political party, the Republican Party, disguised as a two-party system. The Democratic Party is effectively brain dead, having had no new ideas since the 1960s.

Three years after the onset of the worst economic recession since the Great Depression, the battle rages on as to whether the government should raise or lower taxes, increase or decrease spending, or print even more money. In case you haven’t noticed, the government has been reducing taxes, increasing spending, and printing money as though it were going out of style, and it doesn’t seem to have made any difference. The economic recovery remains anemic, job growth is pathetic, and the tepid housing market shows few signs of life. Only the highly manipulated stock market temporarily responded positively to government policy.

Neither President George W. Bush’s 2001, 10-year, $1.6 trillion tax cut nor its 2003, $350 billion follow on could keep the U.S. economy out of recession. But that did not prevent the Obama administration from pushing through Congress a two-year extension of the Bush tax cuts in December 2010.

Keynesian economics supporters rallied behind President Obama early in 2009 to gain Congressional approval for an $800 billion economic stimulus package. Although it may have helped prevent the loss of even more jobs, the stimulus package does not appear to have increased the number of new jobs significantly. The President’s $3.73 trillion budget request and projected $1.5 trillion deficit are more of the same. The spending cuts mandated by Congress recently as part of the deficit reduction bill are likely to result in even more job losses. However, they were insufficient to forestall a U.S. credit rating downgrade by S&P.

Following in the footsteps of his predecessor Alan Greenspan, Federal Reserve Chairman Ben Bernanke has kept the U.S. economy, and indeed the global economy, awash with money freshly printed by the government’s high-speed printing presses. He has primed the monetary pump with near-zero interest rates, loans to poorly managed mega financial institutions worldwide, and government bond purchases worth hundreds of billions of dollars. Unfortunately the impact of all of this intense monetary policy activity on the housing market and the job market has been virtually nil.

What Bush, Bernanke, and Obama have failed to realize is that they have been engaged in a myth of Sisyphus struggle with Wall Street, which has presided over a thirty-year strategy of exporting real American jobs to Asia and elsewhere, all in the name of maximizing shareholder wealth. So many high-paying manufacturing and professional service jobs have been offshored that there are not enough people left who can afford to buy all of the Chinese plastic yuck that must be sold to sustain the American economy.

The neocons scream for more tax cuts, the liberal Democrats demand more government spending, and the monetarists call for even greater increases in the money supply, and it’s not going to make one whit of a difference. Sometimes when you make your bed, you actually have to lie in it. The effects of a thirty-year exodus of American jobs to the rest of the world cannot be reversed overnight.

It’s as though our national economic policy for the past decade has been under the control of three blind mice – Bush, Bernanke, and Obama. “See how they run. Did you ever see such a sight in your life?”

Driving the nation’s trillion-dollar plus military and national security budget is a foreign policy based on full spectrum dominance, imperial overstretch, might makes right, and the proposition, just be like us. One result flowing from this insidious foreign policy is the never ending, highly racist war on terror (Islam) which has given rise to immoral, illegal, undeclared wars in Afghanistan, Iraq, Libya, Pakistan, Palestine (via Israel), Somalia, and Yemen. Weapons of mass destruction, the strategic missile defense system, the Cold War relic NATO, pilotless drone aircraft, outrageously expensive F-35 fighter jets, and 1.6 million American troops are all part of the program.

Size, a moribund economy, and excessive militarization were three of the major forces contributing to the demise of the Soviet Union in 1991. But the United States may be well on its way to replicating Soviet mistakes in an American setting. We have spent so much time, energy, and other valuable resources fighting the threat of terrorism that we have diverted our attention, our energy, and our resources from fixing our severely broken economy.

One major unstated conclusion of the debt ceiling debate must surely be that we can no longer afford a continuation of the military madness. It is not in our self-interest to keep perpetuating the myths, half-truths, and out-right lies that have fueled the war on terror since it was launched by President George W. Bush in 2001.

If we were to look back into the eyes of our old adversary, the Soviet Union, we just might see a mirror image of ourselves. We have become much more nearly alike than most Americans would care to admit.

The Legal Duty to Create Jobs

Lost in the Debt Ceiling Debate
By JEANNE MIRER and MARJORIE COHN

The debate about the debt ceiling should have been a conversation about how to create jobs. It is time for progressives to remind the government that it has a legal duty to create jobs, and must act immediately – if not through Congress, then through the Federal Reserve.

With the U3 official unemployment reaching over 9%, the U6 unofficial real rate over 16%, and the unemployment rate for people of color more than double that of whites, it is nerve wracking to hear right wing political pundits say the government cannot create jobs. Do people really believe this canard? On Real Time with Bill Maher a few weeks ago, Chris Hayes of The Nation stated that the government should create and has in the past created jobs, but he was put down by that intellectual giant Ann Coulter who said, "but they (WPA jobs) were only temporary jobs." No one challenged her.

Most of the jobs created under the Works Progress Administration (WPA) - and there were millions of them - lasted for many years, or until those employed found other gainful employment. They provided a high enough income to allow the worker's family to meet basic needs, and they created demand for goods in an economy that was suffering, like today's economy, from lack of demand. The WPA program succeeded in sustaining and creating many more jobs in the private sector due to the demand for goods that more people with incomes generated.

The most galling thing about pundits stating with such certainty that the government cannot create jobs is the implication that the government has no business employing people. In actuality, however, the law requires the government, in particular the President and the Federal Reserve, to create jobs. This legal duty comes from three sources:

1. full employment legislation including the Humphrey Hawkins Full Employment Act of 1978,
   
2. the 1977 Federal Reserve Act, and
   
3. the global consensus based on customary international law that all people have a right to a job with favorable remuneration to provide an adequate standard of living.
   

Full Employment Legislation

The first full employment law in the United States was passed in 1946. It required the country to make its goal one of full employment. It was motivated in part by the fear that after World War II, returning veterans would not find work, and this would provoke further economic dislocation. With the Keynesian consensus that government spending was necessary to stimulate the economy and the depression still fresh in the nation's mind, this legislation contained a firm statement that full employment was the policy of the country. As originally written, the bill required the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. Pushback by conservative business interests, however, watered down the bill. While it created the Council of Economic Advisors to the President and the Joint Economic Committee as a Congressional standing committee to advise the government on economic policy, the guarantee of full employment was removed from the bill.

In the aftermath of the rise in unemployment which followed the "oil crisis" of 1975, Congress addressed the weaknesses of the 1946 act through the passage of the Humphrey-Hawkins Full Employment Act of 1978. The purpose of this bill as described in its title is:

An Act to translate into practical reality the right of all Americans who are able, willing, and seeking to work to full opportunity for useful paid employment at fair rates of compensation; to assert the responsibility of the Federal Government to use all practicable programs and policies to promote full employment, production, and real income, balanced growth, adequate productivity growth, proper attention to national priorities.

The Act sets goals for the President. By 1983, unemployment rates should be not more than 3% for persons age 20 or over and not more than 4% for persons age 16 or over, and inflation rates should not be over 4%. By 1988, inflation rates should be 0%. The Act allows Congress to revise these goals over time.

If private enterprise appears not to be meeting these goals, the Act expressly calls for the government to create a "reservoir of public employment." These jobs are required to be in the lower ranges of skill and pay to minimize competition with the private sector.

The Act directly prohibits discrimination on account of gender, religion, race, age or national origin in any program created under the Act.

Humphey-Hawkins has not been repealed. Both the language and the spirit of this law require the government to bring unemployment down to 3% from over 9%. The time for action is now.

Federal Reserve

The Federal Reserve has among its mandates to "promote maximum employment." The origin of this mandate is the Full Employment Act of 1946, which committed the federal government to pursue the goals of "maximum employment, production and purchasing power." This mandate was reinforced in the 1977 reforms which called on the Fed to conduct monetary policy so as to "promote effectively the goals of maximum employment, stable prices and moderate long term interest rates." These goals are substantially equivalent to the long-standing goals contained in the 1946 Full Employment Act. The goals of the 1977 act were further affirmed in the Humphrey-Hawkins Act the following year.

A Global Consensus

In the aftermath of World War II, and for the short time between the end of the war and the beginning of the Cold War, there was an international consensus that one of the causes of the Second World War was the failure of governments to address the major unemployment crisis in the late 20's and early 30's, and that massive worldwide unemployment led to the rise of Nazism/facism. The United Nations Charter was created specifically to "save succeeding generations from the scourge of war." To do so the drafters stated that promoting social progress and better standards of life were the necessary conditions "under which justice and respect for obligations arising under treaties and respect for international law can be maintained."

It is no accident that one of the first actions of the UN was to draft the Universal Declaration of Human Rights. (UDHR or the Declaration). The Declaration was ratified by all then members of the United Nations on December 10, 1948. It is an extremely important document because it not only recognized the connection between the respect for human dignity and rights, and conditions necessary to maintain peace and security. The Declaration is the first international document to recognize the indivisibility between civil and political rights (like those enshrined in the Bill of Rights) on the one hand, and economic, social and cultural rights on the other. The UDHR is the first document to acknowledge that both civil and political rights are necessary to create conditions under which human dignity is respected and through which a person's full potential may be realized. Stated another way, without political and civil rights, there is no real ability for people to demand full realization of their economic rights. And without economic rights, peoples' ability to exercise their civil rights and express their political will is replaced by the daily struggle for survival.

The Declaration, although not a treaty, first articulated the norms to which all countries should aspire. It stated that everyone has the right to an adequate standard of living. This includes the rights to: work for favorable remuneration, (including the right to form unions), health, food, clothing, housing, medical care, necessary social services, and social insurances in the event of unemployment, sickness, disability or old age. There has been a conspiracy of silence surrounding these rights. In fact, most people have never heard of the Universal Declaration of Human Rights.

Similarly, most Americans do not know that the UN drafted treaties which put flesh on the broad principles contained in the Declaration. One of the treaties enshrines Civil and Political Rights; the other guarantees Economic, Social and Cultural Rights. These treaties were released for ratification in 1966. The United States ratified the treaty on civil and political rights and has signed but not ratified the economic, social and cultural rights treaty.

The latter treaty requires the countries which have ratified it to take positive steps to "progressively realize" basic economic rights including the right to a job. Almost all countries of the world have either signed or ratified this treaty. When most countries become party a treaty, they do so not because they think they are morally bound to follow it but because they know they are legally bound. Once an overwhelming number of countries agree to be legally bound, outliers cannot hide behind lack of ratification. The global consensus gives that particular norm the status of binding customary law, which requires even countries that have not ratified a treaty to comply with its mandate.

The Conspiracy of Silence

With the duty to create jobs required by U.S. legislation, monetary policy and customary law, why has the government allowed pundits to reframe the debate and state with certainty the government cannot do what it has a legal obligation to do?

We allow it because of the conspiracy of silence which has prevented most people from knowing that the full employment laws exist, that the Federal Reserve has a job-creating mandate, and that economic human rights law has become binding on the United States as customary international law.

Congressman John Conyers of Michigan knows about the Humphrey-Hawkins Full Employment Act, and he has introduced legislation that would fund the job creation aspects of that Act in the The Humphrey-Hawkins 21st Century Full Employment and Training Act, HR 870. It would create specific funds for job training and creation paid for almost exclusively by taxes on financial transactions, with the more speculative transactions paying a higher tax.

If Congress refuses to enact this legislation, the President must demand that the Federal Reserve use all the tools relating to controlling the money supply at its disposal to create the funds called for by HR 870, and to start putting people back to work through direct funding of a reservoir of public jobs as Humphrey-Hawkins mandates.

There is nothing that would prevent the Federal Reserve from creating a fund for job training and a federal jobs program as HR 870 would require, and selling billions of treasury bonds for infrastructure improvement and jobs associated with it. The growth in jobs would stimulate the economy to the point that the interest on these bonds would be raised through increased revenue. There is no reason the Fed on its own could not add a surcharge on inter-bank loans to fund these jobs. These actions could be done without Congressional approval and would represent a major boost to employment and grow the economy. If the Federal Reserve is going to abide by its mandate to promote maximum employment, and comply with the Humphrey Hawkins Act, and the global consensus it must take these steps.

Failure of the Fed and the President to take these affirmative steps is not only illegal, it is also economically unwise. The stock market losses after the debt ceiling deal is in part based on taking almost 2 million more jobs out of the economy and will only further depress demand creating further contraction in the economy. This is not an outcome any of us can afford.

Progressive Groups Unveil 'Contract For The American Dream'

Tuesday, August 9, 2011 by Huffington Post
by Sam Stein

WASHINGTON -- In the wake of the deal to raise the nation's debt ceiling, widely viewed as yet another setback for the progressive community, advocacy groups on the left are redoubling efforts to change the political narrative.

S&P's decision to downgrade the United States' debt and the market selloff that followed has only emboldened those voices who believe the main structural problem plaguing the economy has less to do with debt and more to do with a lack of economic growth.

On Monday afternoon, MoveOn.org and Rebuild the Dream announced a campaign to build up a popular movement that could match (if not surpass) the debt reduction crowd in both size and energy. And they have borrowed a concept from former House Speaker Newt Gingrich (R-Ga.) as their organizing principle.

The campaign, led by Van Jones, President of Rebuild the Dream; Justin Ruben, Executive Director of MoveOn.org; and Rep. Jan Schakowsky (D-Ill.), among others, is debuting a new Contract for the American Dream. They describe it as "a progressive economic vision crafted by 125,000 Americans … to get the economy back on track." Its debut will involve a nationwide day of action, as well as an ad in The New York Times to run sometime this week, organizers said.

The basic premise of the campaign is that America isn't broke, it's merely imbalanced. In order to stabilize the economy, politicians should make substantial investments in infrastructure, energy, education and the social safety net, tax the rich, end the wars, and create a wider revenue base through job creation.

"Many of our best workers are sitting idle, while the work of rebuilding America goes undone," reads one bullet point of the Contract. "Together, we must rebuild our country, reinvest in our people and jump-start the industries of the future. Millions of jobless Americans would love the opportunity to become working, tax-paying members of their communities again. We have a jobs crisis, not a deficit crisis."

The name of the campaign is, of course, a reference to the Contract for America that Gingrich authored in the run up to the 1994 congressional elections. In the context of the current debate in Washington, the principles it promotes resemble a liberal pipe dream more than an actual outline for potential legislation. President Obama and Democratic leaders in Congress have, after all, been openly willing to throw entitlement reforms into the debt reduction discussion. And the notion that this Congress will decide to make future stimulus-like investments ignores Republicans' complete dismissal of such measures.

And yet, if you look at the specific suggestions, there is overlap between what the Contract advocates and what the president has endorsed -- mainly on the transportation and clean energy fronts. More than that, the Contract fills the obvious need for liberal advocacy groups to build a popular movement in support for their ideological side of the debt debate, something that has been clearly and at times painfully missing as a counterpoint to Washington's current obsession with austerity.

Read the full Contract below:

ContractDream

Disaster Politics

Why Obama Played the Tea Party Game
By FELICE PACE

As pundits and the American People digest the Debt-Budget Deal many have concluded that the White House miscalculated or simply blew it. John Stewart and others suggested that the President could have avoided the entire scenario by simply conditioning renewal of the Bush tax cuts on raising the debt ceiling. Others say the White House should have demanded a clean debt ceiling bill. Either of those explanations requires assuming that the Obama White House is naïve or stupid or both.

Don’t believe it. President Obama and his advisors were playing a different game. They decided they could use a debt crisis created by Republicans to push through cuts to Social Security and Medicare in a manner that would provide the President with plausible deniability. In other words, Obama could claim “They made me do it!” while achieving what his Wall Street backers want – maintaining Global Capital’s police force on the backs of working folks, the middle class and the poor. 

Most readers will be familiar with Naomi Klein’s Shock Doctrine and her book of the same name. Klein describes Disaster Capitalism: how Global Capital – operating through governments, the International Monetary Fund and other international institutions - uses political crises to impose structural economic and government changes which invariably function to transfer wealth from workers and the middle classes to international banks and capitalists. We have seen this strategy migrate from the Global South – the so-called “Developing World” – to the North; workers in Greece, Ireland, Portugal, Spain and Great Britain are now also paying the price. When one strips away the rhetoric, it becomes clear that the Obama Administration has brought the same approach home to America. 

Why this has happened

At the close of World War Two the United States controlled 60% of global wealth. It was an artifact of war - the productive capacities of Europe and much of East Asia had been destroyed.  Led by Europe and Japan, the destroyed infrastructure would be rebuilt, economies would rise again, global wealth would be redistributed and the United States would once again face fierce competition.  

The architects of post-war US government policy recognized that the US could not control 60% of global wealth forever.  The US would help Europe and East Asia rebuild their economies because global capital demanded stability and needed places to invest.  And that would inevitably lead to a redistribution of global wealth.  Under those circumstances  - and as expressed by George Kenan, one of its chief architects - the raison d’etre of American foreign and economic policy during the second half of the 20th century would be to maintain the wealth gap – to delay as long as possible the inevitable redistribution of global wealth. 

We are now in the 21st century. The US no longer controls 60% of global wealth and capital has abandoned its national character. As a consequence of trade agreements, capital is free to move over most of the globe in search of higher profits.  But while capital has become international, the United States military continues to function as capital’s chief global cop. 

The difference is that the US no longer controls enough of the world’s wealth to maintain both the empire’s cop function - a world safe for Global Capital - and the US standard of living, i.e. the American Dream. Something has to change: either the empire will be scaled back or some Americans will have to sustain a cut in living standard. 

Global Capital needs the empire but it does not want to pay for it. Wealthy Americans also refuse to bear the burden. That necessitates transferring the cost of empire to US workers, the poor and middle class. Obama is committed to maintaining the empire and its police force – the US Military.

While he would prefer that rich American’s share the burden, when push comes to shove he will sacrifice fairness to the interests of his Wall Street backers.  Obama is the instrument by which Global Capital hopes to secure cuts in Social Security and Medicare necessary if working, poor and middle class folks are going to be made to pay for the empire. 

One indication of global capital’s agenda is what President Obama and Congress have done with the military budget. While claiming that he wants to end wars which have produced 15-25% of US debt and which do not make Americans safe or secure, Obama has escalated one war and begun yet another military adventure (Libya). While claiming that he wants to cut military spending, Obama actually requested a $26 billion increase in military spending for the 2012 fiscal year. The Republican House recently approved a $17 billion increase.  The debt/budget deal ostensibly cuts $350 billion from military budgets over the next ten years.  However, automatic increases for inflation could offset the entire amount. The US Military – global capitalism’s global cop – is unlikely to sustain real and substantial budget cuts. 

The Obama Presidency is Global Capital’s creation and he is their man. The Obama White House has now delivered part of what Global Capital demanded: the debt/budget deal will shift more of the economic burden of empire from corporations and their owners (aka the rich or monied interests) to working people and the poor.  Obama has not yet been able to raid Social Security and Medicare. But the Debt/Budget Deal holds within it the means to that end as well.

Through it Social Security and Medicare can be cut and most in Congress can claim they did not vote for those cuts. I can almost hear Nancy Pelosi rhetorically wringer her hands on camera now.     

How much abuse will Americans take?

The Democratic Party and the Republican Party have become instruments of Global Capital. That is the inevitable consequence when corporate “speech” is unfettered, information is controlled by global corporations and elections can be bought and sold.  US progressives are demoralized and fractious; we have no unifying analysis and no unified program. Progressive Democrats can’t even manage a “Dump Obama” movement.     

All over the world regular folks are rebelling. From England and Greece to Egypt and the Middle East – even in Israel - workers, middle class folks and the poor have taken to the streets and are demanding changes which would have the effect of limiting the economic and political dominance of Global Capital.

It is too early to tell whether the popular revolts popping up around the globe will lead to real change. The opponent – Global Capital – is well organized and powerful. The popular movements for change, on the other hand, are new, fragile and linkages among them are rudimentary or non-existent.  Unlike Global Capital, organized labor remains primarily national; labor lacks strong, unified and international programs to challenge capital’s global dominance. 

Will the emerging revolts be sustained? Will they link across borders? And how will everyday Americans react? Will working, poor and middle class Americans continue to absorb raids on their wealth and welfare? Can they continue to be persuaded to vote against their own interest? Will they continue to vote for the candidates Wall Street chooses?

How much abuse will the American People take before we rise up? 

America's 4-D Economy: From Deficit Deals to Double Dip

by: Jack Rasmus, Truthout | News Analysis | Thursday 4 August 2011

With the debt ceiling agreement almost a certainty this past Sunday evening, the expectation was the markets and the economy would rebound briskly the following day. After all, weren't we all bombarded for weeks with the message that if the debt ceiling were not raised, the economic sky would fall in? The economy would tank? Economic Armageddon was coming? So, if we raised the debt ceiling, the markets would rebound, right?

On Monday the stock market at first did rebound on the news of the imminent debt deal, but only briefly and modestly. It quickly turned around within hours on Monday, declining sharply by the end of the day. Why? The debt deal was in the bag by Monday. The recalcitrant House and Teapublicans voted for it. Only the formality of the Senate voting on Tuesday remained. Why wouldn't the markets, falling most of the previous week, snap back with the conclusion of the debt deal?

Instead, the markets slumped badly by the close of business on Monday, not because of the debt deal, but in response to a report late that morning showing the July US manufacturing activity index had fallen to 50.9 percent in July from 55.3 percent in June - the largest collapse in years and to the lowest level since June 2009, which was the trough of the recent recession. Fifty percent for the manufacturing index represents no growth. That's stagnation. Even more serious in the report, future orders for manufactured goods fell to 49.2 percent - a clear contraction - the first such since June 2009, as well. In other words, in terms of manufacturing at least, the economy now was right back where it was two years ago.

No wonder the stock market shuddered on Monday, notwithstanding all the "good news" about the debt deal. The performance of the real economy was far more important and "real" than all the huff and puff about debt ceilings and defaults by the US government. The alleged "good news" of the debt agreement was overwhelmed by the undisputable "real news" that the real economy was heading for a relapse.

And it was not just the US economy. Not reported by the US press on Monday was that the US manufacturing index's nearly 5 percentage points drop was being echoed at the same time by a decline in global manufacturing - in Europe, UK, Asia, even China. All reportedly had begun to slip.

On Tuesday, the debt ceiling deal was voted up by the Senate and signed by Obama into law. But the New York Stock Exchange fell by another 265 points and the NASDAQ by a whopping 75. Wait a minute! The debt deal was officially done, wasn't it? No chance of a reversal. So, why did the markets finally respond so negatively? The "real" reason was a further report on Tuesday. Consumer spending - representing 70 percent of the economy - fell by 0.2 percent, the first drop since September 2009.

In the face of this evidence of imminent contraction of the US economy, Congress voted to cut deficits in the amount of $1 trillion for certain, with another minimum $1.2 trillion in spending reductions due before the year end. Granted, much of that $2.2 trillion will be spread over ten years. But there will be about $30 billion in immediate cuts this year from the initial $1 trillion deficit reduction. Most of that will come from education, and still more, and bigger, first year spending cuts before year end.

The second round of $1.2 trillion in cuts will likely equal at least another $50 billion to $100 billion in the short term, most of that from Medicare-Medicaid and a lesser, token amount from defense, this writer predicts. That's about $100 billion in total federal government spending cuts impacting the economy this coming year. Add to that the $38 billion in cuts in spending enacted last spring in revisions to the 2011 budget, plus another $100 billion spending cuts forecasted by state and local governments the coming first year, and what you get is around $250 billion in spending reductions for the coming year.

But this $250 billion's impact must be "multiplied" to get its true, final economic effect. Economists estimate the "multiplier" from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375 billion to $400 billion in terms of their economic effect. Ironically, that's about equal to the spending increase from Obama's 2009 initial stimulus package. In other words, we are about to extract from the economy - now showing multiple signs of weakening badly - the original spending stimulus of 2009!

As others have pointed out, that magnitude of spending contraction will result in 1.5 million to 2 million more jobs lost. That's also about all the jobs created since the trough of the recession in June 2009. In other words, the job market will be thrown back two years as well.

With the debt ceiling deal, the US Congress and the president have crossed the bridge into the parched desert of "austerity." This is an historic juncture, shifting from stimulus to grow the economy out of recession, to austerity to thrust it back into recession! But the politicians of both parties are due for a rude surprise. Deficit cutting and austerity will result in worsening deficits and more debt - not reductions in deficits. An economy cannot cut its way out of a deficit and recession any more than a company can cut its way back to long-run profitability. It can only grow its way out by generating more revenue. For a company, that means selling more products and sales revenue; for the economy, that means creating more jobs and raising tax revenue.

Austerity solutions are a dead end. If anyone believes austerity solutions are the answer to recovery, they should simply look at Greece, Ireland, and the rest of the periphery of the eurozone. Imposing austerity there has resulted in a further deepening recession, falling tax revenues and still worsening deficits and debt. Ditto for the conservatives in the United Kingdom, whose recent deficit cutting is now thrusting that economy back into recession. The same is inevitable for the US if it continues toward austerity, deficit and spending reductions as a way to recovery. To employ a metaphor, austerity is like trying to win a race by shooting yourself in the foot at the starting block.

Nevertheless, it appears more austerity is on the agenda in the US - the next round in the 2012 budget negotiations due by October 1 and further in the December cuts that will be mandated by the so-called Bipartisan Committee; and following that, still more cuts, this writer predicts, in 2012, as the recession wipes out a good part of the prior spending cuts.

More cuts will follow because, despite the deficit cutting, the US budget deficit will now actually worsen and not improve. As the economy slides, tax revenues will fall below those officially projected, generating a call for even more cuts from those who believe deficit and debt reduction will restore business confidence and, therefore, investment and recovery.

All the talk about restoring business confidence is, in other words, simply a "confidence game." Collapsing business confidence is a consequence not of deficit cutting, but of consumers being unable to afford to buy their products. Want to change business confidence? Help consumers buy their products and see how fast that confidence returns. Adding two million more to the total jobless will only reduce consumers' income further, exacerbate the decline in consumption already underway and result, in turn, in a further deterioration of business confidence.

The past few days, the US economy has been dealt several severe blows in the reports on manufacturing decline and consumers retreat - a "one-two punch." Over time, the realization will grow that the deficit cuts - $1 trillion now and another $1.2 trillion in a couple months - will do great harm to the economy. The cuts represent another major "body blow" to the economy that is already rapidly weakening. The markets know this. "Business confidence" knows this. Apparently, only the politicians don't.

And more is yet to come. On Friday, the jobs report for July is due for release. July and August employment reports will show even more clearly the serious extent of the economic slide now underway. The coming jobs reports could prove a "knock-out" blow to the economy. The "big money" investors are already betting on that outcome. Dump your stocks and stuff your closet with bonds! The recent debt ceiling debate, in retrospect, appears as just the opening act, with the amateurs (Congress and Obama) flailing at each other, until finally exhausted and calling it a draw, returning to their respective corners to catch their breath. The "main event" is yet to come.

In early 2009, Obama implemented his economic stimulus and recovery plan. The Congress and US Treasury spent $2 trillion and the Federal Reserve more than $9 trillion to bail out the banks. What we got was the weakest and most lopsided recovery since 1940. After a brief twelve months, the economy sagged again in last summer 2010, followed by $600 billion more Fed stimulus, and $350 billion more tax stimulus at year end 2010, which included $250 billion in Bush tax cut extensions. The result? The economy slowed again, even more quickly, to less than 1.0 percent growth in GDP the first six months of 2011. The current third quarter, July-September 2011, will likely prove worse. Stepping into that ring are Congress and Obama. Double-dip recession will be their joint legacy. And if the banking system implodes in Europe, the outcomes will be even worse ... much worse.

The Recovery Is Dead, Long Live the Recovery

Wednesday, August 3, 2011 by TruthDig.com

by Robert Scheer

 

The die has been cast. Obama’s “nearly complete capitulation to the hostage-taking demands of Republican extremists,” as an editorial in the normally sedate New York Times described the deal to raise the debt ceiling, is a disaster in the making. It rules out a vigorous government response to the persistent economic stagnation in which joblessness, housing foreclosures and an ever-widening gap between the top 2 percent and the rest of Americans have become the norm.

But to use the word “capitulation” is too kind, since this president, as was Bill Clinton before him, is clearly one of those “New Democrats” who welcomes the opportunity to jettison the legacy of Franklin Delano Roosevelt as outmoded political baggage. Otherwise, why would Obama have reached for a “grand bargain” in which he even put Social Security and Medicare cuts on the table before the Republicans rolled him?

That same opportunistic reasoning got us into the Great Recession, thanks to President Clinton joining with congressional Republicans to destroy the sensible controls on Wall Street greed that FDR had put in place in order to prevent a repeat of the Depression. That was also the rationale of the Clinton alums that Obama appointed to clean up the mess they themselves had created. Instead of worrying about jobless workers and swindled homeowners, they bailed out the swindlers, following the example set by George W. Bush.

Those policies caused the 50 percent run-up of the national debt between 2007 and this week, when the debt ceiling had to be raised. While the trillions wasted made the bankers whole, it did nothing for the 50 million Americans losing their homes or the 20 percent of the workforce that can’t find the full-time employment for which they are qualified. The economy has zeroed out in the past six months, relative to population growth, and in June consumer spending had its biggest drop in two years. The fundamentals are rotten, as reflected in the steep descent of the stock market despite the raising of the debt ceiling.

The Republicans in control of the House excluded such dismal facts concerning the actual state of the economy when they set the terms for the debt ceiling debate, terms the president came to accept. Following the back and forth between Congress and the White House, one would have thought that the recession is over and now is the time to fix extraneous problems that are a quarter of a century up the road, like the baby boomer impact on Social Security. If adults, of either party, had been watching the store, raising the debt ceiling would have been a no-brainer. Instead, the obvious obligation to pay debts that Congress had already incurred was turned into an occasion to wage ideological war on the very idea of government.

In the end, Obama agreed to major cuts at a time when the government needs to spend more money on extending unemployment insurance, mortgage relief to avoid foreclosures, and support for state budgets so that more teachers and firemen are not laid off. That would put money in the pockets of people who would spend it, rather than continue the tax breaks for the rich and coddling the corporations that are sitting on a $2 trillion surplus they refuse to invest.

To cut federal expenditures in the midst of a deep and persistent recession would have been viewed as madness by every modern Republican president, from Eisenhower, Nixon, Ford and Reagan to both Bushes. Ronald Reagan had no qualms about doubling the entire national debt that had been accumulated by all previous presidents from George Washington to Jimmy Carter.

In the current debate, Republicans were accurate in reminding that the presidents from their party had to contend with Democratic grandstanding, including by then-Sen. Obama, in opposition to the inevitable lifting of the debt ceiling. But raising the debt ceiling was always assured and never once did the Democrats go so far as to threaten to put the United States of America into default or risk the nation’s perfect credit rating.

Neither party has ever dared to use the deficit ceiling to blackmail the entire nation—until now. And for that, the GOP is the party clearly at fault. But it is also true that, in his zeal for centrist consensus, a preoccupation doomed to failure in a time of tough choices, it was Barack Obama who folded.