As the political front man for the world’s most powerful capitalist nation, you might expect President Barack Obama to have some degree of control, or at least influence, over the future direction of both US and global economy.
But his proposed budget for 2012 shows exactly the opposite to be the case. The trajectory of the global capitalist economy is beyond the control of Obama or anyone else.
The first big number of note is the projected government budget deficit for 2011 which the White House expects to soar to $1.65 trillion (1 trillion = a thousand billion), equal to 11%of the country’s annual output (just about the same as the UK’s deficit, by the way).
By themselves the two numbers don’t tell us much. But in the era of sovereign defaults or state bankruptcies, it’s important to note that this will turn out to be the largest deficit as a share of the US economy since World War II.
The projected figure is significantly larger than the $1.48 trillion recommended by the non-party Congressional Budget Office (CBO) only a few weeks ago. And it will be 28% higher than last year’s deficit of $1.29 trillion. Unless this week’s battle in Congress manages to achieve what the Republicans want: a savage and immediate programme of slashing cuts for the spending programmes on which millions of Americans impoverished by the crisis increasingly depend.
Some 48 million are already receiving food stamps and the rate of repossessions is increasing. (Incidentally, the more people there are on food stamps, and the more who are driven out of their homes, the more financial corporations like JP Morgan Chase, who are paid to process them, make in profits).
There’s not a lot Obama can do about all this without enraging the people that elected him. The projected deficit is the result of many factors. The most obvious amongst them is the $600 billion printed to offset the effects of the deepening recession, declining tax revenues and the refusal of Republicans to accept the end of tax concessions for the rich.
The budget for 2012 - and the ten years beyond - is based on fairyland estimates of growth (high) and inflation (low), so the details underpinning the intention to reduce the 2012 deficit to $1.1 trillion are hardly worth considering.
But the progress of the ongoing struggle over reducing the deficit is itself directly influenced by the rising cost of servicing the debt charged by lenders. The CBO warned last month that debt interest is "poised to skyrocket" without drastic cuts. Even if Washington faces up to the crisis by raising taxes by a third, it said, debt interest costs alone will still jump from 1.5% to 3.3% of annual output.
But there’s a longer term chronic problem: the one that blew up in 2007. For more than 50 years, each additional dollar of credit issued (and there have been an awful lot of them) bought a declining amount of growth. There lies the insoluble contradiction for Obama and all those trying to solve the problems the crisis presents.
Attempts to stimulate the economy end up costing more than can be repaid. They have failed to reduce unemployment. Youth unemployment in the UK has risen to a fresh record high, with more than one in five 16 to 24-year-olds out of work after a rise of 66,000 to 965,000 without jobs. Printing money has helped send the price of food soaring around the world and inflation is taking off, as yesterday’s figures from Britain confirm, with interest rates sure to rise soon. In Egypt, these were key factors behind the uprising that ousted the Mubarak regime.
China has now become the world’s second largest economy, behind a faltering US. The tensions between the two are palpable. The challenge before us to end a system of production that has entered a deeply destructive mode before trade conflict takes an altogether more aggressive form.