Clock is ticking on US debt time bomb

Is America too big to fail? Or will a dysfunctional Congress, by continuing to block a deal on raising the astronomical federal debt ceiling, precipitate a default by the world’s largest economy?

There’s an air of panic. “No clear plan to avoid default as deal collapses”, screams the headline in the Washington Post this morning, with just 48 hours to go before the deadline.

With many government services shut down for nearly three weeks already, it’s small beer compared to what happens if the debt time bomb explodes. In any case, it is already too late to stop the economy unwinding.

There have been several attempts at predicting the sequence of events likely to unfold if Congress cannot come up with a deal, but nobody really knows what might happen. Payments to US war veterans would be amongst the first casualties and they are already on the streets, mounting protests.

For five years, the real conditions in the global economy have been building to a moment that demands something expressive of much greater destructive impact than the “collapse of the house of cards” metaphor widely used for the 2007/8 financial meltdown.

The problem is this: the US needs more debt – an estimated $1.1 trillion to keep paying the interest on the accumulated $16.7 trillion. As with all addictions there has to be a dealer, someone to supply the next fix. Just printing money doesn’t do it.

An increase in debt, and the associated repayments, demands an increase in the value which has to be produced by someone doing productive work, somewhere in the world. And with the US economy not generating enough growth to pay off the debt, exploitation of workers in other countries must also be ramped up.

If you follow the trail of connections to the source of the new value needed to back the debt repayments you find yourself chasing from the factories in China to the murderous conditions in Bangladesh and on to the latest source of cheap labour -Vietnam. 

Which brings us back to the origins of the crisis. During the 1960s and early 1970s the United States was engaged in a losing war in Vietnam. The impossibly high cost of the war contributed to runaway double digit inflation and mounting federal debt. This in turn forced the US to sever the relationship between the dollar and gold which had been the keystone of post second world war economic arrangements The end of the gold standard opened up the period of credit-fuelled expansion, which itself crashed in 2007-8 when the world system came to a griding halt and many banks went belly up.

Nearly 40 years after the end of the Vietnam war finds the US government still making payments to the veterans who fought there. Based on a causal link to the Monsanto-produced defoliant Agent Orange used in Vietnam, federal officials approved diabetes a decade ago as an ailment that qualifies for cash compensation and it’s a large bill. 

Without the ability to borrow more money, the US government cannot pay out to veterans or anyone else. On October 23, a $12bn social security payment is due, and November 1, a range of bills will use up the government’s remaining cash. As some wit put it, by the end of Thursday the US will be like a shopper who has hit his overdraft limit: he cannot borrow more but still has a little cash in his wallet.

The credit rating agencies are moving to further downgrade America’s AAA grade while Citi and other banks have divested themselves of US debt due for payment over the next few weeks. But for China, Japan, the oil exporters – the main holders of US debt – there’s no such luxury. Selling would drive down the dollar further and leave them well out of pocket.

The House of Representatives is hostage to the far right Tea Party faction and seems determined to go to the brink. President Obama could ignore Congress and raise the debt ceiling himself, but that would provoke a major constitutional crisis.

Whichever way you look at, American capitalism is being blown apart by its addiction to debt. And the rest of the global economy is not too far behind. 

Gerry Gold

Economics editor 

The trillion dollar question with no answers

If nothing changes, the US government will run out of money, somewhere between October 22 and November 1 and plunge a fragile global economy into another meltdown. With the two parties in Congress locked in deadlock, time is running out.

Already, two million federal government workers are having their pay cheques delayed, and 800,000 of them might never be paid at all. The days are running into hours as the deadline approaches for Congress to award itself a further extension of its towering $16.7 trillion debt (a trillion has 12 zeros, by the way).

But with no sign of a solution to the week-old US government shutdown forced by the Tea Party wing of the Republicans, a political deal looks less – and an historic, unprecedented default by the world’s biggest national economy – more likely.  

Updated forecasts from the International Monetary Fund can only intensify the deepening political crisis. In its World Economic Outlook, the monetary hit squad now expects the global economy to grow only 2.9% this year, down from the 3.2% it estimated just six months ago, in July.

And, as everyone with half an eye to political economy knows, capitalist economies become unsustainable with anything less than 3% growth.

The figure for the US, still the world’s largest economy, sees a sharp drop from 2.8% in 2012 to 1.6% in 2013, nowhere near enough to see unemployment fall to 7%. This is the level the Federal Reserve, the US central bank, says will trigger a reduction in quantitative easing, the massive inflationary programme of money printing supposed to bring about the mythical recovery.

The interventionist wing of US capitalist interests argue that the faltering signs of recovery call for more credit to be pumped up. But the Tea Party and its friends will intensify their hijack of the government – insisting on sharper, more brutal spending cuts as the price of an agreement.

The 0.5% increase in the forecast for the UK, which triggered press demands for an apology by IMF chief Olivier Blanchard to chancellor Osborne over the former’s criticism of the latter’s austerity drive, is nothing to celebrate. Despite being the biggest increase among the developed countries, it only raises the expectation of UK growth to a dismal 1.9%.

Sainsburys operates at the sharp end of capitalist interests. Its sales are a key measure of the impact of economic conditions on people’s ability to buy food.  Its boss Justin King expects frozen wages and inflation to bring about a further 2% drop in real incomes over the next 12 months. No recovery there.

The IMF sees conditions in the euro area continuing to worsen for this year, with an overall shrinkage of 0.4%. Germany will at best make a 0.5% rate of growth. Italy will shrink by 1.8%, and Spain by 1.3%. Next week, the IMF together with its European Central Bank and European Commission partners in the “troika” will be back in Greece. The ongoing global crisis has forced its economy to contract by one quarter since the 2007 crash, and further 4% shrinkage is expected this year.

The IMF has also been busy in nearby Serbia. Lazar Krstic, the 29-year-old finance minister, pledging to stabilise government debt by 2017, yesterday launched the country’s own savage austerity and privatisation programme. This is part of the price of hoped for EU membership, and he is also seeking billions of euros in loans from the United Arab Emirates to avoid imminent bankruptcy.  

Look further afield to the “emerging and developing countries’” and the story becomes even more gloomy, with negatives across the board. China’s three-year deceleration is continuing, its growth rate shrinking towards 7%.

Xi Jinping, president of the second largest national economy, said he expected a "long and tortuous process" of world economic recovery. That’s a euphemism for further brutal assaults on living standards just about everywhere for the foreseeable future. If global capitalism was on a supermarket shelf, its “use by” label would be a long time in the past.    

Gerry Gold

Economics editor

US shutdown shows the system is cracking up

The shutdown of the US government by the right-wing Tea Party faction of the right-wing Republican party is a critical moment, one that reveals deepening cracks inside the capitalist state’s political system.

On the first day, 800,000 federal employees were affected by the absence of a government that could pay their wages. On the same day, many of the 32 million Americans not covered by insurance queued to sign up for access to affordable health care.

The new insurance marketplace websites which opened for business on the first day of trading are a key part of the president’s so-called “Obamacare” legislation. Overwhelmed by the demand, many websites crashed in the first hours. 

The Patient Protection and Affordable Care Act was adopted in 2010, in fulfilment of Obama’s election pledge, and Republicans have failed 50 times to block it. To their disappointment, the Supreme Court ruled that that legislation was constitutional.

In trying to place more rocks in the road of a long, tortuous, contradictory journey towards the universal provision of healthcare, Republicans led by the Tea Party have initiated the shutdown of government by denying approval to the federal budget.

So with services closing, government workers are being sent home on unpaid leave. It’s wish-fulfilment time, a dream come true for the super-rich corporate funders of the Tea Party who vehemently hate all forms of public spending.

Never mind that the massive expansion of the insurance market was a Republican model pragmatically adopted by Obama as a way to provide health care for the tens of millions who’ve been denied it in the world’s richest country.

The health industry, especially in the US, has been a feeding frenzy for Big Pharma, for the makers of ever more technologically advanced and expensive medical devices and highly profitable insurance companies.

Although US spending per head on health is 150% more than in the UK, life expectancy at birth is among the lowest of developed countries, while infant mortality is the highest. Potential years of life lost by people under the age of 70 are also far higher. It’s a health system that benefits the well off.

When the economy crashed in 2008, the turning point arrived. The status quo was unsustainable. Millions were thrown out of work, losing access to healthcare funded through insurance as part of their employment contract. Economically, socially and politically the game was up.

One thing is clear: having taken the first tentative steps towards universal access,  the current system of government looks unlikely to survive. Its problems are piling up fast. The two wings of the Congress of the 1%, for the 1%, by the 1% are in deadlock. 

Although the Republicans are trying to block Obamacare, the bigger issue looming ahead is the soaring federal government deficit. Unless Congress votes to raise the debt ceiling later this month, the US government could be staring at an international default as it won’t have the money to service interest payments.

The consequences of default by the world’s biggest capitalist economy are beyond imagination. Most analysts are saying it couldn’t happen, they’ll surely come to their senses. But the Republican Party is so divided in itself that anything is possible.

Who is to blame for all of this? Reflecting a generalised rejection of the political process, a Reuters/Ipsos poll showed about one-quarter of Americans would blame Republicans for a shutdown, 14% would hold Obama responsible and 5% Democrats in Congress, while a massive 44% said everyone would be to blame.

George Atkinson, an 82-year-old Coast Guard veteran of the Korean War was among those pushing past barricades to visit the National World War ll Memorial,  closed by the government shutdown. "The whole group ought to be replaced, top man down," he said.

Events around the world show that it’s not so much the people who are operating the system who are to blame. It’s the system itself. It’s in trouble wherever you look. The Greek government has arrested some of its own, elected, Golden Dawn representatives. Britain has a non-elected coalition. Berlusconi is singlehandedly trying to bring down the Italian government. The system is cracking up.

Gerry Gold

Economics editor

US heads for 'slow motion train wreck' over debt crisis

If you thought Italy had sovereign debt issues, you should take a look at the United States. Total public debt this week stands at nearly $17,000 billion, equivalent to 75% of the value of the country’s annual output.

Half is owned by foreign investors, principally China and Japan. They are understandably nervous. The once mighty dollar has fallen in value by 10% against major trading partners’ currencies since 2009.  

Good news for US exporters but bad news for those holding dollar-denominated debt. Some suggest that the declining dollar is part of a covert global currency war as the major capitalist nations desperately seek a trading edge over their rivals.  

But the US federal debt mountain is about to come crashing down on the heads of ordinary Americans. Barring a last-minute deal uniting the bitterly divided American political class, a 10-year programme of cuts in federal government spending, known as “the sequester”, is about to kick in.

Amounting to $1.2 trillion dollars, the automatic trigger mechanism is the result of a decision by Congress in 2011 which was itself a compromise. The Budget Control Act was the flip-side of a deal that allowed the self-imposed limit on federal debt to be raised.

At the time it was argued that the effects of the automatic cuts would be so unacceptably severe that the Congress would be sure to do something to avert them. They’ve been delayed as much as was allowable, but the debt crisis has worsened inexorably as the global contraction has tightened its grip, and time’s up.

According to the Bipartisan Policy Centre, “sequestration’s effect will be akin to that of a slow motion train wreck. The uncertainty has already impacted economic growth, and while there won’t be a sudden ‘cliff that occurs on March 1, the ramifications will steadily worsen as time passes.”

Cuts for the seven months remaining in the 2013 financial year amounting to $85 billion will be spread equally between defence and domestic programmes.  Getting a clear understanding of the full impact of the cuts on people’s lives and the effects on the services they provide and receive, is proving difficult.

These are just a few of the expected headliners for this, the first part-year of a – and I repeat - ten year programme of shrinkage:

• Economic growth (GDP) will be reduced by 0.5%
• Between 700,000 and 1 million jobs will disappear
• 800,000 defence department civilian employees face enforced unpaid leave of 20% equating to one day a week.
• $600 million to be cut from the Federal Aviation Administration mean that thousands more will be forced to take unpaid leave.
• The cuts could lead to the closing of hundreds of air traffic control towers
• 600,000 low-income people receiving help from the Women, Infants and Children programme may lose out
• Up to 70,000 children from low-income families could lose access to the Head Start programme
• military veterans and dependents of an active service member could be denied elective medical care    
• thousands of teachers and aides could lose their jobs, and many special education and pre-school programmes could disappear.

Obama’s administration is in favour of reducing spending but wants to do it differently, with a deal on tax increases for the wealthy – fiercely opposed by the Republicans and the Tea Party. Tax cuts for the rich introduced by President Bush were permanently extended as part of the deal which temporarily averted the “fiscal cliff” at the beginning of the year.

Even with the sequester, the impact on long-term debt growth is forecast to be small. The federal debt will continue to grow, until eventually reaching 100% of GDP.

Warning to the American people: expect worse; much, much worse!

Gerry Gold

Economics editor

Tucson shooting and America's crisis

The attempted assassination of US Congresswoman Gabrielle Giffords in Tucson, Arizona, has inescapable links to extreme right-wing vitriol from radio talk shows and the mouthing of populist politicians like Sarah Palin. It marks a new stage in America’s unfolding political crisis.

Only last March, Palin – who has eyes on the Republican nomination for the presidency – posted on Facebook: “The crossfire is intense, so penetrate through enemy territory by bombing through the press, and use your strong weapons – your Big Guns – to drive to the hole. Shoot with accuracy; aim high and remember it takes blood, sweat and tears to win.”

Then, in the run-up to last November’s mid-term elections, she published a map of political targets with crosshairs which looked very much like gun sights over Giffords' district, along with the districts of 19 other Democrats who voted for president Obama’s health-care bill. After posting the map on her Facebook page, Palin told her Twitter followers to go there with the message "Don't Retreat – Instead RELOAD!"

Jared Lee Loughner, 22, who is to be charged with six counts of murder – including a nine-year-old child, a federal judge and the attempted killing of Giffords – was known to share some of the fantasy views encouraged by Palin and the Tea Party movement. These include the notion that Obama is an illegitimate president, that the US currency is a fraud and that federal government in general is unconstitutional. Asked if she had any enemies, Giffords’ father said: "Yeah, the whole Tea Party."

Giffords, a former Republican turned Democrat, had been holding a public meeting in a shopping precinct when the gunman opened fire. When Giffords held a similar meeting last year, someone dropped a gun. Loughner is described by the authorities as mentally unstable. Yet he was able to purchase a semi-automatic pistol.

It’s got that bad that even the sheriff conducting the investigation, Clarence Dupnik, did not hold back: "When you look at unbalanced people, how they respond to the vitriol that comes out of certain mouths about tearing down the government – the anger, the hatred, the bigotry that goes on in this country, is getting to be outrageous. And unfortunately, Arizona, I think, has become the capital. We have become the mecca for prejudice and bigotry."

Add in the widespread belief that Obama’s modest health care changes are the first step to socialism together with the historic catastrophe that is the American economy, and you can see where paranoia among the dispossessed and disenfranchised is coming from. While Wall Street is booming, deliberately fuelled by the Federal Reserve’s programme of printing money, the rest of the country is going to the dogs.

Even the Daily Telegraph’s Ambrose Evans-Pritchard is disturbed by the latest data. “The numbers of people on food stamps have reached 43.2m, an all time-high of 14% of the population …. The US Conference of Mayors said visits to soup kitchens are up 24% this year. There are 643,000 people needing shelter each night."

The long-term unemployed (more than six months) have reached 42% of the total, twice the peak of the early 1990s The “labour participation rate” for working-age men over 20 has dropped to 73.6%, which he says is the lowest figure since 1948. “My guess is that this figure exceeds the average for the Great Depression … It is no surprise that America’s armed dissident movement has resurfaced.”

As Evans-Pritchard acknowledges, there is no “easy solution” to “creeping depression” in America and elsewhere which has left “very large numbers of people in the West trapped on the wrong side of globalisation, and nobody doing much about it.” Though, of course, he doesn’t put in so bluntly, the capitalist system is visibly in meltdown – socially, economically and politically. The events in Tuccon are a sign of the times.

Paul Feldman
Communications editor

Irish budget won't stop the rot

The Irish Parliament’s vote to implement a further, more savage €6 billion programme of spending cuts and tax increases has done nothing to stop the worsening debt crisis transforming the political landscape throughout Europe and beyond.

Quite the opposite. As Ireland follows Greece, and with Portugal and Spain jostling for position in the queue for aid, the conditions of the Intenational Monetary Fund-sponsored package for the Irish Republic are reverberating throughout the continent. And the pressure is mounting across the Atlantic too.

In the United States, Democrats are in open revolt against President Obama’s deal with the Tea Party-inspired Republicans to continue Bush’s 10-year-old tax breaks for the wealthy, which were widely expected be allowed to expire at the end of the year.

This proposed new deal is part of the political price for agreement on a further debt-funded stimulus. But the markets are worried, and the cost of US borrowing has started to rise.

Dominique Strauss-Kahn the managing director of the IMF says the “piecemeal” country-by-country approach can’t solve the crisis but Germany’s chancellor Angela Merkel is not alone in blocking proposals for a Europe wide rescue scheme. In the Netherlands, Geert Wilders far-right Freedom party teamed up with the so-called Socialist Party to oppose the deal for Ireland.

For the Irish people, the new budget slashes social welfare benefits, public pensions and capital projects, whilst forcing the 45% of low wage earners to pay income tax for the first time in order to rescue the banks and pay the interest on government bonds.

Michael Noonan, finance spokesman for the centre-right Fine Gael party stated the obvious: "This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank."

But what he didn’t say is that the demands of these agencies are themselves orchestrated and conducted by the much more powerful forces at work in the rapidly contracting global capitalist economy.

Even as the captive Irish government was applauding itself, warnings of further mass assaults could be detected in the absurdly optimistic growth forecasts underpinning the new budget.

Finance Minister Brian Lenihan pins Irish hopes on gross domestic product national income (GDP) expanding by 1.7 percent next year, nearly double the European Commission's forecast of 0.9 percent.

The government is forecasting growth of 3.2 percent in 2012, 3.0 percent in 2013 and 2.8 percent in 2014, but Danny McCoy, head of the Irish Business and Employers Confederation said he saw little in the budget to help job creation or restore economic competitiveness.

In reality, governments throughout the world are in a competitive race to destroy living standards, driven by the needs of an economic system of global corporations competing for declining profits as markets shrink and collapse.

The crisis began when credit-funded stimulus reached its limits. Political parties of the left and right are ganging up together to design and implement “austerity” programmes that can only accelerate the process of contraction. Despite the rhetoric of recovery it is what they are required to do.

Campaigns to resist the assault on people’s lives must be brought together with the democratic and legislative means to replace the moribund capitalist system rather than patch it up. People’s Assemblies can begin to construct a richer form of democratic control based on social ownership and not-for-profit production and finance. Check out A World to Win’s proposals for transforming social relations in our new Beyond Resistance booklet.

Gerry Gold
Economics Editor

Sinister attack on unemployed

Hundreds of thousands of workers in Washington State, among the eight million who have lost their jobs in the US since the recession, are now receiving letters warning them that their unemployment benefits could run out much earlier than they expected.

They thought they were entitled to 99 weeks of support, including 53 weeks of emergency unemployment compensation and 20 weeks of extended benefits. But it is looking increasingly likely that the newly-elected Tea Party influenced Congress is preparing to abandon the unemployed to their fate. With emergency benefits ending within days, those registering as unemployed will now be eligible for just 46 weeks of unemployment benefit – less than half the previous limit.

President Obama has talked of the danger that very high unemployment – currently running at 9.6% - is now “the new normal”, while senior economic adviser Paul Volcker warned that unemployment will remain high for a long time to come. The prospect of millions with no form of income looks set to become commonplace, and not just in America. One in five is out of work in Spain.

Tomorrow Britain’s Lib-Con Coalition will publish a White Paper expanding the meaning of its sinister threat that people who are in work will always be better off than those on benefits. Work Activity Scheme proposals to be outlined by Iain Duncan Smith, work and pensions secretary, could force long-term benefit claimants into unpaid manual labour on community work placements doing jobs like litter clearing and gardening.

With hundreds of applicants chasing every job in places like Merthyr Tydfil, the new scheme would give job advisers the power to require them to do community work for charities and local councils in exchange for the new universal benefit. With 1.9 million children living in a home with no working adult, the UK has 5 million people on out-of-work benefits and one of the highest rates of workless households in Europe.

The contraction of the global capitalist economy is irreversible, and Duncan Smith knows it. Whilst millions of employment contracts have been broken and millions more are about to be busted, he is talking about a profound shift. The Coalition plans to establish a new, punitive form of contract between the individual and the state. Just as in the US, benefits will be withdrawn, and wage levels driven down.

In Ireland, which is just a few months further down the track towards state bankruptcy, with unemployment at over 14%, wages in the public sector have already been driven down by 14% and in the private sector by 7%. That is what is planned for Britain.

Duncan Smith’s threat is clear: "I think most of the public think that progressively you send them signals. They have a bit withdrawn, then a bit more, then eventually to have to say you will eventually lose all your benefit.

"The signal will get round very quickly that you are serious about this. We may have to do it initially to some of the more recalcitrant people. But I have a view about human nature, most people once you start to show them the right way out I think most people move. Those who won't play get lost in the system at present and they infect everyone else."

The use of the term “infect” is particularly sinister and reveals the deeply reactionary, not to say totalitarian, thinking behind this government. These are ideological threats for sure, but they are formed by the reality of a worsening crisis. Protest or changing those at the helm of the state can’t reverse the fact that the economy is shrinking at a rapid rate.

Capitalist production must be replaced by a different way of doing things. People’s Assemblies are needed to take over the productive resources currently owned by investors grouped together in secretive private equity funds, and turn them from for-profit destruction of the eco-system to planned production for need.

Gerry Gold
Economics editor

America's crisis takes a turn for the worse

The sharp swing against the Democratic Party in the US mid-term elections will inevitably deepen a political crisis in Washington which centres on the inability of the state to halt the historic decline of the American economy.

Obama’s inability to make any impact on a worsening economy drove voters to desperate political extremes in a rage against “big government” and its perceived failures. Conservative Democrats turned to the Republicans, whilst the Republican Party has been turned inside out by the ultra-right Tea Party movement.

The Tea Party’s God-fearing, evolution-denying, extreme nationalist representatives want to fast-track US deficit reduction by immediately shutting down government spending, including social security and publicly-funded education. One of the first decisions to be made by those newly elected will be whether to renew the programme that funds extended unemployment benefit. It runs out on December 1.

Significantly, as the electoral dust settles, the Federal Reserve – America’s central bank – is readying itself for a last throw of the dice aimed at stimulating demand. The Fed is about to announce a second massive programme of quantitative easing – printing of money to you and me.

Some are saying that Federal Reserve chairman Ben Bernanke will release a “wall of money” and as much as another $1 trillion will flood into the economy through the buying up of government bonds. It will add to the $1.75 trillion already created in the attempt to prevent financial Armageddon in 2007/8.

If it happens, the value of the dollar will fall, push interest rates down, halt the house price decline, stimulate investment and consumption and make exports from the US more attractive – or so the theory goes. But that kind of American Dream is pure fantasy.

Reality tells a different story. Despite an already declining dollar which makes US produced goods and services cheaper in international trade, they struggle to compete with commodities made by dollar-a-day labour in China, SE Asia, and Latin America. Last year US imports ($2.404 trillion) vastly exceeded exports ($1.842 trillion) in spite of a weaker dollar.

Further reductions in the value of the US currency can only accelerate the competitive downward pressure on living standards throughout the world. When US workers are obliged to buy foreign goods to feed and clothe their families they know they are cutting their own throats. The Dream is long gone.
And, despite Obama’s previous stimulus package, the Great Recession is rapidly turning into the worst slump ever. The so-called “recovery” has failed to restore the millions of jobs lost since 2008. Quite the opposite. One in 10 – close to 15 million of the American workforce – are counted as unemployed and the number is rising.

Those obliged to work part-time has more than doubled since the beginning of the recession from 4.5 million to 9.5 million. The number of “discouraged workers” no longer in the labour force because they gave up looking for work increased by more than 70% in the year to September 2010. When the unemployed, underemployed or discouraged or added together, the total reaches 17% of the workforce.

With incomes declining sharply, house prices are continuing to fall and eviction totals are mounting. Seven million homes are “delinquent” because payment deadlines have passed, are in repossession proceedings, or have already passed into the hands of the lenders. Homelessness is soaring, putting pressure on shelters which have started to charge fees of $7 (£4.50) per night.

“Big government” in the shape of the capitalist state has indeed failed because the crisis is global, with a logic and momentum beyond the reach of individual states and governments. The US election outcome provides an historic opportunity. Americans should begin the task of creating new forms of economic and political democracy in which they can forge a path to a society based on the satisfaction of the needs of the many and not the corporations. Both the Republicans and Democrats stand in the way of this much-needed social liberation.


Gerry Gold
Economics editor

Tea Party brews up a political crisis

Only in America could a woman like Christine O’Donnell become, in the words of New York Times columnist Frank Rich, “the brightest all-American media meteor since Balloon Boy”.

Rich views “I am not a witch” O’Donnell as a possible godsend for the Republican party as the US mid-term elections loom on November 2. He could not resist adding that the 41-year-old senatorial candidate for the state of Delaware, who is an evangelical Christian, is perhaps best known “for taking a fearless stand against masturbation, the one national pastime with more fans than baseball”.

Laughable as people like O’Donnell and their primitive right wing views might appear, her meteoric rise, like that of Sarah Palin before her, is an indication of the growing hold of the anti-state, anti-government Tea Party movement within the Republican Party (GOP).

O’Donnell provides the GOP with a symbolic figure – a small-town struggler on low-pay with “proletarian cred”. The reality about the Tea Party, though, is that it is bankrolled by the billionaire Koch family who first made their fortune in dealings with the dictator Joseph Stalin. It is making political capital out of the pain being suffered by millions of Americans as unemployment stands at 10% and repossessions leave whole areas of US towns and cities lifeless.

Behind its populist façade, the Tea Party is actually a plaything of massive corporate interests. Amongst its backers are many from the Forbes list of the super-rich. They include oil barons Robert Rowling and Trevor Rees-Jones, and not least, Rupert Murdoch and his News Corporation. Through Fox television, Murdoch provides constant favourable news coverage for the Tea Party. Clearly the interests of these super-rich are nothing to do with the Tea Party’s supposed support for small town and impoverished Americans.

The new breed of Republican leaders also include people such as Nevada candidate Sharron Angle. Angle is another Christian fundamentalist who opposes abortion, no matter what, even for incest and rape. She wants to abolish the following: the Department of Education, Social Security, the Department of Energy, Environmental Protection Agency, National Endowment of the Arts, housing agencies Freddie Mac and Fannie Mae and Planned Parenthood funding. Perhaps surprisingly, Angle is standing against a Tea Party backed candidate.

So where does this leave President Barack Obama and the Democratic Party? Despite their success in passing healthcare, financial legislation and the Recovery Act, the administration’s “Big State” efforts to rescue the economy from meltdown have not stopped the jobs and homes haemorrhage.

While things have taken a slight turn for the better in the latest popularity ratings, the administration confronts a massive melt-down of confidence in a presidency. It began with the highest of hopes and tears of joy when the first-ever African-American was elected only two years ago.

But as the recession turns towards another Great Depression, that euphoria has turned into disappointment and shock. Obama admitted in a recent interview with Rolling Stone magazine: “We've seen an increase in poverty, and an increase in unemployment, and people's wages and incomes have stagnated.”

Not only is there a distinct possibility that the Republicans will gain control over both Senate and House of Representatives on November 2. Obama is also weathering a major changeover of White House staff.

Behind these harsh realities facing a president hailed for his skills as the great communicator is the historic weakness of the US economy in the face of ruthless competition from China. What we are seeing is a crisis not only for the Democrats but America’s political system as a whole. Some suggest that America is already “ungovernable” and that is likely to be even more the case after the mid-term elections.

Washington Post journalist Bob Woodward has revealed that last November Obama was virtually threatened with mutiny when he tried to overrule the military brass on withdrawal from Afghanistan. A disgruntled military, a possibly lame-duck president and a populist Tea Party working with big business, is a heady cocktail with unpredictable side-effects.

Corinna Lotz
A World to Win secretary

Petraeus deepens Obama's problems

Only a month after taking charge of US troops in Afghanistan, General David Petraeus, commander of US and NATO forces, has openly challenged President Obama. Coming amidst increasing political turmoil, it is a dangerous moment for his presidency.

In an NBC television interview, Petraeus said that Obama’s 2011 target date for withdrawal was dependent on conditions permitting. The general’s open defiance comes as the US occupation is suffering its the highest level of casualties since it invaded Afghanistan in 2001.

But it is not only the Afghan people and the US troops killed on the battlefield or on the roads of Afghanistan who are bearing the brunt of the war. When combat troops return home, increasing numbers cannot cope with the psychological after-effects of seeing the carnage inflicted not only by the Taliban but by their own side.

In descriptions of mental trauma reminiscent of the long-term effects on US veterans from the Vietnam war, Time reporter Mark Thompson says that the US army faces a “third front” – trying to rescue its own soldiers from insanity. Soldiers are seeking mental health support more than 100,000 times a month.

One in every 10 soldiers who has completed a single combat deployment has a mental ailment, Thompson has found. The rate rises each time a soldier is redeployed. “More than 500,000 troops have returned home to the US in the last decade with a mental illness,” Thompson estimates.

The result is that suicide rates in the army have been rising. Despite a $7 million expenditure on hi-tech facilities like Fort Campbell, near Nashville, Kentucky, home to the 101st Airborne Division, suicides there have continued to rise.

Not only do they suffer mental breakdowns, but soldiers - and even more significantly – their carers, have turned their weapons on themselves and their superiors. Last November, after a killing spree at the Fort Hood military facility in Texas, Army psychiatrist Major Nidal Hasan was accused of killing 13 people. Hasan, who received medals for service in the Gulf war, had specialist training in the treating traumatic stress at the US armed forces University of the Health Sciences.

But the physical and psychological fall-out amongst his troops, will not deter Petraeus who shows typical disdain for the poor bloody infantry who do the dirty work, and pay the price, while the generals screw up on a consistent basis. Speaking in his Kabul headquarters, he said that he would resist any large-scale or rapid withdrawal of American forces.

Petraeus let the cat out of the bag about the real reason for the continuing US-UK occupation of Afghanistan. He said the country had the potential to become a "new Silk Road", a crossroads for trade, especially in minerals: "Afghanistan is blessed with the presence of what are... trillions of dollars' worth of minerals”.

Behind Petraeus stands the military-industrial complex – the US and global corporations anxious to exploit the lithium and oil resources. The oil corporations’ appetites will have been whetted by an announcement by the Karzai regime that a survey has found a rich new oil field in the north of the country.

The military top brass are deepening the crisis for Obama, whose approval ratings continue to slide. In advance of the November mid-term elections, around half the country disapproves strongly of the government.

Obama appointed Petraeus after sacking Commander General Stanley McChrystal in June. This was after McChrystal had openly attacked the administration in an interview published by Rolling Stone magazine. To have one general defy your government may be regarded as a misfortune; but to have two in quick succession ready to counter the commander-in-chief in public looks like carelessness.

To have all this happen while the US economy continues to tank and a series of rabid right-wingers in and around the notorious Tea Party challenge the authority of the state itself, might be considered to be a dangerous cocktail.

Corinna Lotz
A World to Win secretary

'Rage on the right' threatens Washington

As the Obama administration struggles to get its extremely modest health care bill through Congress, it faces not just a hostile Republican Party that has effectively opted out of the usual bipartisan politics on Capitol Hill, but the menace of far right-wing groups that have found a new lease of life across America.

Their surfacing reflects frustration not just at the political impasse in Washington but the collapse of economic activity in many areas, alongside the phenomenal rate of home repossessions by banks and mortgage companies that recall the hungry days of the 1930s Great Depression.

Undoubtedly, the re-emergence of so-called Patriot Groups – armed militias that see the US government as a threat to civilisation and the “American way of life” (which are not necessarily the same thing) – can also be seen as a response to the extremely aggressive stance taken by the Republican Party against the first African-American president.

Republicans and their supporters in the media like Fox News have routinely denounced Obama as a non-patriotic, possibly even non-American, who is introducing socialist measures that threaten society. Resistance to a health care bill that relies on insurance companies led to Obama losing his two-thirds majority in the Senate at a by-election.

Now he is relying on a simple majority to get the legislation passed by the middle of this month and the fury has gone way beyond the control of the Republican Party.

The Southern Law Poverty Centre (SLPC), one of the most significant civil rights organisations in the country, says in a new report that “the radical right caught fire last year”, adding:

“Hate groups stayed at record levels — almost 1,000 — despite the total collapse of the second largest neo-Nazi group in America. Furious anti-immigrant vigilante groups soared by nearly 80%, adding some 136 new groups during 2009. And, most remarkably of all, so-called "Patriot" groups — militias and other organisations that see the federal government as part of a plot to impose ‘one-world government’ on liberty-loving Americans — came roaring back after years out of the limelight.

The report called “Rage on the Right” is in no doubt that what it calls “seething anger” has its roots in demographic changes to the population, “soaring public debt and the terrible economy, the bailouts of bankers and other elites, and an array of initiatives by the relatively liberal Obama Administration”.

The spectrum includes the "Tea Parties" and similar groups that have sprung up in recent months. These are populist organisations championed by people like Sarah Palin, herself ostracised by the Republican establishment after her failure as a vice-presidential candidate in 2008. With a predominantly middle-class membership, Tea Parties have won support by denouncing bank bail-outs, for example. The SLPC says that they “cannot fairly be considered extremist groups, but they are shot through with rich veins of radical ideas, conspiracy theories and racism”, adding:

“Sixty-one percent of Americans believe the country is in decline, according to a recent NBC News/Wall Street Journal poll. Just a quarter think the government can be trusted. And the anti-tax tea party movement is viewed in much more positive terms than either the Democratic or Republican parties, the poll found.”

The malaise deep in the heart of the American political system is paralleled by the more passive – so far – rejection of traditional politics in Britain, where only 54% say they are certain to vote at the upcoming general election, according to a new survey. Allowing the far right to make the running is impermissible. Developing revolutionary that solutions that enhance democracy in new ways, placing power in the hands of ordinary people has to take centre stage.

Paul Feldman
Communications editor