'Fiscal cliff' deal robs US workers

Given that the last-minute deal in Congress was designed to avert the US economy falling over a self-imposed “fiscal cliff”, the best way to picture the outcome is to imagine a cartoon of the two main parties locked together as they cross the precipice.

Now they’re hanging in mid-air, still pummelling each other with nothing beneath them as millions stand fearfully watching and looking over the edge. But there’s something else. The two contestants each have a hand extended, and together they’re wielding a pickaxe at the ground beneath the people’s feet.

It would be comical but for the looming inevitability of the battering facing the 99% of not only Americans, but the majority of people around the world excluded from the rich and powerful trying to rescue the system at whatever cost to the rest of us.

For more than 160 million hard-pressed Americans, the most immediate result of the agreement between the Democrats and Republicans – two sides of the same capitalist coin – automatically removes 2% of their income.

In 2010, president Obama temporarily reduced the social security payroll tax (a bit like the UK’s national insurance) from 6.2% of salary to 4.2%. The new deal doesn’t extend this part of the previous attempt at a recovery from the crash.

For the majority, it’s austerity in everything but name. Those in work will have to pay more to support those without it whilst corporate profits soar. It will get worse within weeks because at the end of February, the debt ceiling has to be resolved one way or another.

“Before you start pouring the champagne to toast the deal, remember, the minute the House vote ends, the countdown to the next crisis begins,” said David Rothkopf of Foreign Policy. The US has already hit its legal borrowing limit of $16.4 trillion but the Treasury, through what it calls “extraordinary measures”, can service the national debt for about two months more.

Obama and the Democrats have deferred spending cuts on programmes like health, social security, defence, excluding them from the deal. The Republicans split and the temporary solution was achieved. But the massive debt won’t evaporate.

The last-minute, dramatically-reduced package of tax measures agreed by the outgoing US Congress not only does nothing to reduce the already unsustainable but ballooning debt. It actually pumps an additional $4 trillion dollars into the balloon over the next ten years, according to the Congressional Budget Office.

Obama claims he’s shifting some of the burden to those 300,000 or so earning more than $400,000 dollars, but most of them will just shrug it off. Despite the controversy over the deal, only 0.7%  will be hit by the higher income tax rates on the wealthy, according to the Tax Policy Centre. But 77% of workers would face higher taxes once the ending of a payroll tax holiday and other measures were taken into account.

The unresolved “fiscal cliff” consists of several inter-related components. Some are the result of the US system of budgeting and policymaking. Then there is the fact that US capitalism is debt-driven – at federal, corporate and household levels. Other countries like China buy US debt so that the American government can keep functioning.

But by far the greater problem lies in the global web of corporations controlled by no government but determining policy decisions and actions irrespective of the wishes of the majority.

Anger is growing everywhere against Starbucks, Amazon and the rest, merging with the universal hatred of the speculative profiteering of the bankers that triggered the worldwide Occupy movement. Many, prefer to look away, hoping that the system will crumble under the weight of it own contradictions. But it won’t.

As the New Year agreement shows, those in power will bury their differences in their determination to impose the most brutal of solutions. We, the 99% need a new constitution, a concept of a different set of social relations. And a new revolution.

Gerry Gold

Economics editor

Osborne to up the war on the people

Today’s autumn statement from chancellor George Osborne will extend the predicted period of the recession and pile more pressure on the 99% of the people in Britain who are struggling to meet rising bills as real incomes fall.

The financial crisis has been as economically devastating as a world war and may still be a burden on our grandchildren according to Andy Haldane, the Bank of England’s executive director for financial stability. 

Things are certain to get a whole lot worse.

In 2007, the cost of servicing the post-war ballooning of debt shot past the declining ability of people and businesses to make their interest payments and the crisis struck.  Credit-funded growth had reached its limits.

Five years later and the UK economy is still 3% smaller than at its peak and set to shrink further as the global depression deepens.

Haldane warned that the banks were still hiding risky assets – bad debts just the same as those that led to the crash in 2007/8. These will have to be admitted, exposed – and written off – before there is any prospect of a recovery.

So Haldane’s comparison of the impact of a world war should be seen as a warning of something much worse to come.

The global depression is spreading, and its path determines the actions of governments whatever their subjective intentions.

Nothing can stand in its path, if the system is to survive.

In Ireland, amongst the first to suffer the effects of the crash, the government is today introducing a sixth round of cuts and tax increases amounting to €3.5 billion. This will be added to the €25 billion euros taken out of the economy since 2008 which has resulted in a 15% fall in total output or GDP.

After months of attempts to avoid the inevitable, the Spanish government was yesterday forced to ask for help for the country’s banks and Eurozone finance ministers approved €39.5bn in initially low-interest loans.

But many analysts believe that the amount is less than one-third of what will be needed. And though the government remains in denial, even the full amount of €100 billion being made available is unlikely to prevent the bankruptcy of the country itself.

Spain, like Greece has seen months of protest, nationwide actions, strikes and demonstrations on a scale never seen before. The conditions attached to the new loans are certain to trigger more violent uprising.

Whatever the outcome of newly re-elected President Obama’s negotiations with the Republicans to avert the fiscal cliff - the triggering in four weeks’ time of a predetermined $500bn programme in annual tax increases and spending cuts which would push the country back into recession - reining in the unsustainable debt is certain to see trillions of dollars cut from federal spending.

The unfolding of events in Ireland, Greece, Egypt and Syria show that the costs of keeping the for-profit system of production and finance in place are driving millions across the globe over a different cliff. The limits of tolerance have been reached.

Haldane’s comparison with a war is more than symbolic. This is a war – a class war. It is being fought between the majority and the small group who own and control economic and financial resources. In a war there is a winner and a loser.

So we must set off on new path – rejecting the destructive demands of the capitalist economy and replacing it with a system of social relations that sets out to satisfy rather than deny the needs of the 99%. New kinds of democratic decision-making carried out in popular assemblies can and must give rise to the replacement of profit as the determining criteria of society.

Gerry Gold

Economics editor

A symbol of hope's limitations

Poorer workers, Latinos, Afro-Americans, young urban professionals and women put their trust in Barack Obama. And this morning they are celebrating. But despite their vote of defiance against the rich, right-wing, racist Republicans the euphoria will melt away.

The re-election of Obama for a second term is certain to disappoint the voters as, in the words of historian Simon Schama, the triumph of reality returns to the surface.

The changing demographics of the United States have brought millions into the working, or as they call it “middle” class from across the border. They were attracted by the promise of a better life, drawn in by the expanding economy but now left hung out to dry by the global slump.

The pressing demands of the so-called fiscal cliff of tax and budget cuts towers over the renewed administration. Republicans who control the House of Representatives have pledged to block Obama at every step.

In any case, the power behind the billions of corporate dollars – estimates say $6 billion were spent in support of the candidates – will secure Washington’s allegiance to the future of global capitalist interests.

This came through in almost the first words of his victory speech, with Obama promising to talk to the defeated Romney to see "where we can work together to move this country forward".

And he will have to. Agreements will have to be forged to get federal spending limits raised yet again and budgets passed.

Obama may have demonstrated good intentions and won many votes with his largely frustrated attempts to improve access to health care for the tens of millions who’ve lost jobs and hence health insurance along with their homes, and no doubt he’ll be seen to be trying even harder.  

But the pursuit of growth to secure more jobs will see an accelerating spiral of decline in real incomes as the global competition to attract production back from China and elsewhere intensifies. Inequality will grow even deeper than it is at present.

The president’s watchword is “hope” but the savage programme of cuts that must follow in the attempt to stave off the world’s biggest economy declaring itself bankrupt will vastly overshadow the European austerity programmes which have brought millions to the brink of revolution in Greece and Spain. Romney would have handed the responsibility to the states – many of which are already bankrupt – to do the job. Obama will do it at federal level.

The election pushed fears of a new storm into the background, temporarily. But another was threatening the East Coast even before the effects of Hurricane Sandy which still left more than a million without power had begun to sink in.  Staten Island is still in darkness, and the looters are at work.

These record-breaking, life-shattering storms draw their enormous power from the energy poured into the atmosphere by the corporations that bought the presidency. Neither Obama nor Romney had anything to say about climate change during the campaign. No doubt their corporate backers ruled it out.

With or without Romney, Obama may well authorise spending on improved storm defences, but will continue to break records in oil drilling, tar sand extraction and fracking, and he will approve the northern half of the Keystone XL pipeline. All in pursuit of energy independence and profits for Big Oil.

Obama may seem like a nice enough family man, but, whatever he wants to achieve, he and his administration will intensify the economical, technological and psychological warfare against any and every government or movement that stands in the way of corporate advantage.  The threat of a military strike against Iran mounts, day by day.

Millions voted for Obama in the often desperate hope his election would ward off the ravages threatened by the Republicans. Their support was reluctantly given. Their frustration, their aspirations for a better future will have to find another route if they are to be fulfilled in practice.

Gerry Gold

Economics editor

US faces a perfect storm on all fronts

After the devastation delivered by a perfect storm, the prospect of the United States falling off a “fiscal cliff” within two months is not one that America’s ruling political and corporate elites are looking forward to with any relish.

With next week’s presidential and general elections on a knife-edge, the economic future is as unpredictable as the super-storm that has wrecked large areas of the east coast and shut down New York.

While the media coverage of the impact on the United States is wall to wall, you should know that storm Sandy destroyed 70% of the crops in southern Haiti, still far from recovered from the 2010 earthquake, and caused widespread deaths of livestock. Jamaica, Cuba, the Bahamas were badly damaged too.

The US government will, of course, print the billions needed to repair the country’s infrastructure and get transport moving again, the aforementioned Caribbean nations will stagger on until the next storm arrives, no better prepared in the future than this time around.

Even in New York, however, the gross inequality that is the feature of the city and many other places across the country, showed itself in the storm. As Reuters’ David Rohde reported: “There were residents like me who could invest all of their time and energy into protecting their families. And there were New Yorkers who could not. Those with a car could flee... But the city’s cooks, doormen, maintenance men, taxi drivers and maids left their loved ones at home.”

The city is the most economically divided it has been in a decade, according to the New York Times. Over 20% of the city is in poverty. In Manhattan, the wealthiest 20% made $391,022 a year on average The poorest 20 percent made $9,681. Manhattan’s richest fifth made 40 times more money than its poorest fifth. Only a couple of other countries in the world in sub-Sahara Africa display such inequality.

Manhattan is the home of the New York Stock Exchange which will open again today. Whilst eight million are without power, and likely to remain so for days, the show must go on.

But the so-called fiscal cliff is looming large. This is a combination of expiring tax cuts coupled with mandatory spending reductions by the federal government totalling some $600 billion. Unless Congress can agree a deal – which seems most unlikely – the cuts will automatically kick-in on December 31. Many corporations have postponed investment decisions to see what happens.

The uncertainty gripping the economy is matched by the certainty that more extreme weather events will hit the country. One meteorologist, asked how a storm a could do so much damage, ruefully explained that in addition to the full moon and high tides, Sandy itself had been driven off its northward course and onto the coast by two weather fronts moving on opposing paths. Crucially, rather than losing momentum the storm had picked up energy from the sea warmed as a consequence of the changing climate.

Earlier this year, scientists calculated that fossil fuel producers intended to extract reserves which would, by mid-century, generate carbon dioxide emissions five times greater then the level considered “safe” to prevent a 2 degree rise in global temperature.

So Sandy’s impact is just a small indicator of the much worse results we can expect to see if current economic, social and political relations are allowed to continue.

Priorities have to change if civilisation is to find a way forward. Capitalist logic, driving in two opposing directions, stands in the way of progress. A “return to growth” is essential for profitability, but overcapacity must be eliminated to make it possible. That’s why the wages of US workers are being driven down and the living standards of many Afro-Americans are lower than ever. Whoever wins next Tuesday, it won’t be the average American.

Gerry Gold

Economics editor