Debt Ceiling, Political and Economic Crisis

I have been following very intently the political process here in America, and I am honestly very dismayed about what kind of political game is being pulled off. Congress now passed a debt ceiling raise, which has been a fabricated political crisis. And it turned out exactly as I predicted it would turn out: the Republicans would demand so many cuts into the social safety nets, Medicaid, Medicare and Social Security, and wait out until the last minute, expecting Democrats to sacrifice as many cuts as possible, denying the possibility of a tax increase for the wealthiest Americans despite people’s overwhelming support of such measures.1 Now the Republicans got exactly what I thought they would get. $2 trillion in spending cuts 2, mostly from research, infrastructure, food security, education, health care and pensions.3 And the Democrats have no time to oppose this deal, because we are 24 hours before default. Our media system is completely stymied, because they are not doing anything to point to the GOP hypocrisy, and the Democratic weakness. They see both parties as not being bipartisan enough, and they should get a deal done. These media corporations are also led by some very rich people, and they will naturally not care about cuts into Social Security and Medicare.4

The very rich people in this country, who fund both parties, are coming true to their shock doctrine, which they are trying to impose on the people in this country.5 Whenever there is a major crisis, the billionaires stand around the corner to exploit the situation. Don’t only look at America. Look at Egypt, Libya, Tunisia, Yemen, Syria, where dictators get toppled or questioned, because the economic conditions become so unbearable.6 Workers all across Europe, facing the massive austerity budgets go out on the streets, protest demonstrations are raging in Spain and Greece.7 The rich people have so much money, that they buy up the oil futures market, increasing the oil prices. They buy up gold, escalating the price of gold ($1,600 per ounce currently).8 They buy up food, escalating the price of food (exacerbating the humanitarian crisis in Somalia, and complicating survival for millions of people below poverty line).9 They invest more heavily in China, which is still a favorable destination for its large labor market.10

GE recently closed an X-Ray facility in the US, and shipped them over to China, where they serve the rising need for health care in China. China recently passed a universal health care bill, covering all their 1.3 billion citizens.11 GE is just one company doing outsourcing. President Obama signed trade deals with South Korea, Columbia and Panama, which is expected to destroy 159,000 jobs in America.12 The corporations sit on so much cash ($2 trillion) and don’t know what they are doing with it.13 We have too much capital, and not enough jobs and demand.14

China is the only beneficiary from this economic crisis. Their economy is still growing massively, and they are beginning to trickle down the wealth to their people, creating a pension and health care system. They also build roads and railways. Capital is friendly to China, yet. The problem overall is that the capitalist system has absolutely no response to actual human needs. Chinese labor standards are low, and the people have to fight to raise those standards.15 One very instructive labor dispute is the strike of Honda workers in Chinese car plants.16 In Europe and North America, we see retrenchments. The time of unrestrained borrowing for the western countries are over. Greece, Portugal, Spain, Italy, Iceland, Ireland and the United States will have to repay their debts, and they are doing it on the backs of the working class people by cutting their wages and benefits, and raising their taxes. We are about to reduce our standard of living, while increasing those of our CEOs, managers and stockholders.17

I joked with my teacher that Bernie Madoff got locked up, because he stole money from rich people. Lloyd Blankfein, CEO of Goldman Sachs (which does major outsourcing), gets to keep his job, other bankers receive a golden parachute.18 Disaster capitalism has no sense of justice. What we have to do is to put heavy regulations on these banks, nationalize some, and use them to stimulate business. Then, raise the wages of the workers by re-appropriating corporate profits away from profits and bonuses for the top management to create jobs and stimulate demand. These would be the realistic ways how to get out of the recession.

I have watched a terrible graph, showing that labor productivity has gone up rapidly over the past decades, but wages have declined.19 Productivity minus wages are the profits. When you own a company, you purchase some goods and purchase labor power (workers). You sell the goods on the market for a certain price. Part of the price goes toward maintaining your machinery. Another part goes to your worker’s wages. The rest flows back in profits that you control (not your worker). The more the worker produces, and the less you pay him, the more profits you make. In America, the capitalists have used a large chunk of their profits to lend it back to the people in high-interest mortgages, student loans, car loans and credit cards. They did this instead of raising wages for their workers. The workers are exploited in a double sense. First, they get paid less than they would expect to get given the productivity level. Second, they have to pay high interest for the loans and mortgages they receive from the banks. (The banks raise capital from China, which makes all the profits from export, and from the big corporations, which raise record profits from exploiting their workers.)
So this is all the magic behind those big corporations. No one can convince me that any of those very wealthy people work hard at all. In fact, their way of making profits is always based on exploiting somebody else, the workers.

What the big corporations, nonetheless, are doing is to kill their competitors, to merge and to build large conglomerates so they are no longer accountable to the people. How horrible this may sound, I think capitalism will be thrown in a crisis. China and India are enjoying the sunny side of capitalism. In Europe and North America, we see the thunderstorms and tornadoes. Who will prevent this system from turning against everyone? The people have to do everything they can to fight back against the rich and the multinational corporations. Iceland has had a referendum, refusing to pay back their debts to the banks in the Netherlands and UK.20 Egyptian demonstrations are leading to their own Islamic government ascending to power.21 In Israel there are mass demonstrations against the rising commodity prices and low wages.22

I think we are living in very exciting times.

______________________________
1 “Americans Want Higher Taxes, All Right: on the Rich .” HULIQ. N.p., 8 July 2011. Web. 1 Aug. 2011. http://www.huliq.com/3257/americans-want-higher-taxes-all-right-rich-0.
2 “Debt Ceiling Deal Reached To Avert Default.” The Huffington Post. N.p., 1 Aug. 2011. Web. 1 Aug. 2011. http://www.huffingtonpost.com/2011/07/31/debt-ceiling-deal-reached_n_905841.html
3 There are no immediate indications of cuts into Social Security and Medicare, but there will be a trigger for cuts. Other programs are slashed as a first step, such as IRS or Labor Department funding. Others will be included as a trigger, when the budget doesn’t balance. Without revenue increases it certainly won’t.
“Big cuts in government spending would be phased in over a decade. Thousands of programs—the Park Service, Internal Revenue Service and Department of Labor accounts among them—could be trimmed to levels last seen years ago.
No benefit cuts were envisioned for the Social Security pension system or Medicare, the federal program that provides health-care payments to the elderly. But other programs would be scoured for savings. Taxes would be unlikely to rise.
The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.
That would be followed by creation of a new bipartisan congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code.”– “Obama, Congress OK deal on debt, avert US default.” Philippine Daily Inquirer. N.p., 1 Aug. 2011. Web. 1 Aug. 2011. newsinfo.inquirer.net/34597/obama-congress-ok-deal-on-debt-avert-us-default.
4 “Although the problem of Social Security could be solved easily: lift the cap on the payroll tax.” Reich, Robert. “How to Fix Social Security.” Reader Supported News. N.p., 17 Feb. 2011. Web. 1 Aug. 2011. http://readersupportednews.org/opinion2/279-82/4982-how-to-fix-social-security.
5 Klein, Naomi. The shock doctrine: the rise of disaster capitalism. New York: Metropolitan Books/Henry Holt, 2007. Print.
Or watch Klein’s documentary Klein, Naomi. “The Shock Doctrine (2009) — Naomi Klein??.” YouTube. N.p., 9 Mar. 2011. Web. 1 Aug. 2011. http://www.youtube.com/watch?v=eHrEH5G90wo.
6 For reliable coverage on the ongoing demonstrations and uprisings in the Middle East, I recommend al-Jazeera http://english.aljazeera.net/
7 Kimmerle, Stephan. “Greece – Savage Austerity Policies Passed Despite Mass Protest.” Socialist Alternative. N.p., 4 July 2011. Web. 1 Aug. 2011. http://www.socialistalternative.org/news/article11.php?id=1637.
And “Spanish Indignants start long protest march to Brussels.” BBC. N.p., 26 July 2011. Web. 1 Aug. 2011. http://www.bbc.co.uk/news/world-europe-14302607.
8 Check the gold price here “Gold Price.” http://goldprice.org/.
9 “Experts agree the current volatility and speculation surrounding food prices is making famine prevention much more difficult.” Colombant, Nico. “Experts Look to Past for Clues to Prevent Famine in Horn of Africa | Africa | English.” Voice of America. N.p., 26 July 2011. Web. 1 Aug. 2011. http://www.voanews.com/english/news/africa/Experts-Look-to-Past-for-Clues-to-Prevent-Famine-in-Horn-of-Africa-126220303.html.
10 It is very instructive to read it from the investor’s perspective, who ironically lay all the blame on profligate bureaucrats not able to keep their public finances in order (which means their inability to restrain labor, and unleash capital accumulation for the rentier class). They believe in commodity price rises due to the increasing demand in China, where capital is building up. Guild, Monty, and Tony Danaher. “We remain very bullish on gold, oil, and food commodities. This newsletter will make it amply clear why.” Guild Investment. N.p., 14 July 2011. Web. 1 Aug. 2011. http://www.guildinvestment.com/2011/07/14/we-remain-very-bullish-on-gold-oil-and-food-commodities-this-newsletter-will-make-it-amply-clear-why/.
A more pessimistic stance comes from the New York Times, essentially dealing with the delicate question of where the surplus of capital can go if not in the U.S. dollar? It confirms the trap of turbo-capitalism, where the contradiction of capital accumulation is driven to the extreme. Dash, Eric, and Nelson Schwartz. “Investors, Worried About Debt Talks, Look for Havens.” The New York Times. N.p., 27 July 2011. Web. 1 Aug. 2011. http://www.nytimes.com/2011/07/28/business/economy/investors-worried-about-debt-talks-look-for-havens.html?_r=2&pagewanted=1&hp.
11 “GE moving X-ray unit to Beijing.” China Daily. N.p., 26 July 2011. Web. 1 Aug. 2011. http://www.china.org.cn/business/2011-07/26/content_23071363.htm.
12 Scott, Robert E. “Free Trade Agreement with Korea will cost U.S. jobs.” Economic Policy Institute. N.p., 1 July 2010. Web. 1 Aug. 2011. http://www.epi.org/economic_snapshots/entry/free_trade_agreement_with_korea_will_cost_u.s._jobs/.
13 Reich, Robert. “The Obama Budget: And Why the Coming Debate Over Spending Cuts Has Nothing to Do With Reviving the Economy.” Robert Reich. N.p., 13 Feb. 2011. Web. 1 Aug. 2011. http://robertreich.org/post/3277360050.
On the other half of the spectrum, China also sits on over $2 trillion in cash reserves, looking for ways how to spend it. Anderlini, Jamil . “China: 2 Trillion Dollars Looking for Commodities to Buy.” Seeking Alpha. Financial Times, 21 July 2009. Web. 1 Aug. 2011. http://seekingalpha.com/instablog/282191-dr-o/17899-china-2-trillion-dollars-looking-for-commodities-to-buy.
14 Reich, Robert. ” Why We’re Falling Into a Double-Dip Recession.” Huffington Post. N.p., 4 June 2010. Web. 1 Aug. 2011. http://www.huffingtonpost.com/robert-reich/why-were-falling-into-a-d_b_600571.html.
15 Guo, Baogang. “China’s Labor Standards: Myth and Reality.” Dalton State University. N.p., 7 Feb. 2003. Web. 1 Aug. 2011. http://daltonstate.academia.edu/BaogangGuo/Papers/74184/Chinas_Labor_Standards_Myths_and_Realities.
16 Bradsher, Keith, and David Barboza. “Strike at Honda Plant Highlights Pay Gap in China.” The New York Times. N.p., 28 May 2010. Web. 1 Aug. 2011. http://www.nytimes.com/2010/05/29/business/global/29honda.html?adxnnl=1&adxnnlx=1312255306-Evt7ncp68GwDuI7LhkINKQ.
17 Damon, Andre. “US corporate profits return to record levels.” World Socialist Web Site. N.p., 1 Mar. 2011. Web. 1 Aug. 2011. http://www.wsws.org/articles/2011/mar2011/corp-m01.shtml.
18 Some examples of those banksters, who received their golden parachutes. “Golden Parachutes: How the Bankers Went Down.” Mint Life. WallStats.com, 24 Feb. 2009. Web. 1 Aug. 2011. www.mint.com/blog/trends/golden-parachutes-how-the-bankers-went-down/.
19 Wolff, Richard D. “Deepening Economic Divisions.” Monthly Review. N.p., 17 Jan. 2011. Web. 1 Aug. 2011. http://mrzine.monthlyreview.org/2011/wolff170111.html.
Here is a graph by Richard Wolff, showing the disparity between labor productivity and wages, leading to higher profits. http://www.rdwolff.com/sites/default/files/images/Productivity%20vs%20Real%20wage%20(chinese%20article).jpg He also explains this matter in a 4-minute video. http://www.mediaed.org/cgi-bin/commerce.cgi?preadd=action&key=139-I-D
20 Sigurgeirsdóttir, Silla, and Robert Wade. “Iceland’s loud No.” Le Monde diplomatique. N.p., n.d. Web. 1 Aug. 2011. http://mondediplo.com/2011/08/02iceland
21 Strasser, Max. “Once More to Tahrir.” Foreign Policy. N.p., 8 July 2011. Web. 1 Aug. 2011. http://www.foreignpolicy.com/articles/2011/07/08/once_more_to_tahrir .
22 Frenkel, Sheera. “Protests In Israel Target High Housing Costs.” National Public Radio. N.p., 1 Aug. 2011. Web. 1 Aug. 2011. http://www.npr.org/2011/08/01/138722068/protests-in-israel-target-high-housing-costs.

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