Sugar-coated Satan sandwich

Obama has signed up to a vicious cuts programme that takes the US to the brink of a double-dip recession. Eddie Ford examines the debt deal

Only hours before Washington was due to run out of public funds, resulting in a catastrophic default for the United States government, the Senate finally agreed by 74 votes to 26 to pass the Budget Control Act and hence raise the debt ceiling limit. This, of course, followed the earlier vote in the House of Representatives, which assented to the new legislation by 269 votes to 161.

Failure to do so would have triggered wholesale panic on the markets, with private investors dumping the dodgy dollar and taking refuge in the relatively safe haven of the Swiss franc and gold - a trend that has already been noticeable in recent months.[1] Such a default, obviously, would have immediately endangered the US’s precious (and essential) triple-A status with the credit ratings agencies and almost certainly set off a calamitous chain reaction, tipping the world economy into crisis and possible deep recession.

However, communists will not be throwing their hats in the air to celebrate the wisdom and responsibility of the Congress majority in passing this so-called ‘compromise package’. The Budget Control Act is an emergency stopgap measure to be implemented at the expense of the working class, which will be hammered by a vicious programme of cuts. As things stand now, getting on for one in six are dependent on government food stamps - eking out a wretched existence in the wealthiest country on the planet. Yet we have just witnessed a de facto billionaires’ coup, aided and abetted by the Congress majority and designed to bail out an administration - and political system - that ultimately serves the selfish interests of the super-rich.

So the debt, currently standing at $14.3 trillion, will now be raised by an additional $2.4 trillion in several stages; the first tranche being $400 billion in order to prevent an instant default. As part of the deal, in what is presumably a concession to president Barack Obama, this process will carry through to the end of next year - meaning, of course, that he will not find himself in yet another congressional showdown on the debt in the middle of his re-election campaign. Then again, this concession could well turn out to be a poisoned chalice, as the fact that the ceiling is being raised in such a staggered fashion creates chances for endless political/legal trench warfare - maybe future gridlock.[2]

Centrally, the debt deal is predicated on the US government making ‘savings’ over the next 10 years of between $2.1 and $2.4 trillion - the latter figure being symbolic, of course, as it is the equivalent of the extra monies raised for the debt. This involves an initial round of cuts amounting to $917 billion, though ‘only’ $21 billion will be saved during 2012 (Medicare and social security will be exempt during the first round of cuts) - much to the displeasure of many conservative Republicans, naturally. But it almost goes without saying that there will be no tax rises for the wealthy or the closing of loopholes.

The legislation calls for the creation of a 12-member, bicameral, bipartisan ‘super-committee’, whose members will be appointed over the next two weeks. They have to agree on the £1.5 trillion-worth of cuts that will come on top of the initial $917 billion over the next 10 years. So far, most of the cuts are ‘discretionary’, but those known include $21.6 billion in student loans, $18.1 billion in various subsidies to graduates from poorer backgrounds, $20 billion from front-line education spending (ie, sacking teachers), and so on.[3] Not to mention $350 billion in defence cuts.

This deficit-reduction package has to be agreed by November 23 - another looming deadline. The workings and politicking of this ‘super-committee’ are guaranteed to be highly charged and equally as contentious. For instance, and predictably, the Republicans are signalling that their appointees on the committee would be pledged to resist any measures that involve tax increases - in the words of senator John Cornyn, party leaders are “not going to select anyone who is going to vote for taxes”. Needless to say, the Democrats on the committee - depending on which wing or tendency of the party they come from - might have a different opinion.

However, if this ‘super-committee’ fails to come to agreement - a more than distinct possibility - then the new legislation includes automatic procedures to reduce public spending by $1.2 trillion. The nuclear option. Under this contingency, rather ironically in many ways, about half of these savings would be earmarked for defence - a somewhat sacred cow for most Republicans, of course, including Tea Party supporters. That would come on top of the $350 billion for ‘security’ already identified in the first round of reductions. Therefore we have the not unpleasant possibility that, ideologically speaking, conservative Republicans and Tea Party ‘radicals’ could well end up shooting themselves in the foot.

The whole debate around the debt limit has inevitably stirred up anger and bitterness of every sort - a political hornets’ nest, in fact. Something revealed, to some extent, by the voting patterns in Congress over this issue. In the Senate, six Democrats and 19 Republicans opposed the deal from the ‘left’ and right respectively - believing that it either went too far or not far enough. As for the House of Representatives, this was even more the case - with Democrats evenly split on the legislation, 95 for and 95 against, whilst 174 Republicans voted for the measure and 66 opposed it. A far from united picture.

Tea Party

For the “rightwing nutters” (Vince Cable) in the Republican Party, composed of a sometimes uneasy alliance around the Tea Party and the more mainstream conservatives, the deal represented a sell-out to the forces of ‘big government’, if not crypto-communism; with Barack Obama, presumably, acting as a stand-in for JV Stalin.

Summing up their attitude, representative Mick Mulvaney, a member of the 60-member Tea Party caucus in Congress, declared that Washington’s spending “still has us sprinting toward a fiscal cliff”. Mulvaney and his associates even want to amend the US constitution so as to include a commitment to “balance the budget”. In other words, making it a constitutional requirement for Congress not to spend more than its income. A bat-crazy idea that is an anathema, of course, to mainstream Democrats and Republicans. Paradoxically, but logically, such a constitutional amendment - not that it stands a snowball’s chance in hell of ever happening - would grant more power to the president, not less - so much then for ‘limited’ or ‘small’ government.

But that is the Tea Party for you: a thoroughly irrational bloc riven with inescapable contradictions - and who mainly articulate, if that is the right word, the desperate interests of the middle class, small business and small farmers (who themselves receive massive tax breaks and subsidies from the government). This fissiparous grouping blames almost everybody but capitalism for its predicament: blacks, Jews, Wall Street, bankers, unpatriotic speculators, Obama, reds, freemasons, the Illuminati, giant lizard men, aliens ... Somewhat amusingly, albeit in a grim way, one slogan prominently heard at Tea Party rallies has been, “Keep your government hands off my Medicare” - seemingly unaware that Medicare is in fact a government-sponsored programme. Yes, the very confused and enraged petty bourgeoisie.

The response of the mainstream Republicans, or ‘non-crazies’, was quite different - triumphalist, if anything. Mitch McConnell, the Republican leader in the Senate, was in no doubt that the debt deal was a “Republican victory”. Speaking just minutes before the vote, McConnell told dissatisfied Republicans that, “although you may not see it this way” at the moment, “you’ve actually won this debate”. An ebullience that was reflected in an article that appeared in the New York Post by the conservative, John Podhoretz. If Obama loses next November, then “we’ll look back on Sunday July 31 2011” as the “day he became a one-termer”.[4]

On the other hand, despondency reigned among left Democrats - or those with any degree of social conscience. Typically, Robert Reich, the former secretary of labour under Bill Clinton, wrote that anyone who characterises the debt deal as some sort of “victory for the American people over partisanship understands neither economics nor politics”.[5] Rather, it “hobbles the capacity of the government to respond to the jobs and growth crisis” and “strengthens the political hand of the radical right”.[6] More seriously still, for Reich, by putting Medicare and social security potentially on the chopping block when it comes to the second round of cuts, the incumbent administration has “made it more difficult” for Democrats in the upcoming election cycle to point the accusing finger at the Republicans - after all, they will be engaged in the same game of imposing cuts upon the poorest in society. And, continues Reich - quite correctly - by “embracing deficit reduction as their apparent goal”, but just “claiming only that they’d seek to do it differently” than the Republicans, then the Democrats and the White House “now seemingly agree ... that the budget deficit is the biggest obstacle to the nation’s future prosperity”. As a result of all this, Obama - and the Democratic Party as a whole - runs the danger of alienating his electoral base: blacks, Hispanics, minorities, etc. Political suicide.

Some of the ‘left’ democrats in Congress were even blunter. The debt deal was an unacceptable and shameful concession to the crazies within the Republican Party. Communists agree. Jim McGovern from Massachusetts angrily stated that he did not go to Washington to “force more people into poverty”; doubtlessly true. Whilst his colleague, Emanuel Cleaver from Missouri, issued a righteous Tweet describing the deal as a “sugar-coated Satan sandwich”.

Most of those Democrats who opposed the debt deal, it is worth noting - like McGovern and Cleaver - are members of the 83-member Congressional Progressive Caucus. The CPC is “organised around the principles of social and economic justice”, a “non-discriminatory society” and “national priorities which represent the interests of all people, not just the wealthy and powerful”. As an organisation, it advocates “universal access to affordable, high-quality healthcare”, “fair trade agreements”, “living wage laws”, the right to collective bargaining, the legalisation of same-sex marriage, a complete withdrawal from Iraq, an increase in income tax rates on “upper-middle and upper class” households, tax cuts for the poor, an increase in welfare spending by the federal government, etc (a platform strongly supported by the Communist Party of the United States of America)[7].

Trying to reduce the pressure from his left flank, Obama’s TV address from the White House raised the possibility - once again - of (marginal) tax rises for the wealthy and shutting down those pesky tax loopholes; clearly an attack on the whole American way of life for Tea Party types. He declared, not without justification, that it was “impossible” for the US to “close the deficit with just spending cuts” - going on to say that “we can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession”. There are hints, over-optimistic in all likelihood, that Obama could let Bush-era tax cuts for the top brackets expire in January 2013. Tax raising by stealth.

Of course, the Obama administration is haunted by the idea of the US losing its triple-A status with the credit ratings agencies - hence the supposed urgency of the debt deal. But, for all the frantic ushering into existence of the Budget Control Act, it still might be too little, too late - at least as far as the agencies are concerned. For Standard and Poor, the current deal falls short of the “optimal outcome” that the agency said would definitely safeguard the AAA rating: which was a $4 trillion deal that included some work to tackle what it called “long-term issues”. Hence its threat to lower the US’s long-term rating “by one or more notches into the AA category” over the next three months “if we conclude that Congress and the administration have not achieved a credible solution to the rising government debt burden and are not likely to achieve one in the foreseeable future”. In the same vein, Fitch indicated that it would maintain the triple A rating “for now”, but warned that the top rating “would be lost if debt levels continued to rise”.


So the US administration is not out of the woods yet - far, far, from it. After all, the debt predictions were based on assumptions of economic growth of over 3% each year well into the second half of the decade. But the GDP figures for the first half of 2011 show the economy is grinding to a virtual halt. And figures from the commerce department’s Bureau of Economic Analysis showed that US manufacturing grew at its slowest pace in two years in July, as new orders contracted. Thus, the economy grew at an annualised rate of 1.3% in the second quarter. Most economists, for whatever reasons, had forecast growth of around 1.8%. Also, disconcertingly, first-quarter growth was revised down sharply from 1.9% to 0.4% - meaning that, after the revision, the US growth figures now correspond to a quarterly increase of just 0.1% in the first three months of 2011, followed by a 0.3% rise in the second quarter. Furthermore, the BEA now says that the US recession of 2007-09 was more severe than previously reported, with the economy shrinking by 5.1% over that period, rather than 4.1%.

If things were not bad enough, the unemployment rate was reported to be 9.2% as of June - which the White House admitted was “uncomfortably high”. The cold, hard statistics demonstrated that only 54,000 new jobs were created in that month by the world’s largest economy. Of course, the last president to be re-elected with unemployment at such levels was Franklin Delano Roosevelt, who was faced with a rate of 7.2%.

But Obama is no Roosevelt. When you are in a hole, stop digging - or cutting in this case. Yet, Obama has signed up to a Republican-inspired cuts programme, even if the crazies hate it, that will suck more than $2 trillion out of a still shaky - to put it mildly - US economy over the next 10 years. By doing so, he substantially increases the chances of killing off any recovery, if not positively inviting a double-dip recession. Yes, John Maynard Keynes has been put back in his box - replaced by retrenchment, austerity and cuts. Maybe slump and depression.

Which is not to repeat the arrant nonsense, whether from some on the left or the hysterical Tea Party right, that the US is turning into Greece. The US is the world’s hegemon and there are no viable competitors for the title - forget China. Therefore the US can afford its current debt level, given the necessary will and political leadership. But we should not be surprised that, as capitalism declines - an obvious material reality - the bourgeoisie behaves more and more irrationally.


  1. tinyurl.com/3gnq2hu; also see Financial Times June 1.
  2. For possible gridlock or ‘choke’ points, see tinyurl.com/4yjf7ov
  3. www.independent.co.uk/multimedia/archive/00631/USdebtG_631653a.jpg
  4. New York Post August 2.
  5. robertreich.org/post/8331408301
  6. robertreich.org/post/8331408301
  7. cpc.grijalva.house.gov