The crisis over the debt ceiling is a result of growing polarization in the United States. Up until the 1995, Congress regularly raised the debt ceiling so that the U.S. government could carry out its spending commitments passed by Congress. But since that time, Republicans in Congress have weaponized the debt ceiling every time there was a Democratic president. By refusing to raise the debt ceiling and forcing a possible reneging of U.S. spending obligations, Republicans caused a partial government shutdown in 1995-96 under President Clinton, forced major cuts in government spending in 2011 under President Obama, and are now demanding more spending cuts under President Biden. What really concerns the Republicans is social spending that benefits the poor, not the deficit or debt. Under President Trump, Republicans raised the debt ceiling three times.

What the Republicans are demanding is the rolling back of federal Government spending. They want to spare military spending, Social Security, and Medicare (health insurance for seniors and disabled). However, they want to eliminate student loan relief, put work requirements for Medicaid (health insurance for low-income households), SNAP (Supplemental Nutrition Assistance Program, commonly known as food stamps), cutting funds to the IRS (which would make it easier to cheat on taxes and reduce tax revenues, making the deficit bigger), and cutting green energy subsidies passed under the recent Inflation Reduction Act.

Work requirements for Medicaid would cut of health insurance for an estimated 1.7 million low income individuals. Cutting off Medicaid would worsen the health care inequality in this country. The proposed Republican cuts would end food stamps for about 275,000 people. Already there is a hunger crisis in the United States, and cutting food stamps would just make it worse.

While the Biden administration had started by saying that they were not going to negotiate, they have given ground and were negotiating. Biden has said that he would accept some, but not all of the cuts. One problem with compromising is that the debt ceiling would only be raised for nine months, and then another round of Republican and right-wing demands would be put on the table. The Republicans say that their goal is to balance the budget, without touching the military, social security, or Medicare. But this would require a whopping 80% cut in all other programs, hitting programs that help working-class and poor Americans the hardest.

Unless Biden can take special measures, like invoking the 14th Amendment, or gives in to the Republicans, there is a chance that the federal government would run out of money as soon as June 1. In the last debt crisis in 2011, the Obama administration was ready to prioritize payments for U.S. government bonds to avoid a default. The Biden administration is likely to do the same, which would mean delaying other payments, especially Social Security, Medicare, and Medicaid, which are the biggest non-military spending programs. These would mean putting the needs of Wall Street over seniors and low-income families.

#SanJoséCA #DebtCeiling

San José, CA – Today, Oct. 15, right-wing Republicans in the House of Representatives stopped the House Republican leadership from trying to pass a compromise measure to re-open the federal government and raise its debt ceiling. This marks another step towards the first U.S. debt crisis in history.

On Oct. 17, the federal government will not be able to borrow more money to pay its bills. The federal government will only be able to pay out what it collects in taxes, plus about $30 billion in cash that it has on hand. In the two weeks after that, the federal government will run short of money to pay all its bills, with the most likely date being Nov. 1, when $55 billion in Social Security benefits, Medicare payments, and military pay, benefits and retirement benefits are due.

From now through mid-November, the federal government will have to postpone payment on about $100 billion in payments if the debt ceiling is not raised. This comes to almost 8% of Gross Domestic Product (GDP, the standard measure of the size of the economy based on production of goods and services) on an annual basis, enough to throw the economy in a recession even worse than the one following the financial crisis in 2008.

Background to the crisis

The looming debt crisis has several roots. The first are the budget deficits of the federal government, where it spends more than it collects in taxes, so it has to borrow the difference by selling bonds. The federal government budget deficit ballooned to about $1.4 trillion (or $1400 billion), equal to 10% of GDP, in 2009 because the deep recession lowered tax revenues and the federal government increased spending to bail out Wall Street and stimulate the economy. Since then, a combination of higher tax revenues, spending cuts and economic growth have reduced the deficit to almost $600 billion, or about 4% of GDP in 2012, a decline of 60% in relation to the size of the economy.

The total amount of bonds that the U.S. government sells to pay for the budget deficit is the public debt, which is now $16.75 trillion ($16,750 billion). The federal government has a self-imposed limit on the public debt of $16.7 trillion, which means that the government can no longer borrow more money. The reported debt is slightly higher than the limit because the federal government has been shifting money around to avoid running out of cash for the last five months.

While there have been disputes over the debt ceiling in the past, they have been largely partisan affairs that did not come close to forcing the government to actually delay payment. But the recent rise of Tea Party Republicans means that the Republicans, especially in the House of Representatives, are controlled by right wingers who are more than willing to shut down the government and even force the government not to pay its bills in order to achieve their goal of ending Obama’s health care reform known as Obamacare.

What drives the Tea Party

Many Republican members of congress were denying the possibility of a partial shutdown of the federal government right up to the point that the government shut down. Their behavior is similar to their stance on climate change – just deny that it is happening so one doesn’t have to do anything.

Digging a little deeper, one sees that the government agencies that were most affected by the shutdown, such as the Department of Education, Housing and Urban Development (HUD), the Environmental Protection Agency (EPA) and the Department of Labor, are the programs most hated by the right wing.

There is also an extreme free-market logic among Tea Party Republicans that the government is bad for business and the economy and that a shutdown of the government will be good for business.

What is likely to happen

The world isn’t going to end on Oct. 17 if the debt ceiling is not raised. But the economic effects are already being felt, as the uncertainty of repayment of bonds after that date is causing the prices of bonds coming due soon to fall, which leads to higher interest rates. The interest rate on the shortest term U.S. bonds (called bills), which come due in 30 days, has now tripled and is higher than the interest rates on 60-day bills, which come due later.

While Democrats and the Obama administration are warning of the danger of default, which is what happens when the federal government does not repay its bonds or interest payment, it is hard to see how the government won’t give Wall Street what it wants. But there is chance that some bank or financial institution will find itself in a squeeze if the federal government doesn’t pay on time, triggering another financial crisis.

What is more likely is that the sudden drop in federal government spending will trigger a new recession. This could quickly feed upon itself in what economists call the ‘multiplier effect,’ where the individuals, businesses and institutions that aren’t being paid by the federal government then cut back their own purchases and payments, putting the economy into a downward spiral.

What a debt crisis would mean

If the House Republicans do manage to block any agreement to reopen the government and raise the debt ceiling, the self-inflicted crisis will mark another step in the decline of the U.S. as a world power. Ever since World War II, the U.S. government has been both a protector of Wall Street and big business and the head of worldwide empire of pro-U.S. governments that protect U.S. financial and business interests, backed by the U.S. military.

From an economic point of view, the end in 1971 of the post-World War II system of fixed exchange rates centered on the U.S. dollar, called Bretton Woods, was an early sign of the decline of the U.S. relative to the rising nations of Europe and Japan. This was followed by the OPEC oil boycott in 1973, and then the U.S. military defeat in Vietnam in 1975, showing the rise of the Third World.

Today the withdrawal of U.S. troops from Iraq and coming U.S. withdrawal from Afghanistan shows that the U.S., despite using hundreds of thousands of troops and spending trillions of dollars, is no longer to set up stable, pro-U.S. governments that can defend U.S. business interests. With the looming debt crisis, more and more governments around the world are losing faith in the economic power of the U.S. and the safety of U.S. government bonds. Foreign governments and investors now own more than $5.5 trillion of U.S. government bonds, and any sell-off in the bond market triggered by a debt crisis would quickly spread a financial crisis around the world.

But even if a financial crisis is avoided, a deep recession in the U.S. will also spread around the world. Europe’s economy is still in a depression with the euro-zone crisis and many economies in the Third World are slowing down already. Another worldwide recession, following so closely on the 2008-2009 so-called Great Depression, could again shake the very foundations of the world capitalist economy.

#SanJoséCA #capitalistCrisis #recession #RepublicanAgenda #TeaParty #governmentShutdown #DebtCeiling

This is the fifth in a series. See parts one, two, three, and four.

San José, CA – On Aug. 2, President Obama signed into law a bipartisan deal to raise the federal debt limit and cut federal spending. The deal increases the amount that the federal government can borrow by $400 billion now and calls for about $1 trillion in spending cuts over the next ten years. A bipartisan committee of congress people and senators will propose another $1.5 trillion in cuts, and the debt limit can be raised by about $2 trillion more.

The debt limit deal did not include any increases in taxes, which was a major victory for the Republicans and their Tea Party supporters. The Wall Street Journal editorial after the debt deal hailed it as “A Tea Party Triumph.” The lack of any tax increases is also a victory for the rich, who were able to keep the big tax cuts made by the Bush administration. Big businesses, like General Electric, which paid no corporate income taxes last year despite earning billions in profits, were also winners, as there was no increase in corporate taxes.

The big banks and other financial titans of Wall Street pushed hard for the debt deal. By cutting federal spending and reducing the amount of new bonds that the government would have to sell to borrow money, the prices of bonds will be higher. This will benefits banks, insurance companies and other investors in government bonds. Hedge fund managers will also continue to pay taxes at a lower rate than most workers.

While there were almost no specific cuts (other than a cut in federal student loans to graduate students), there will be cuts to programs that serve poor and working people. Banks and businesses have an army of lawyers and piles of cash to contribute to politicians’ election campaigns to make sure that their interests are protected. The federal government is also likely to cut back on aid to state and local governments, leading to even more cuts in schools, health care and social services at the local and state levels. The debt deal puts the federal government on a path of austerity that state and local governments have already started down.

The debt limit deal also opens the door to cuts in Social Security and Medicare. While the initial $1 trillion in cuts does not include these two programs, the deficit cutting committee is almost certain to recommend cuts to both programs. Both Social Security and Medicare have been running surpluses as the FICA payroll taxes have been greater than the benefits paid, leading to a combined $3 trillion in trust funds for these programs. But Social Security and Medicare will be on the chopping block while the two biggest contributors to the federal debt – the wars in Iraq and Afghanistan and tax cuts for the rich – are not.

Last, but not least, the federal spending cuts will make a weak economy even worse. With unemployment above 9%, the federal government needs to spend more, not less, to stimulate the economy and create more jobs. No other sector of the economy is willing and able to spend more. Consumer spending is limited by high unemployment, falling home prices and still high levels of debt. Businesses are earning record profits and have some $2 trillion in cash, but are not willing to spend and hire more. State and local governments, whose taxes are down because of high unemployment, are cutting spending and jobs. The growing financial crisis in Europe and their slowing economies are going to reduce demand for U.S. exports.

Only the federal government has the ability to borrow and spend more during bad economic times. But the will is gone, with both the Tea Party-inspired Republicans and the Wall Street-backed Democrats all too willing to cut spending. There is a short-run danger that this could be enough to tip the economy into another downturn. But even if the economy continues to grow, the limits on federal spending will leave no safety net for the economy when the next recession hits, increasing the prospects of a major depression much more likely in the future.

#SanJoséCA #SocialSecurity #federalDebt #Medicare #DebtCeiling #austerity

This is the second in a series. See parts one, three, four and five.

In the current debate about what to do about the debt ceiling, there are two positions that are prominent in Washington, D.C. and in the corporate controlled media. One is the House Republican position summarized as Cut, Cap, and Balance, and the other is the Senate bipartisan position that has been welcomed by President Obama. What is missing from the debate is a clear alternative from the Democrats, not to mention a progressive position that would help the people as opposed to Wall Street. This article focuses on the House Republican position, to be followed by articles on the bipartisan position and finally a progressive or people’s position.

The House Republican position of Cut, Cap, and Balance starts with Republican Congressman Paul Ryan’s proposal to cut almost $4.5 trillion in spending over the next ten years. More than two thirds of these cuts, or about $3 trillion, would come from programs helping lower-income households, including Medicaid (health care), SNAP (food stamps), and Pell Grants (college financial aid). Pell Grants would be cut 50% in the first year of the Ryan proposal.

Ryan’s proposal would also eliminate Medicare as a federal health insurance program and replace it with vouchers that individuals can use to buy private health insurance. Under this plan, seniors would have to pay for most of their health care costs, since the vouchers would not cover the full cost of private insurance. (Oh, yes, the private insurance companies would gain billions of dollars in profits too.) It would allow private insurance companies to charge more for older seniors, guaranteeing that all but the most well-to-do elderly will not be able to afford health insurance. It would also eliminate Medicare for 65 and 66 year olds.

The Ryan proposal also includes more than $4 trillion in tax cuts, with nearly all of the benefits going to households making $200,000 or more. To reduce the deficit, the Ryan proposal would eliminate many tax credits, deductions and exemptions. Many of these tax breaks do benefit middle-income and working households. On balance, the Ryan plan is one of massive cuts for the poor and elderly, higher taxes for working and middle income people and big tax breaks for the well-to-do.

The House Republican position also includes Ryan’s proposal to cap the level of federal government spending as a percentage of the total economy measured by Gross Domestic Product or GDP. It would lower federal spending to 14% of GDP (excluding payments on interest) and lower non-interest, Medicare, Medicaid, and Social Security spending to 3.5% of GDP by 2050. Given that military spending alone comes to about 5% of GDP today, even with cutting the military by 30%, *every other federal program* would have to be eliminated. This includes all spending on education (college financial aid, Head Start, and other), research on new medicines and diseases, the Environmental Protection Agency (EPA), food stamps, unemployment insurance, Temporary Aid for Needy Families (TANF or welfare), Earned Income Tax Credit (EITC for low-income working parents), housing aid for low-income and elderly renters, etc.

Finally, the House Republican plan calls for a balanced budget amendment to the U.S. Constitution, which would require the federal government to balance tax revenues and spending every year. But at the same time, they refuse to say how they would balance the budget with no new taxes. House Republicans have also refused to cap military spending, which has grown faster than Social Security and Medicare – military spending has grown more than 155% over the last 12 years, more than the 147% increase in Medicare and 86% increase in Social Security. To actually balance the budget without cutting the military and interest on the debt, other spending would have to be cut in half – meaning big cuts for Social Security and Medicare.

Supporters of the balanced budget often argue that households have to balance their budgets, so why shouldn’t the federal government? But in fact many households do not balance their budgets each year. How many people can buy a home without borrowing money? If all households had to balance their budgets, almost no one would be able to buy a home. Many, if not most people would not be able to buy a car. Many, if not most students would not be able to go to college. Borrowing money is not evil, it can be good if it is spent on something that will pay off over a long period of time, like a house, a car, or a college education.

While the federal government does pay for key infrastructure like roads and bridges that could be paid for by borrowing, it also plays an important role during recessions like the one we just had from 2007 to 2009. During a recession, millions of people lose their jobs, so households cut back on spending. With less spending, businesses have fewer sales, so they cut back. With less spending and less income, tax revenues go down, forcing state and local governments (which already have balanced budget requirements) to spend less. As the recession spreads to other countries, they buy fewer American products. The only sector than can borrow and spend more is the federal government, to try to put people back to work. If the federal government has to cut back even more because of balanced budget amendment, the recession could well turn into a depression. This is what happened under the Republican President Herbert Hoover, whose efforts to balance the federal budget helped turn the recession that started in 1929 into a Great Depression that lasted for more than ten years.

*Next: The Bipartisan Senate Proposal and President Obama*

#SanJoséCA #Medicare #DebtCeiling #CutCapAndBalance