Now the debt limit negotiations have been temporarily resolved, you’d expect some relief from the talk of imminent economic collapse. But it’s clear that the demands of extremist Republicans were really a sideshow to the problems of the international economy and the European debt crisis. And then on Friday US debt was downgraded by the Standard and Poor’s rating agency.
Despite frantic appeals by the White House, the company made their announcement after the markets had closed for the day. The move was less a comment on the state of the economy than a political message that investors lacked confidence in Congress’ ability to reach a rational agreement that would enable the debt to eventually be paid.
What the rating agency was calling for were $4 trillion in cuts and increases in revenue. That is essentially the same scenario that Obama first put to Boehner before it was rejected by the Republican Tea Party faction, and shows how close Obama himself is to Wall Street’s agenda. The agency’s own statement justifying its decision complains that “our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”
A market analyst explains that: “Governments around the world have been led to believe that they need to issue bonds and collect taxes to finance government spending, and that good policies should be judged by their ability to enforce fiscal austerity. Mainstream economists and ratings agencies such as S&P have guided policymakers into imposing artificial constraints on fiscal policy and government finances … ratings agencies like the S&P reinforce the current deflationary state of affairs because their perverse rating actions simply reinforce efforts for further substantial deficit reduction and a balanced budget amendment.”
The problem for them is that international financiers rely on the legitimacy of states to enforce austerity measures and shore up the value of their investments. The impasse in Congress undermines its legitimacy, and increases the possibility that the people will reject the government’s authority. A widening gap has already opened up between the political infighting in Congress and the concerns of the general public.
Radical economist Richard Wolff comments: “A basically political problem is looming for those lenders who purchased and now own the debt obligations of the US (that is, Treasury securities). The political problem is this: how long will the mass of Americans accept not only an economic crisis bringing unemployment, home foreclosures, reduced real wages and job benefits, but now also cutbacks in government supports? … When might that backlash demand that the people’s taxes stop going to pay off creditors (corporations, the rich and foreigners) and be used instead for public services that the people need? Exactly that political danger for creditors prompted the rating downgrades for the debts of Greece, Portugal, etc.”
Even staunch Republican voters want creating jobs to be a higher priority than making budget cuts: “Cutting spending is important, but getting people back to work is more important,” said Diane Sherrell, 56, a Republican from Erwin, N.C. … Stanley Oland, 62, a Republican from Kalispell, Mont., said that the government needed new jobs to generate the economic activity and the revenue it requires. “That revenue supports the basic foundation for the economy, creates more jobs and stimulates the economy,” he said. “Unless you have working people you don’t have revenue from taxes. If you cut spending, jobs will be eliminated and you won’t get any revenue. Every dollar spent creates jobs.”
And it’s clear that there is strong resistance to changes in the social wage. 45,000 Verizon technicians have gone on strike despite the anti-union climate and high unemployment because the company wants to make stringent cuts to employment benefits. According to the NYT, “Verizon wants the unionized workers to start contributing to their health care premiums, including $1,300 to $3,000 a year toward family coverage. The company has also called for freezing pension contributions for current employees, eliminating traditional pensions for future workers, limiting sick days to five a year, and eliminating all job security provisions. … union officials said on Sunday that they were stunned that Verizon still had 100 proposals for concessions on the negotiating table on Saturday, including ones to eliminate Martin Luther King Jr.’s birthday and Veterans Day as holidays.”
But today it’s morning in Wisconsin. Although virtually ignored by Washington, the real test of the national political climate is Tuesday’s recall elections. Wisconsinites were incensed by the way Republicans hijacked the electoral process in their state. At the end of a radio phone-in debate last week between Democratic challenger Shelly Moore, a schoolteacher and former union official, and Republican incumbent Sheila Harsdorf, Moore made an interesting observation about the grassroots movement that followed the battle against Walker’s budget. She remarked that the stripping of collective bargaining rights was not really what the fight was about. “It may have started some of the initial protest,” she said. “It is not what sustained the protest.” She pointed out that people felt shut out of the process, and that was what riled them more than anything.
A Democratic victory in Wisconsin which overturned Republican control of the legislature would be the financiers’ worst nightmare. It would change the political landscape, ending people’s feelings of helplessness in face of the success of the rich in overtly grabbing control of the system, and giving the green light to millions of people in the rest of the country who want to fight to maintain the standard of living they have achieved.
Obama has carefully stayed aloof from this struggle. He must be prevented from playing the role assigned to him by the plutocracy, which is to head off and isolate resistance to the big banks’ strategy of squeezing wealth out of the middle class and working poor. Although political pundits scoff at the idea of a primary challenge to Obama, it would make it clear that the progressive wing of the Democratic party can no longer be taken for granted.