Republicans, Democrats attacking Americans in bipartisan push for savage austerity

PressTV
Webster Tarpley

By all indications, the US ruling class of Wall Street financiers is determined to follow Greece, Spain, Portugal, and Great Britain down the road to drastic austerity. The financiers of lower Manhattan are thus ignoring the evidence offered by these other countries showing that austerity policies reduce employment, lower production, cause severe mass privation, introduce powerful elements of chaos into society, and actually increase the government budget deficits in future years -- meaning that austerity fails even in its own terms.

Since the 1930s, it has been widely recognized that a policy of deflation with severe cuts in government spending and in expenditures for social services will plunge a country deeper into depression. Once the depression has hit, usually as the result of the collapse of a speculative bubble like the $2 quadrillion derivatives mania of 2000-2008, the private economy shrinks rapidly, leaving government spending as the principal form of economic activity. If the government budget is nevertheless cut, this lowers the overall rate of economic activity; working people paying taxes are turned into recipients of public assistance, and the budget deficit grows rapidly. The classic case is the German government of Chancellor Heinrich Brüning in 1930-32, whose brutal austerity policies shrank the national economy by about 25% over the course of two years, but still could not prevent the German budget deficit from growing.

Despite all this, there is today a consensus between Wall Street and Washington that draconian austerity must be imposed in the United States. This will be the case no matter whether Obama or Romney wins the upcoming election. Romney has been very open about his determination to rule in the name of the top 1% of financiers and oligarchs, while imposing hardships and sacrifices on the rest of the population. Obama is somewhat more discreet, but he also has clearly signaled his desire for a sweeping austerity program to be agreed on by the two major US parties as soon as possible, probably before the end of this year.

Observers have noted that Obama and Biden, in their three debates held so far with their Republican rivals, have never mentioned the traditional Democratic Party platform planks of raising the minimum wage; preserving the funding of the food stamp program (the Supplemental Nutrition Assistance Program of the US Department Of Agriculture) which keeps some 50 million Americans alive; maintaining and extending unemployment insurance payments to the jobless; or making it easier for trade unions to organize.

Obama and Biden ignore waitress moms

This failure by Obama and Biden to even mention these concerns of lower middle class working people and the working poor does not represent astute politics. On the one hand, it is true that the Democratic Party has almost entirely lost its earlier base of support among white male workers. But the Democratic Party still has a sizable constituency of working women, often single mothers, who have no college education. These are the so-called “waitress moms,” for whom the economic issues are very important. But the Democratic Party ignores them, since promises of this type might get in the way of delivering the austerity demanded by Wall Street.

Intelligent trade unionists have not forgotten that, when the entire state of Wisconsin was gripped by a de facto general strike against the fascist Governor Walker in February-March 2011, Obama refused to lift a finger to help them. Obama could have sent in Vice President Biden, who pretends to be a populist, to support the strikers. He could have sent Attorney General Eric Holder to frighten the Walker gang with the prospect of federal indictments. He could have sent Labor Secretary Hilda Solis to investigate violations of the labor law. Obama could even have gone to Wisconsin himself, something he had promised to do in his 2000 campaign. But Obama did nothing. Nor did he help unions and other residents in Ohio, who were able to fight off a union busting campaign by their own fascist Governor Kasich, or in Indiana, where a union busting plan largely succeeded, or in Michigan, where the fascist Governor Snyder has kicked out the democratically elected mayors and city councils and replaced them with austerity dictators in cities like Benton Harbor, Flint, Pontiac, and Ecorse, and in the Detroit public schools.

Obama needs the members of trade unions to mobilize in his support during the final phases of his reelection campaign, but he offers nothing in return but killer cuts. When Obama ran for president the first time, he promised to institute a reform known as Card Check, which is simply a way to facilitate the establishment of union representation in workplaces. But Obama never did anything to get this law through Congress, and he has not mentioned it for years.

The ideological atmosphere in Washington, DC is heavily in favor of severe austerity, reflecting the elite consensus. Many news commentators are demanding that Obama implement the recommendations of the so-called Simpson-Bowles Commission, which favored three dollars worth of cuts in entitlements and the social safety net compared to one dollar in increased revenue, with only a tiny fraction of the latter coming from taxes on the super-rich. Former Senator Alan Simpson, the Republican co-chair of this commission, is no humanitarian, but is on record saying he hates senior citizens and also that he hates his own grandchildren, among others. Simpson Bowles is often called the cat food commission, since the entitlement cuts it demands would reduce many elderly people to eating cat food because of their poverty. In the first presidential debate, Obama endorsed the murderous program of Simpson-Bowles.

In the United States Senate, an effort for savage austerity supported by an alliance of both major parties is being mounted by the Gang of Eight, sometimes called the Crapo Commission by its critics in honor of the reactionary Idaho Mormon Senator Mike Crapo who is one of its prominent members. Crapo is joined by Republicans Alexander, Coburn, and Chambliss, plus Democrats Bennett, Warner, Durbin, and Conrad in discussions over how to flay the American people alive.

The essential unifying ideology of the Democratic Party is the defense of the progressive economic reforms of the New Deal, New Frontier, and Great Society. Depending on the specific program, polls show that between 65% and 80% of the American people want these social programs preserved in their current form, with no cuts. But Obama and other leaders see the Democratic Party as a confederation of social groups, each of which wants to practice its own brand of identity politics. By pandering to each of these forms of particularism and parochialism, postmodern Democrats like Obama hope to sell out the traditional entitlements and still survive politically. But it is quite possible that a massive betrayal by Obama of his own base on these issues would lead to a permanent weakening of the Democratic Party, conceivably a fatal one.

During the current pre-election phase, Obama is pretending to take a principled position on the coming austerity deal, sometimes referred to as the “Grand Bargain.” According to the Washington Post of October 18, Obama is sending out word to the Congress that he will veto any December-January budget deal that does not contain some tax increase on the rich. This posturing is hollow, for at least three reasons. First, Obama would be more than willing to barter a tiny tax hike on the super-rich for massive cuts in Social Security and Medicare. These cuts would leave the luxuries of the superrich untouched, but would cut deeply into the amenities of the middle class and the necessities of the working poor. Secondly, the Obama White House refused to say whether this veto threat will apply in case Obama loses the election. The implication is that, if he becomes a one term president, Obama will want to secure his place in history - as an austerity enforcer, given his neoliberal mentality -- at the expense of the weakest, oldest, sickest, and most defenseless elements of US society. A third problem is that the cowardly Obama has surrendered so many times that few take his threats seriously now. “Some Republicans, noting that the president has backed off demands for higher taxes twice in the past, are skeptical that he will stand firm now,” commented theWashington Post.

Another group which Obama has sold out is the college students who did so much to put him into the White House in 2008. Two thirds of the US college graduates of 2011 were groaning under student loan debt, with an average of $26,000 per bachelor’s degree student, plus more for advanced degrees, and much more for degrees in law and medicine. The student loan burden has now topped $1 trillion, about as much as consumer and credit card debt. Student loan debt is interfering with the normal process of human life, since the indebted young people are less likely to find apartments of their own, less likely to get married, and less likely to have children.

Because the US government is operating under multiple states of emergency, a real president could easily use the existing provisions of the Defense Production Act to declare a five-year freeze on all payments of interest and principal on these crippling student loans. He could use the same law to impose a 10% ceiling on all interest rates in the United States, thus reviving the usury laws of the pre-Volker era. But Obama is determined to serve Wall Street to the bitter end, even if the financiers are now channeling significantly more money to Romney than to the current tenant of the White House.

Major U.S. Banks At Risk If European Debt Crisis Spreads

Huffington Post
Bonnie Kavoussi

If European politicians are unable to contain their sovereign debt problems, Wall Street could be on the brink of another financial crisis, according to economists.

Although U.S. banks have limited their direct exposure to Greece, they have loaned hundreds of billions of dollars to European banks and governments that may not be able to pay them back, according to the Bank for International Settlements. If some European governments and banks are forced to default on at least part of their debt, American banks could lose a significant amount of money on that account alone.

The resulting panic from investors could compound the losses. Short-term borrowing costs would spike, bank stock prices would plummet and investors could demand their money from banks, several economists say. In a repeat of the liquidity crisis of 2008, some U.S. banks could run out of the money necessary to fund their day-to-day operations.

"We've seen this already," said Jay Bryson, global economist at Wells Fargo Securities. "Some sort of financial crisis in Europe would be enough to finally push the United States economy back into a recession."

Some predict that a European financial crisis would spread quickly to U.S. shores. The pain would not come directly from government defaults; U.S. banks have loaned just $36.2 billion to the five European governments that are in danger of defaulting: Greece, Ireland, Portugal, Spain and Italy. But U.S. banks have also loaned $60.6 billion to banks in those five countries, and $275.8 billion to banks in Germany and France, according to data from the Bank for International Settlements.

A string of sovereign debt defaults would endanger the survival of major European banks, including those in France and Germany, which hold a large amount of troubled sovereign debt on their books, some economists note. According to Bryson, French banks' exposure to the five European countries that are in danger of defaulting amounts to 25 percent of France's gross domestic product, and the exposure of German banks to those countries is worth 15 percent of Germany's total output.

Sudden European government defaults could spur panicked investors to demand their deposits back from European banks, possibly forcing those banks to run out of money and declare bankruptcy. Several economists say that even if the European Central Bank steps in to save major European banks, some may partially default on U.S. bank loans to stay afloat -- an outcome that would cause major losses for U.S. banks and put them at risk of a bank run, when investors demand their deposits back all at the same time.

U.S. banks could face a financial crisis even before the crisis in Europe gets that far. Bryson outlined three scenarios in which a financial crisis could spread from Europe to the United States. A full-fledged financial crisis would ensue if "the crisis goes viral before the backstops are in place," he said.

First, the Greek government could cave in to protestors and stop agreeing to Europe's demands for additional budget cuts. In that case, the eurozone would stop lending to Greece and Greece would run out of cash and be forced to declare bankruptcy. The shock of a sudden Greek default could cause investors to demand higher interest rates from other troubled European governments, which could subsequently default. European banks that have loaned to those countries could run out of money and be at risk of defaulting on loans from U.S. banks, which could face higher borrowing costs and bank runs of their own.

Second, a eurozone country could vote against giving Europe more authority to help prevent a financial crisis. European parliaments are now debating whether to expand the powers of the European Financial Stability Facility (EFSF), which is stocked with 440 billion euros that it can loan to troubled governments during a crisis. Europe tentatively has agreed to allow the EFSF to help recapitalize troubled banks, make precautionary loans and buy troubled government debt -- but all 17 eurozone governments need to separately approve the plan.

If one eurozone country balks and Europe fails to expand the powers of the fund, then the stock market could plunge. It could become more expensive for European banks and governments to borrow, placing them more in danger of default.

Third, European leaders could continue to drag their feet on finding a larger solution, in which case borrowing costs for European governments and banks would stay high, prolonging the crisis. A government or financial institution would be likely to declare bankruptcy in only a matter of time.
It remains largely unknown which U.S. banks are particularly exposed to the risks in Europe, so investors have drawn their own conclusions. The insurance market reveals that investors believe Morgan Stanley is most at risk, followed by Bank of America, Goldman Sachs and Citigroup, respectively, according to market data provider CMA. Bank of America's debt now is more than three times more expensive to insure than during the height of the financial crisis in October of 2008.

EM expert says Europe focus harms IMF’s credibility

CityWire
Chris Sloley

Emerging markets are increasingly losing faith in the International Monetary Fund due to its overtly European focus and questionable handling of the ongoing sovereign debt crisis, Ashmore’s head of research Jerome Booth has said.

Speaking to Citywire Global, Booth said that growing disillusionment among managers of emerging market funds was valid given the IMF’s recent activity.

Most notably, the IMF has agreed to pledge €78.5 billion to Greece, Ireland and Portugal through to 2014 and, earlier this month, it was also involved in thrashing out the €109 billion rescue package for Greece.

Although it has not stated how much it intends to contribute to the second Greek bailout.

Commenting on its involvement, Booth said: ‘The IMF risks its credibility by putting more money into Greece and arguably it should not have participated anyway in the existing bailout programme. The criticism is that it is now throwing good money after bad and I think that is an extremely valid concern.’

Booth’s comments come in the wake of suggestions of IMF board members representing the BRIC regions allegedly taking umbrage with the IMF’s perceived European-bias, which, they claim, is exemplified by its extensive work on the eurozone debt crisis.

‘I think the IMF has a credibility issue relating to the situation in Greece and it is finally being raised at the board level of the IMF,’ said Booth. ‘But, it has been said for a while, so it is something of a belated suggestion from the emerging market board members.’

And, while Booth claimed that the board members are growing frustrated with the fund, he said that representatives of emerging markets have begun to question the relevance of the IMF.

He said this could be traced back to French finance minister Christine Lagarde being elected as former IMF managing director Dominic Strauss-Kahn’s successor ahead of Mexican candidate Agustin Carstens, the governor of the Bank of Mexico.

‘One of the issues was that Carstens didn’t get any momentum among emerging market members voting for him because lots of emerging markets see the IMF as having little relevance,’ said Booth.

Greek police clash with striking doctors

CTV

Police clashed with doctors protesting outside the Health Ministry in central Athens Friday over cutbacks enacted in response to Greece's financial crisis.

Riot police used pepper spray to disperse protesters outside the ministry building during the brief clashes as doctors and staff at public hospitals in greater Athens held a three-hour work stoppage.

Greece's largest unions are planning a general strike on May 11. The government announced a new round of cuts last month, that include a €15-billion ($22.22-billion U.S.) privatization program.
The country is battling to avoid restructuring its massive debt and to meet demands for faster cost-cutting reforms by the providers of its €110-billion rescue loan package.

A strike by Portuguese civil servants against austerity measures Friday had little impact on public services, though unions reported disruption to trash collection and hospital staffing levels.

Portugal's National Federation of Civil Service Unions, which called the 24-hour strike, said around 60 per cent of Lisbon trash collection staff stayed away from work and most emergency staff at main hospitals walked off the job. Minimum hospital staffing levels, which are required by law, were provided.

Some schools cancelled classes and several hospitals postponed scheduled operations, but court hearings and national school exams largely went ahead as scheduled and most public offices were open, according to media reports from around the country.

The unions, which represent around 250,000 workers, are fighting austerity measures that are part of the country's €78-billion bailout designed to avert national bankruptcy.

Portugal is freezing public sector pay through 2013, hiking taxes and cutting welfare benefits in return for the financial rescue package from other European countries and the International Monetary Fund which was agreed Thursday.

Austerity policies have also triggered strikes in Greece and Ireland, two other ailing euro zone countries which took bailouts last year.

Banks Face $3.6 Trillion 'Wall' of Debt: IMF

CNBC

The world's banks face a $3.6 trillion "wall of maturing debt" in the next two years

and must compete with debt-laden governments to secure financing, the IMF warned on Wednesday.

Many European banks need bigger capital cushions to restore market confidence and assure they can borrow, and some weak players will need to be closed, the International Monetary Fund said in its Global Financial Stability Report.

The debt rollover requirements are most acute for Irish and German banks, with as much as half of their outstanding debt coming due over the next two years, the fund said.

"These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said.

Overall, the IMF said global financial stability has improved over the past six months.

The most pressing challenges in the coming months will be funding of banks and sovereigns, particularly in vulnerable euro area countries, it said.

The IMF and European Union bailed out Greece and Ireland, and are in talks with Portugal on a lending program as sovereign borrowing costs surge.

Many investors have questioned whether Spain can avoid a similar fate, but the IMF said Spanish authorities were taking the right steps to address the country's debt problems.

"The actions that have been taken in Spain recently have managed to decouple, in the views of markets, the fortunes of Spain relative to those of Portugal" and Ireland, said Jose Vinals, director of the IMF's Monetary and Capital Markets Department.

European banks hold large amounts of euro zone sovereign debt, making them vulnerable to losses if countries are forced to restructure.

Vinals said lending programs in Greece and Ireland were built on the assumption there would be no such restructuring, and the programs needed time to work.

Still, worries about bad debt exposure have heightened investor concerns about bank balance sheets, making it even more important for firms to shore up their capital.

US banks built up capital buffers in 2009, when regulators completed a set of stress tests that revealed some large holes.

But European banks still need to raise a "significant amount of capital" to regain access to funding markets, the fund said.

"It is ... imperative that weak banks raise capital to avoid a pernicious cycle of deleveraging, weak credit growth, and falling asset prices," it warned.

Living Dangerously

The European Central Bank's upcoming stress tests provide a "golden opportunity" to improve bank balance sheet transparency and reduce market uncertainty about the quality of assets on banks' books, the IMF said.

European banks won't be able to obtain all the necessary capital from markets, and public money may have to fill some of the gaps, it added.

Banks could also cut dividends and retain a larger portion of earnings.

"Overall, a comprehensive set of policies -- including capital-raising, restructuring and where necessary resolution of weak banks, and increased transparency about banking risks -- is needed to solve banking system vulnerabilities," it said.

"Without these reforms, downside risks will re-emerge." The IMF said banks' exposure to troubled sovereign debt is "uncertain," which adds to the funding strains.

It said government debt was generally high and on a worrying upward path in many advanced economies.

It repeated its warning that the United States and Japan faced particularly dangerous debt dynamics.

Advanced economies were "living dangerously" with high debt burdens, and faced the difficult task of trying to pare deficits without choking off the economic recovery.

The fund said government interest bills would likely rise, although the burden should generally remain manageable provided countries proceed with deficit reduction plans.

For 2011, Japan and the United States face the largest public debt rollovers of any advanced economy at 56 percent and 29 percent of gross domestic product, respectively.

"While the United States and Japan continue to benefit from low current (borrowing) rates, both are very sensitive to a potential rise in funding costs," it said.

Iceland’s message to Portugal

Red Pepper

This week has witnessed two very different reactions to European debt. At one end of Europe, Iceland’s voters decided once again not to accept the payment terms of their ‘creditors’, the British and Dutch governments, following the collapse of Icelandic banks in 2008. At the other, Portugal is being pushed down the path of shock therapy by the European Union, with the people of that country cut out of a process which will change their lives dramatically.

Neither Iceland not Portugal will have it easy in the years ahead. But there is a world of difference between the refusal of the people of Iceland ‘to pay for failed banks’ in the words of their President, and the pain being imposed on Portugal from the outside. The European Central Bank’s head Jean-Claude Trichet has made it perfectly clear that the negotiations on Portugal’s future are ‘certainly not for public’ debate.

Iceland’s people have not made a knee-jerk reaction. They are well aware that refusal to pay is the less easy short-term route to take. An impending court case by the UK and the Netherlands, the negative reaction of credit markets and the threatened block to their EU membership will all take a toll.

But for the people of Iceland the orthodoxy as to how countries are supposed to deal with debt is not simply economically flawed, it is deeply unjust, unfairly distributing power and wealth within and between societies. 28-year-old voter Thorgerdun Ásgeirsdóttir said: ‘I know this will probably hurt us internationally, but it is worth taking a stance.’

If the people of a country which truly bought into free market ideology, deregulated capital markets and cheap lending can refuse to pay for the crimes of the banks, then those that did less well from the decades of financial boom can be expected to feel even more impassioned.

In Greece such anger is starting to turn into a constructive challenge to the power of finance. A debt audit commission has been called for by hundreds of academics, politicians and activists. Such a commission would throw open Greece’s debts for public examination – directly confronting the way that the IMF and European Union work behind closed doors to force their often disastrous medicine on member countries.

As Greek activists have said, ‘the people who are called upon to bear the costs of EU programmes have a democratic right to receive full information on public debt. An Audit Commission can begin to redress this deficiency.’

Their resolve is currently being bolstered by a website phenomena – a short viral film called debtocracy (government by debt) – sweeping Greece’s online population and convincing them they have been taken for a ride. Early next month activists from across Europe and the developing world will gather in Athens to put together a programme which will challenge the IMF’s policies in Greece.

Portugal’s deal is just beginning to be hammered out. As in Greece and Ireland, a ‘bail-out’ package will primarily benefit Western European banks, with €216 billion of outstanding loans to Portugal, while ordinary people endure a programme of deep spending cuts, reduced workers’ rights and widespread privatisation. The head of Portugal’s Banco Carregosa told the FT: ‘It’s not an exaggeration to call it shock therapy.’

The comparisons with developing world countries are obvious and the mistakes there are already being repeated. Time and again banks were bailed out and the poorest people in the world were pushed even deeper into poverty. Today countries from Sierra Leone to Jamaica are racking up ever more debts, once again, to weather the banker’s storm.

This is why a line must be drawn in Europe. Pouring more debt on top of Portugal’s woes will do nothing to resuscitate the economy. Portugal’s debt is totally unsustainable – largely the result of reckless private lending over the last decade. Those responsible are being bailed out, those that aren’t are suffering the pain. This is what Iceland has refused to do.

The people of Iceland have stood up for their sovereignty. Their future looks considerably brighter than those of Ireland or Portugal. The people of Greece are just beginning their struggle. The outcomes will have a monumental impact on the fight against poverty and inequality across the world.

Portugal government will reject austerity measures - may collapse before EU summit

Reuters

(Reuters) - Portugal's parliament started a key debate on Wednesday on government austerity measures which opposition parties were expected to reject, setting the stage for the possible collapse of the minority Socialist administration a day before a European summit.

Prime Minister Jose Socrates has said he will resign if the plan is defeated. He has said its rejection would force the debt-laden country to follow Greece and Ireland and seek an international bailout, which he opposes.

The euro was 0.6 percent lower at $1.4110 from Tuesday's 4-1/2 month high of $1.4249 on wariness before the Portuguese vote and on news of a delay in increasing a euro zone bailout fund. Portuguese stocks fell and bond yields shot up.

Finance Minister Fernando Teixeira dos Santos opened the debate, warning that a refusal to approve the measures "will provoke an immediate rise in the country's risk and immediate consequences in terms of credit ratings."
Socrates sat through Teixeira dos Santos' speech but then left parliament.
All opposition parties have proposed resolutions calling for the rejection of the measures, which reduce pensions and state spending.

The main opposition Social Democrats, who have previously backed austerity, have begun talking about a snap election.

"If all these positions that now seem irreversible are confirmed, then yes (the government will step down)," Francisco Assis, Socialist bench leader in parliament, told reporters.

The Socialists have 97 of parliament's 230 seats and have no allies on whom they can rely. The plan needs at least 116 votes to pass.

A last-minute intervention in the crisis by President Anibal Cavaco Silva has appeared less likely since he said his "room for maneuver to act preventively" was limited.

The parliamentary debate began shortly after 1500 GMT and the vote is expected later in the afternoon. Socrates is due to hold a regular weekly meeting with the president at 1900 GMT.

The government had hoped to obtain support for its plan before Thursday's EU summit, to reduce market pressure on Portugal's sovereign debt.
A spokesman for Socrates said the prime minister would go to the EU summit in Brussels regardless of the outcome of the vote.

The EU leaders, however, look set to disappoint investors by delaying any approval of a beefed-up euro zone rescue fund till June.

Portuguese markets fell as investors grew more nervous.

The Portuguese benchmark 10-year bond yield rose to 7.83 percent on Wednesday from Tuesday's 7.68 percent and the spread over safer German Bunds rose 14 basis points to 457 bps. Many economists see borrowing costs above 7 percent as unsustainable and say Portugal will have to resort to the rescue mechanism.

Shorter-dated bonds were harder hit, with Portugal's five-year bond yield at a euro lifetime high of 8.3 percent.

The stock market was down 1 percent with banks among the hardest hit shares.

"If these measures are not agreed it seems more and more likely that Portugal will need some kind of support," said Charles Diebel, head of market strategy at Lloyds Bank.

"Is this already reflected in the price? To a large degree yes it is, but there are also good causes for concern that this is not going to stop here."

The Social Democrats, ahead in opinion polls, are broadly committed to reducing the budget deficit.

The constitution stipulates that the country can hold a snap election no sooner than 55 days after the president calls one. The outgoing government remains in office as a caretaker administration with limited powers.

"My worry is the period of inaction before a new government takes over," said, an economist at RBS in London. He did not expect decision-making to come to a standstill, preventing the country seeking a bailout if necessary.

Political analyst Antonio Costa Pinto said a caretaker government would have its hands tied.

"Although a caretaker government cannot take major autonomous initiatives, it could take a decision on resorting to aid if it is backed by parliament," Costa Pinto said.

Whatever the outcome, opposition to austerity may increase as the Portuguese face lower wages and higher taxes, and the country returns to recession.

Large protests have been held against austerity on the past two weekends and on Wednesday train drivers went on strike to demand higher wages, creating traffic chaos around Lisbon as commuters were forced to take their cars to work.