When Greece goes, the question is immediately posed of the contagion spreading to other countries. Ireland, Portugal, Spain and Italy will fall like dominoes. Banks will collapse, starting with the Greek and Cypriot banks, and then proceeding to the UK and U.S. financial system, both of which are unsound. An economic collapse in Europe would send a Tsunami racing across the Atlantic, putting pressure on the dollar and threatening to undermine the unstable financial set-up in the USA. [part 1]
Europe and America
That is why the USA is following the unfolding crisis on the other side of the Atlantic with growing concern. It is urging the Europeans to put their house in order, but it conveniently overlooks the mess in its own house. It is suffering from “deficit attention disorder”, together with a growth crisis, high unemployment and a deep political crisis.
The Americans are desperately calling on Germany to “do more” to pull Europe out of crisis. The Germans must cut taxes; they must boost the economy; they must send more money to Greece; they must lead a coordinated fiscal stimulus across northern Europe. Germany must do this and Germany must do that. But who are the Americans to tell the Germans what to do?
U.S. Treasury Secretary Timothy Geithner warned that the failure of the EU to solve the Greek crisis represented a serious threat to the global economy. In an unusual move, Geithner attended the talks between European Union finance ministers and central bankers in Poland, where he lectured them as a headmaster would lecture little children. Afterwards he said that European states “now recognize they are going to have to do more” to resolve the crisis.
Yes, say the Europeans, but who pays for all this? To this question there can only be one answer: France and Germany, or more correctly, Germany, which is Europe’s banker of last resort. Those who have talked big about a Marshall Plan for Greece are now politely requested to put their money where their mouths are. But this is easier said than done. It immediately raises political problems that cannot easily be overcome.
The analogy with the 1948 Marshall Plan is misplaced. After the Second World War, the USA saved European capitalism with a big injection of capital through the Marshall Plan. But now conditions are very different. In 1945 the U.S. had two-thirds of the world’s gold in Fort Knox, and therefore the dollar was “as good as gold”. Then the U.S. was the world’s biggest creditor nation; now it is the world’s biggest debtor. Far from rushing to the aid of Europe, Obama is pleading with the Europeans to sort out their problems, or else the fragile economic recovery in the USA will be placed in grave jeopardy.
Above all, when the Marshall Plan was implemented, the world capitalist economy was entering into a phase of upswing that lasted almost three decades. None of these factors exist now. Germany is the leading power in Europe but it does not possess the virtually unlimited economic reserves that the USA enjoyed in 1945. Although it is a powerful economy, it is not strong enough to bear the weight of the accumulated deficits of Greece, Ireland, Portugal, Spain, Italy and the rest. Most importantly, Europe and the world are not on the verge of a long period of upswing but, on the contrary, on the eve of a new recession and a prolonged period of economic difficulties and austerity.
The USA itself came close to defaulting on its $14.3 trillion public debt in August 2011, when the Obama administration patched up a last-minute deal to raise the debt ceiling. The crisis caused an open and bitter split between the Republicans and Democrats, who represent different layers of the capitalist class.
Until recently, nobody mentioned the huge debts of the USA. But now that has changed, since the rating agency Standard & Poor's announced in August 2011 that it was downgrading the U.S. credit rating to AA+ from its top rank of AAA. Moody's said it was also considering cutting the U.S.’ AAA debt rating, citing the rising possibility that the U.S. could default on its debt obligations.
The U.S. government currently runs a $1.5 trillion budget deficit, requiring it to issue debt in the form of treasury bills, bonds and other securities. The overall public debt of $14.3 trillion is a sharp increase from the $10.6 trillion when Mr. Obama took office in January 2009. Most is held by the public, with the rest held in U.S. government accounts.
This was not the first time that Congress has voted to raise the debt ceiling, giving government access to the cash it needed. It has voted to raise the U.S. debt limit 10 times since 2001. Since May, the U.S. federal government has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating. U.S. Federal Reserve chief Ben Bernanke has said a default would cause a “major crisis”. This is an understatement. A U.S. default would be the scenario for Armageddon in the world money markets.
Although both bourgeois parties defend the interests of the capitalist class, they had different ideas on how to go about this defence. The Republican Party wanted deep cuts. Obama was prepared to accept cuts but wanted to appease the working class by increasing some taxes on the rich. But this is anathema to the Republicans in Congress, who were under the pressure of the Tea Party fanatics who want no taxes at all. In the end they were forced to reach a deal by raising the debt ceiling, as they have done previously. But the vote was tied to over $1 trillion in automatic cuts that have now been triggered by the failure of the so-called “Super Committee” to agree on even steeper cuts.
Up until now, the dollar has held up because it is seen as a “safe” haven for money in a time of global financial and monetary instability. But if the U.S. deficit persists, confidence in the value of the dollar will fall, bringing a sell-off of dollars and a sharp fall of its value. The Federal Reserve believes the odds of a U.S. recession in 2012 are more than 50/50. According to Fed economist Travis Berge, “Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession.” It is for this reason that the Americans are so concerned about Greece and the future of the euro. Thus far the attention of the money markets has been concentrated on Europe. But a collapse of the euro would immediately throw into relief the real weakness of the dollar.
From Wisconsin to Wall Street
The economic crisis falls with special force on the USA, and will have its most dramatic effect there. There has been very little hiring in the so-called recovery. In fact, there have been fewer jobs created than are needed just to keep up with population growth, let alone to make up for the over 8 million that were lost at the height of the crisis. During the 3rd quarter of 2011, there were 1,226 extended mass layoff events, involving 184,493 worker firings. And that’s considered an improvement on the recent past.
What economic growth there has been has come through an increase in exploitation of the existing workforce. The extraction of both absolute and relative surplus value has increased in the recent period. In other words, fewer workers are working longer and harder for less pay. That leads to GDP growth and more profits. But it does not lead to jobs. The official unemployment rate is 9 percent, but the real figure is likely twice that. Millions are no longer even counted as they are no longer looking for work. There are five unemployed U.S. citizens looking for each job vacancy. That does not include those who have given up the search for employment. 14 percent now rely on food stamps and U.S. poverty is at record levels.
At the same time the Fortune 500 List shows that in 2010, profits for the Fortune 500 grew by 81 percent. These 500 companies and their subsidiaries generated nearly $10.8 trillion in total revenues, up 10.5 percent from 2009. This is out of a total GDP of $14.7 trillion. That means that these 500 companies along generated 73.5 percent of the total U.S. GDP. This is how concentrated wealth is in America. Just the top 10 companies in the Fortune 500 employ over 4 million workers.
All this explains the collapse of support for Obama and the Democrats in the midterm elections. There is growing discontent and it is finding a voice and a practical expression. The mass protests in Wisconsin showed that something is changing in the USA. These were unusual because normally, people just protest for a day and then go home. But inspired by the Egyptian events, the protests grew to massive proportions, with tens of thousands on the streets of Madison, backed by fire-fighters and policemen protesting in solidarity, many of the latter with “cops for labor” inscribed on their backs.
Among the slogans shouted were: “Fight like an Egyptian!” and “From Cairo to Madison, Workers Unite!” In October 2010, he AFL-CIO organised a labour march on Washington DC. This was the first nationwide labour demonstration since 1981. The union leaders wanted to turn it into a pro-Democrat rally but that found no echo among the workers.
Subsequently, the USA was rocked by demonstrations “against corporate greed”. These protests, organized by the spontaneously-created Occupy Wall Street movement, are beginning to cause concern in the ranks of the bourgeoisie. The New York Times Sunday Review carried an editorial (8 October, 2011), which is worth quoting at length:
“At this point, protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity. (...)
“The protests, though, are more than a youth uprising. The protesters’ own problems are only one illustration of the ways in which the economy is not working for most Americans. They are exactly right when they say that the financial sector, with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity. As the bad times have endured, Americans have also lost their belief in redress and recovery.
“The initial outrage has been compounded by bailouts and by elected officials’ hunger for campaign cash from Wall Street, a toxic combination that has reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer.”
It is a myth that the people of the United States are naturally reactionary. Let us recall what the Bible says: “For the first shall be last and the last shall be first.” That is pure dialectics! Precisely because the American workers have been politically more backward than the European workers, they can jump over their heads.
CNBC howled that the protesters “let their freak flags fly,” and are “aligned with Lenin.” Unfortunately, this judgment is a little premature. The protesters—at least most of them—are not yet aligned with Lenin. But they are learning from experience. And a few blows from a policeman’s club teach them more about the precise nature of the capitalist state than a reading of State and Revolution.
While the American workers do not have a mass labour party, they also do not carry the weight of a reformist leadership which uses its authority to hold back the workers, as is the case in Europe and elsewhere. They are fresh and lack the reformist and Stalinist prejudices of the European workers. The American workers can therefore develop very quickly once they start to move.
This can already be seen in the Occupy movement. The brutal police repression with which the movement in Oakland was met also shows how frightened the U.S. ruling class is of the revolutionary potential of such a movement. An indication of what can come was seen in the call for the general strike in response to the brutal police repression, an extremely positive step in the right direction, showing an instinctive awareness on the part of the youth of the need to link up with organised Labour. This was the first time for 70 years that the idea of a city-wide general strike was discussed openly by sections of the trade union movement in the United States.
The Occupy movement is in fact just the tip of the iceberg of a much more widespread current of opposition. The defeat of the anti-trade union law through a referendum in Ohio in November 2011 was another indication of this. The vote of 61 percent to reject the legislation represented a major victory for organized labour, which harnessed its significant resources to help achieve the result. This shows the real mood developing among U.S. workers.
It was Marx and Engels who raised the perspective of a labour party to break the workers from the parties of the bourgeoisie. The creation of such a party will be a historic event in the United States. Even if founded on a reformist programme, it will be a magnet that will immediately attract unionized and non-unionized workers, the youth, blacks, Latinos, women, and the unemployed. Under the conditions of social crisis, an American labour party can move sharply to the left, developing rapidly in the direction of centrism.