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From the Debt Showdown into Recession

The scenario of an economic double-dip is very likely without additional economic measures. The budget cuts may bring about a recession with nearly mathematical inevitability. The republicans in Congress threaten to concoct an economic crisis if they are not allowed to cut spending. We are in an economic crisis whose greatest problem is low spending.

By Tomasz Konicz

[This article published in the German-English cyber journal Telepolis 8/1/2011 is translated from the German on the Internet,  http://www.heise.de/tp/druck/mb/artikel/35/35229/1.html.]

Update: Democrats and republicans have joined together in the debt conflict. This may lead to the deepened economic misery of the United States.

The increasingly polarized US Congress overcame its own shadow and found a compromise [1] in raising the American debt ceiling at the last moment. In the last days of July 2011, the first details seeped through of a bill to raise the US indebtedness limit from the current $14, 3 trillion on which republicans and democrat congressional leaders agreed in tenacious night-time negotiations. [2] According to the bill, the indebtedness ceiling of the US will be raised three trillion dollars this year in two steps. The first increase will occur immediately and the second later this year.

The White House prevailed at least in the concrete increase of the debt ceiling. The republicans originally insisted on a slight rise of the limit of only one trillion to instrumentalize the theme in the 2012 presidential election. Obama succeeded in preventing the republican demand - made for clearly tactical election reasons - that would have made the president's political survival in 2012 extremely difficult.

However a compromise hardly occurred on the further regulations of the bill since the republicans gained nearly all their radical budgetary demands. The budget cuts going along with raising the debt limit will probably turn out "somewhat higher" than the envisioned increase of the debt ceiling of three trillion dollars. America's fast growing lower class [3] will be bled white. Participation of the American upper class in the crisis costs intended by the democrats by plugging the tax loopholes is off the table. The republicans prevailed in that the superrich of the US - whose tax breaks from the Bush era were recently extended - will not contribute a single dollar of additional tax burden. One demand [4] of the extremist rightwing of the Republican Party of the so-called Tea Party was Congress agreeing to a constitutional amendment obligating politics to a "balanced budget."


Even if the political class in Washington should prevent a partial insolvency of the United States at the last moment, this bitterly waged debt conflict will leave deep traces within the political climate of the largest national economy of the world. The ideological premises of the rightwing of the republicans - that propagate a massive state dismantling except for the police and the military - gained acceptance in the course of the debate while the liberal and leftist positions of the democratic base were marginalized. The extent of the victory of "conservative members of Congress in raising the debt limit "cannot be exaggerated," the New York Times declared. [5] In the broadest sense, the newly elected Tea Party members in Congress understood how to narrow the national discourse to a nearly monothematic "discourse about debts" and form a public consensus that "America must do more to live within its means."

The extremist part of the Republicans washed ashore on a wave of rightwing populist resentment in the last midterm elections in Congress drives the widespread conservative ideology in the US to a vast restriction of state spending to the extreme - without regard for losses. Thus the extreme rightwing of republicans practices an "extremism of the middle" [6] which impelled by crisis is on the advance in almost all industrial countries - and in which the ideologies widespread in the public mainstream of the given society are pushed to a worldwide extreme. In the US, the aforementioned public consensus restricting the role of the state in the economy to a minimum serves as an ideological sounding board from which crazy extremist worldview ideas [7] of the Tea Party movement shoot up.

The centrist science-oriented wing of the republicans that works for a radical realization of the interests of corporations and the wealthy in the US is the first victim of the ideological blockade of the Tea Party. No one symbolizes the defeat of this centrist current of republicans better than the repudiated speaker of the House of Representatives, John Boehner. [8] The third most powerful politician of the US was left standing in the rain by the Tea Party fraction during the intense power struggle with the White House. That fraction constantly refused to support Boehner's bill in the House of Representatives. After new regulations on budget consolidation, the speaker of the House of Representatives could only get a narrow majority for his bill that was rejected anyway by the Senate. 22 republicans rejected the project. The price Boehner paid for this Pyrrhic victory was enormous, the portal Politico noted. [9] The speaker of the House of Representatives acted "like a hostage" of an 87-member fraction of newly elected representatives inspired by the Tea Party.

"The ugly reality was that the speaker of the House of Representatives tried to move dozens of representatives to support his package. These republicans were ready to let the United States go bankrupt if it would cost them their seats, if the republicans would lose their majority or if Boehner lost his post as spokesperson."

These rightwing representatives are supported by a diverse network of influential politicians, billionaires, lobbyists and think-tanks who sought to spread their influence within the Republican Party, as the moderate conservative columnist Kathleen Parker [10] remarked in the Washington Post:

"Sign your name. Do not forget. The conduct of certain republicans who call themselves Tea Party conservatives makes them the destructive force of misguided `patriots.'"
Kathleen Parker

Alongside the luxuriant financing of the Tea Party by the arch-conservative billionaires David and Charles Koch [11], organizations like Freedom Works, Heritage Action, Club for Growth, National Taxpayers Union and Americans for Prosperity played an important part in the rise of the populist rightwing. These lobby associations concentrate mostly on certain conservative themes (like massive tax cuts for the National Taxpayers Union) to promote a radical rightwing shift of the American society. The rank-and-file of this movement are mostly members of the white middle class threatened with decline.


With their - largely successful - ideological crusade against state deficits, these well-linked and funded rightwing extreme zealots bring the consumptive American economy into dire financial straits. The second "victim" of the ideological and political triumphant advance of the American extreme rightwing will be the US economy that will soon plunge on account of the budget cuts. These is even striking to seasoned economic journals like the Economist [12] which warns [13] that "republicans are taking aim at the American economy with a pistol" and threaten to fire if they don't get their spending cuts.

"Certainly America must trim its exploding social programs. But not now when spending cuts will worsen a limp recovery and not in this way by seizing a (parliamentary) routine and driving the country to the abyss of a lower credit rating or bankruptcy.'

A "limp recovery" in the US is hardly still heard in the revision of 2011 economic data published recently by the U.S. Bureau of Statistics. [14] U.S. economic growth projected for the year from the second quarter of 2011 forecast an economic growth of 1.3 percent. Like other industrial societies, the US needs a three percent increase of the gross domestic product (GDP) [On Debts and Jobs (15)] to significantly lower the official unemployment rate just below ten percent. American statisticians had to correct strongly downwards the temporary data on economic growth in the first quarter of 2011 from 1.9 percent to 0.4 percent. For the whole crisis period, the Bureau of Statistics had to lower the growth numbers since the GDP shriveled 0.1 percent between 2007 and 2010 instead of growing 0.3 percent annually.

The United States finds itself in an economic stagnation in 2011 that could change suddenly into a recession. The scenario of an economic double-dip [16] is very likely without additional economic measures. The sought-after budget cuts may bring about a recession with nearly mathematical inevitability. In the US a "jobless or recovery-less recovery" of the economy occurred , Washington Post columnist Ezra Klein noted that reflects a reduction in the spending of economic actors like private households, businesses and the state.

"The republicans in Congress threaten to concoct an economic crisis if they are not allowed to cut spending. In the meantime we are in an economic crisis whose greatest problem is low spending. Thus we face the choice of worsening an existing crisis or triggering a new crisis."
Ezra Klein

In large part the stagnation in the US can be referred back to the decline in state spending in the scope of the gigantic American economic package of $787 billion that spurs economic stimulation through job programs and investments in the infrastructure. The majority of these economic programs financed by escalating indebtedness expired in the summer of 2010 [18] so their stimulating effect is already slackening. Without these credit-financed state expenditures, unemployment will rise in 2011 while economic growth declines.

The economic running amok of the Tea Party movement within the Republican Party may be nouri8shed by an ideological delusion and by the hope for an economic crash that could be held against the president in the election year. The extremist rightwing of the US can only prevail with the continuing economic decline of the country - insofar as this republican obstruction course is carried out.

The rightwing extremist tax-cutting ideology has a grain of truth since the budget deficit and the state indebtedness in the US - seen from an historical perspective - are exploding and cannot be maintained in the medium term without triggering economic dislocations.

However the ideologically motivated attempt to clear away this gigantic debt mountain will result in a depression. Capitalist crisis policy is in a philosophical paradox in which it can choose between more indebtedness up to state bankruptcy together with hyper-inflation or austerity programs together with deflation spirals. This treadmill was the core of the political conflict around fiscal policy in the US and outside the US. Both sides - the budget revitalizers and the advocates of economic programs - are partly right when they oppose the catastrophic consequences of the opposite side's policy. This conflict in the US was waged with political polarization, doggedness, grim determination and brutality. But both sides are also on the wrong way when they assume that their political concepts can solve the fundamental crisis of the goods-producing world system that could only be prolonged since 2007 through escalating state indebtedness.

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