Aug 22, 2011
Congress and the Obama administration just slashed a trillion dollars from the federal budget, and they plan to cut several trillion dollars more by the end of the year. But not all government programs are to be cut – only those affecting the laboring population and poor. Many government jobs will be eliminated. Government-provided benefits for retirees, veterans, the disabled and the very poorest will be slashed. And there will be a big reduction in the services that the federal government provides – sometimes sent through state, city and local agencies – for education and health care, fire protection, the maintenance of roads, bridges, mass transit, and water and sewage systems.
Governments around the world are doing the same thing. They are all slashing government spending. And officials around the world use the same justification: the huge government deficits leave them no choice – they say.
But where did these deficits come from?
The fact is that the U.S. government, as well as other governments, created these deficits when they bailed out the banks from the financial crisis that the banks themselves created.
For years, the banks had made record profits speculating on subprime mortgages, feeding an enormous housing bubble in the U.S. After the subprime mortgage bubble popped in late 2007, banks around the world began to topple. By September 2008 Wall Street giant Lehman Brothers went bankrupt. This set off a crisis of confidence between the banks themselves, since no one knew which big bank would fall next. The banks stopped lending to each other, drying up credit and choking off the life blood not only of finance, but of production and commerce.
In response, governments around the world jumped in to hand the banks trillions of dollars to cover the banks’ bad debts. This created enormous government debts, which governments covered by borrowing money at high interest rates from the very same banks they were bailing out!
Official political parties – left, center and right – justified these bailouts, claiming they saved the economy from plunging into another Great Depression. But the reality is that the bailouts only delayed the collapse for a few short years. After governments bailed out the banks, the banks did not invest in production, create jobs and boost economic growth. Instead, they simply went back to trying to make big and fast profits through the same kinds of financial wheeling and dealing that had brought on the previous crisis.
The big banks speculated on raw materials, especially wheat, corn and rice, as well as oil and gas, and drove up their prices. These high prices for essentials extorted more money from working people in the industrialized countries and forced starvation on hundreds of millions more in the poor countries.
The banks also poured money into the stock market at a record pace. This created a new stock market bubble, a bubble which is now collapsing.
Above all, the biggest banks speculated on the very debt that the governments took on when they bailed out the banks. And this speculation drove up interest rates to double digit levels on the government debt of smaller European countries, like Greece and Ireland. By forcing interest rates up on government debt, the banks raked in higher profits.
The banks then initiated similar operations on the government debt of larger European countries, Spain, Italy and France. When the Standard and Poor’s rating agency downgraded U.S. government debt earlier this month, it was a sign that the big banks were even ready to take a run at U.S. government debt.
To repay their debts to the banks – even just to pay the interest on the debts – governments have imposed deep budget cuts on programs and services for their working population. These cuts mean more unemployment and less income, that is, less money in the hands of working people, less money to spend, less money to grease the wheels of production – resulting in still more layoffs in a vicious downward cycle. Government cuts are strangling the economy.
The working masses can defend themselves against these attacks. But not by following the rules and policies laid down by the capitalists. Working people need their own program. No company should be allowed to lay off anyone. The available work should be spread out among everyone who wants to work – with no loss in weekly pay. To stop the fall in workers’ buying power, wages and retirement pensions must be indexed to prices.
These are not proposals that Democrats or Republicans make. But they are the only ones that respond – from the workers’ viewpoint – to the current crisis.