Africa: The American Debt Ceiling Debate

Horace Campbell

28 July 2011

The debate on the United States public debt ceiling is ‘really another gambit to step up class warfare against the majority of American citizens and the planet by the growing political power of the top one per cent of US society,’ argues Horace Campbell.

WHAT IS THE DEBT CEILING?

The United States public debt limit stands at US$14.3 trillion dollars. This was an increase from US$12.394 trillion by the Democratically-controlled Congress on 12 February 2010. This US$14.3 trillion represents the most amount of money that the Unites States government can borrow without receiving additional authorisation from the Congress. Under US law, when the national debt reaches a certain limit or ceiling, the Congress must authorise the raising of the debt to a higher limit in order for the government to continue to borrow more money. The United States’ actual accrued debt exceeded the US$14.3 trillion mark in May 2011. The current debt as of 27 July 2011 is US14,349,973,387.96.

The United States Department of the Treasury (equivalent to a Ministry of Finance) is authorised by Congress to issue such debt as is needed to fund government operations (per each federal budget) as long as the total debt does not exceed the statutory ceiling. Since 1979, the House of Representatives without debate has automatically raised the debt ceiling when passing a budget, except when the House votes to waive or repeal this rule.

During the profligate military spending of the Reagan administration 1981-1988, the debt ceiling was raised 18 times. George W. Bush raised the debt ceiling seven times in order to fight against peoples of Afghanistan and Iraq. Article I Section 8 of the United States Constitution gives the Congress the sole power to borrow money on the credit of the United States. More importantly, the 14th amendment of the US Constitution states simply that, ‘The validity of the public debt of the United States…..shall not be questioned.’

The Obama administration wants to raise the debt ceiling to US$16 trillion. When the US economy went into a recession in 2008, as a result of the financial crisis on Wall Street and the subsequent bailout it received, President Obama attempted to assist the real economy by increasing fiscal spending to help maintain levels of domestic demand. These acts coupled with formal inclusion (in the budget) of the US$10 billion per month that the US government is spending on two wars have increased the debt.

These expenditures along with the maintenance of the tax cuts enacted by President Bush are the primary reasons why President Obama’s administration has sought an increase in the debt ceiling. However, for the first time in decades the conservative forces of the US are using this debt ceiling debate to create a false sense of fiscal crisis and thus, use the false fiscal crisis to pursue their desire to force greater cuts to Social Security, Medicare and Medicaid. These are entitlement programmes for the majority of the population, particular for the poor and elderly.

Working with Tim Geithner, the Secretary of the Treasury, the government gave 2 August 2011 as the deadline to raise the ceiling, or otherwise the government, would not be able to pay its bills. While other options do exist (such as the president invoking the 14th Amendment to the Constitution), this doomsday scenario reflects how elements in the Democratic Party are also fuelling a false sense of crisis. Meanwhile all around the world this debate is awakening billions of people to the reality of the present state of the US economy. Thanks to this debate, the world is now discovering what the US economy is really about; not what they imagined it.

This false crisis serves to conceal the real issue: That the debt ceiling debate is really another gambit to step up class warfare against the majority of American citizens and the planet by the growing political power of the top one per cent of US society. Raising the debt ceiling has never been contingent on the cutting of social safety nets for the poor and elderly while the rich enjoy tax breaks, corporate welfare and subsidies. Neither has it been on the condition of ending funding for the kind of public investments needed to transform the outdated economic arrangements. The debt ceiling is about paying for spending already approved by previous congresses and presidents.

Wall Street and the bond rating agencies are threatening to downgrade the US triple AAA rating – should the US default on its debt – in order to pressure a deal between the Republicans and the Obama Whitehouse. Republicans want deep cuts in entitlement programmes for the poor, elderly and infirm, and everyone is talking about depressions and recessions, while the masters of the universe (the Wall Street barons) are doing just fine.

The debt ceiling debate is manufacturing a phony crisis because the question of the trillion dollar military budget is not being vigorously discussed. More importantly, the deficits increased because of the collapse of the housing bubble and the massive sums expended to rescue the financial institutions. The population needed to be educated on the scams of the banks and their responsibility for this economic crisis.

Additionally, there is no serious discussion of having the incomes of billionaires taxed at the same rates as the wages of workers, just as are no talks about breaking up the banking and derivatives cartels. In order to suggest that the Democratic Party is considering an imposition of taxes on those who earn more than US$250,000, President Obama has been mentioning this figure in press conferences and in the media but there has been no serious effort to generate a comprehensive analysis and programmes to educate the working people on the need to tax the rich.

A three per cent financial transaction tax (FTT) on America’s wealthy derivatives dealers in the US$600 trillion industry will go a long way to making a dent in the budget deficit. By focusing on re-election, the Obama administration seems to have no leverage or control, and is moving so far to the right that the poor are suffering even more. The progressive left must organise to set the agenda by educating the people on the dangers of wars and more militarism to save the rich.

CLASS WARFARE AND CONSERVATISM

In a normal economy, a country that is as indebted as the United States must find ways to balance its books and pay its debts. The rules that were established by the IMF that countries should live within their means do not apply to the United States because as the super power, its debt is denominated in dollars and the US can print its currency at will. This was not the original policy. Under Article 9 of the Agreement of the International Monetary Fund (IMF), the US is supposed to back up its currency with gold.

However, since 1971, the US dollar is supported by their military. Most countries keep their reserves in dollars so that the US can run up a huge debt, with the consequence of devaluing the hard-earned reserves of those countries with US dollar reserves. The Europeans attempted to get out of this domination of the dollar by establishing the euro. Presently, the US holds about 64 per cent of the international reserves and the Europeans hold about 20 per cent.

In the past three years as the capitalist crisis deepened all over the world, European workers have been struggling against so-called austerity measures taken by their governments. These measures are imposed on working peoples so that banks and other speculators do not have to take the financial losses they have incurred. The public discussion of the Greek crisis and the attempts to salvage the situation has placed great strains on the euro. There are some in the US who would like the Euro to collapse, because its very existence threatens the status of the dollar as the international reserve currency.

However, just when the class struggle was getting hotter in Europe with workers marching onto the streets of Athens, Dublin and Madrid, the Chinese President Hu Jintao announced at the end of June that China would increase its support of the euro. The Chinese President pledged to spend billions of whatever it took to prop up the single currency: the euro, just as it is simultaneously propping up the dollar.

With this assurance, on Thursday 21 July 2011, the leaders of the European Union announced a rescue plan to save the Greek economy. The real rescue here was that global capital (especially the French and German bankers), backed up by Chinese capitalists, who stepped in to ensure that capitalism would remain powerful as a force against the working class. The Chinese government holds US$1.8 trillion of the US debt and is a major creditor for the US capitalist classes.

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