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Obama moves right as debt-ceiling talks hit deadlock

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Jeff Albertson reports on the political deadlock in the USA over the debt ceiling. With the deadline of 2 August fast approaching whether Obama reaches a deal or not it looks like the working class will pay the price of the economic crisis once again

With almost the entire country sweltering under an oppressive heatwave, Washington DC is experiencing one of its hottest political crises in the nation's history. Talks over the raising of America's borrowing limit between Republicans, Democrats, and Obama have broken down again, and the impasse to a deal that is due on August 2 is getting worryingly close for rating agencies, bondholders, and financial markets.

The factional climate in US politics is becoming profusely acute – and it is making compromise nearly impossible. That is, of course, unless one side wants to give way entirely and accede defeat just before the kickoff of a crucial election season. Neither party can really afford to look like the one who capitulated and abandoned its core principles. There is just too much at stake.

Now one of the greatest dilemmas for the future of American capitalism is being fought out on the floors of Congress, the White House corridors, and even secret meetings with congressional leaders and the president. A pivotal point in this political tug-of-war came this past Friday when after a previous “reboot” of discussions had broken down Speaker of the House Boehner walked out of a meeting with Obama, prompting the latter to censure the former at a blistering press conference held that evening. With just a little over a week to go before the US government runs out money to even mail out Social Security checks, many are preparing for the worst, cogitating on how things got this way, and what the consequences might be for a global market that relies heavily on the consumptive abilities of the world's current (but increasingly becoming the former) preeminent economic and military powerhouse.

The run-up to discord

The budgetary and debt troubles that plague the United States have their basis in a combination of fiscal policies and military adventurism. For the better part of a decade, profit growth and accumulation have been financed by both tax cuts for the wealthiest and corporations and the sale of US Treasury bonds to keep interest rates extraordinarily low. With the passage of the Bush Tax Cuts in 2001 and the promotion of ever-greater military budgets – not to mention the invasions and occupations of Afghanistan and Iraq – the US, by the end of the decade, found itself back in deficit once again.

Flash forward to the financial crisis of 2008 and the resulting recession that it brought in its wake. The collapse of the banking industry forced governments around the world to become the safe house for all the bad loans in existence. This “asset relief” program that provided trillions of taxpayer dollars to struggling financial institution put a tremendous amount of strain on a budgetary system already reeling under the policies adopted in previous years. Considering the loss of tax revenue do to widespread joblessness and the closure of industry, the increase of unemployment benefits and welfare provided by the state, and it becomes relatively clear to see how things got the way they are.

The Obama administration, especially after the 2010 mid-term elections, did everything in its power to conciliate with the Republican establishment on questions and tasks crucial to the stabilization of US capitalism for the coming decade. All and sundry was attempted to appease the banking sector and the US Chamber of Commerce; everything to benefit capitalism was proposed: billions in social cuts, the defunding of important government programs (like the Environmental Protection Agency), tax cuts for the richest, and infrastructural investments designed to bolster the American economy and make it “leaner” and more “competitive” in the 21st century.

Despite Obama and Democrats' previous surrender to big business and the rich, the Republican Party and its right-wing populist insurgent wing continue to manage with the aid of their own brand of political pressure to lasso the president and keep pulling his administration further and further in the direction of their policy objectives. This was particularly the case with the “bi-partisan” vote to avert a government shutdown last April. As far as anyone could tell, the bosses were getting everything they could ever dream of. Republicans felt more than confident that the struggle over the debt-ceiling would go their way; they would get the spending cuts desired by the magnates of capital and inflict a brutal blow on the working class and poor without raising taxes to create new streams of revenue.

No compromise on taxes would be necessary, no compromise would be agreed on. Not only were the Democrats reeling from previous PR battles and debates and in disarray, of which they could expect the same to continue, but also the requirements of capitalism made intransigence on taxes completely necessary. Bulldozing Democratic proposals would be a snap, especially with Obama willing do move as far Right as possible to earn a compromise deal and save his chances for re-election next year. What Republicans did not count on was a resistance, which is what they finally got – albeit, in a humbled and tamed form.

Racing against the clock – factional heat ignites Washington

Both parties and their leaders have faced insurrection from their cohorts. When Obama and Boehner attempted to hash out a proposal that would allow for the deficit-ceiling to be raised by agreeing on $3 trillion in savings stemming from a combination of spending cuts and the closing of tax loopholes (the broadening of the tax base), Republican protests terminated any agreement being reached. At the same time, Democratic Party leaders were angered with Obama when he put Medicare, Medicaid, and Social Security on the chopping block just to pacify the Republicans but was unable to budge them on the tax issue.

The dexterous politicians that they are, Democrats like Senate Majority leader Harry Reid have seemingly taken up the cause of defense of these important welfare provisions won by working people in struggle throughout the past century. This is not because they have any inherent sense to defend the working class but because they want to be able to utilize the cuts (which they have agreed are necessary) that the Republicans intend to bring in to reinforce their position when election time comes around. They want to ensure the public remembers that it was Republicans who principally screwed them over even if both parties contributed to the attack. They are motivated by the most reprehensibly cynical ambitions.

For both parties, there is friction and roadblocks. The Senate already had to vote down a brutally harsh austerity ($5.5 trillion over 10 years) bill brought forth by a group of Republicans that even Boehner found disagreeable. In the Senate, his counterpart Senate Minority leader Mitch McConnell is tangling with Harry Reid on their own joint-proposal. Reid, currently at odds with Obama, is doing his best to craft a deal that would favor the Democrats as opposed to Obama's pragmatic backsliding. But their proposal was voted down in the House because, according to House Republicans, it failed to ensure guaranteed spending cuts.

The emergence of the Gang of Eight – a mixture of Democrats and Republicans that have joined forces to push forward what they believe is the necessary proposal – has met the ire of Reid because, like Obama, they are pushing hard for the kind of austerity that will be difficult to put the blame exclusively on Republicans next November. The Gang of Eight want to institute the Simpson-Bowles plan crafted during the bi-partisan deficit-reduction meeting called by Obama last December. It is brutal plan and aims at punishing working people and pensioners directly for the crisis of capitalism. Once again the bankers walk away scot-free whilst seniors on Medicaid are thrown out in the cold.

Whilst agreeing to cuts, Obama has pushed for revenue raises via taxes. This puts Boehner in a tough spot: he promised his constituency that he would never agree or vote for tax increases as a basis for raising the debt-ceiling. If he were to compromise with the Democrats on his question, he would be effectively signing his “papers” come the next House congressional elections. He knows that right-wing populist groups like the Tea Party will mercilessly politically attack him if he reneges on this campaign promise. At the same time, he knows compromise with Obama and the Democrats is inevitable, that is, unless he wants to bear the responsibility and be remembered for the consequences of default and downgrading of the USA's credit-rating. Boehner ‘the man who bankrupted the US’ does not look good on your resume.

Big business is not interested in spending more money for services or welfare. They want to gut the system as much as possible, to leave nothing but the meekest of pensions and health-care and privatize just about everything else. They are not too worried about what the consequences of this might be because the current economic situation compels them to keep trying to destroy excess capital – made evermore difficult following the stimulus programs and bank bailouts. Plunging the economy kills this bird along with another: taking government assistance back to a time a little after the Stone Age.

Yet the Republicans are not just beholden to corporate America. Regular people and small-businesses will be economically hurt by a generalized rise in interest rates and payment stoppages to civil servants, Social Security, and other things. So while Boehner, McConnell, and other Republicans want to strike a deal, they are finding it difficult to get around their ideology and programmatic premises. The fact they are so scared of this shows you how powerful the Tea Party has become in forcing Republican’s to the right, so far that even some traditional GOP voters are no doubt scratching their heads at that they are playing at in the debt talks.

Likewise, Obama is desirous to slide right, but elements within his own Party – realizing what a further slide in this direction might mean for them – is attempting to pull him back towards the center. He has to deal with them in a fashion similar to how Boehner has to deal with uproars in his own camp. The situation, as a result, is becoming increasingly erratic and destabilizing: making quite possible that a deal will not be reached in time. And that has been potentially foreshadowed already when Obama and Boehner broke off negotiations only for the former to almost command party leaders to meet with him the following day for talks.

Second attempt to reach a deal fails – now what?

McConnell and Reid told the press that a “fall-back” plan was already in the works just in case nothing gets finalized before the deadline. Some are suggesting that the best course of action would be to simply pass a temporary plan, similar in scope to the temporary budgetary plans that were at the center of attention since the start of 2011. Obama rejected this, claiming that creditors and money-markets would still respond negatively due to a continued lack of confidence to resolve the question entirely. At the same time, any temporary deal would expire right about the time of the 2012 presidential elections, so Obama definitely wants to seal this thing at least until after that time, when he still may have something left up his sleeve to sway voters. Having another debate on this matter at that time would be disastrous for his chances at victory.

Republicans intend to calm markets by making public pronouncements this weekend before the Asian markets open, a key indicator of the potential consequences of any lack of credit confidence. But neither side is willing give up what they have already brought to the table: Obama still wants Republicans to accept new taxes (not higher rates just more people paying) alongside massive cuts to social spending. He addressed the country, “[we] can come together for the good of the country and reach a compromise; we can strengthen our economy...or we can issue insults and demands and ultimatums at each other...and achieve nothing.”

Jeb Hensarling, a Republican leader from Texas, presented his party's weekly address that essentially called for holding the line on new taxes. Consequently, there is clearly still no mood for a deal yet amongst wide layers of the Republican Party leadership. Even congressional advisers stated that the outcome in this battle was difficult to predict. Senates aides reported, however, that it might be possible under the McConnell-Reid plan to take advantage of a procedure move to pass a debt increase.

As the New York Times reported, “[under] that approach, Congress could vote to disapprove the debt increase but allow Obama to veto the plan and get a rise in the ceiling if the House or Senate failed to override the veto, a very likely outcome.” On the other hand, another scenario may present itself: “if the House Republicans could ultimately devise an extension based on cuts they identify and send it to the Senate, daring lawmakers to reject it or the president to veto it.”

Essentially, passing any deal may come down to manipulation of the structural mechanisms that define the American political system, i.e., whether Obama can use his veto powers or whether Republican control in the House can be utilized to blackmail the Senate and the president into signing whatever they put up. In any event, the whole matter highlights the tenuous and capricious situation American democracy has been thrown in due to class interests becoming sharper and more intense in the past year.

Whatever happens the consequences for the working class, youth, and pensions will be severe. There must be preparation for class struggle against the bosses and their government. Concretely this means building a movement demanding an increase in taxes on the rich, banks and businesses. If the Tea party are creating the kind of political climate where tax rises are simply impossible to implement then we need to counter them with a broad movement directing our anger at Wall Street and the rich that caused this crisis.

This has to be connected to a campaign within the labor movement to get the working class mobilized against the Republicans and the Democrat sell out. At the moment the labor leaders are shielding Obama from criticism, they say he is going through a rough time and we don’t need to add to his worries by demanding more from him. This is wrong. This is precisely the time to demand more from him – if he doesn’t feel the heat from our side it will all be coming from the right and this will just lead to even further collapse in the face of Republican intransigence.