The aim of the $3.5 trillion budget submitted by President Barack Obama is to slow down the massive income inequality in the country and deal with multiple crises which have accumulated for years and are now in the acute stage, such as health care, global warming and education.

The budget is a reversal of a 30-year trend in which the capitalist budget was used as a blunt instrument to carry out blatant transfers of wealth from the masses to the rich, while cutting back on every form of social spending. Its aim is to carry out long-term reforms of a progressive but limited character that include, among other things, taxing the rich, cutting taxes on the workers and the middle class, aiding students, establishing a fund to improve the health-care system and taxing polluters.

Just days after the administration presented the budget, the capitalist economic crisis showed in various ways that it is deepening dramatically. The giant insurance company AIG announced the biggest quarterly loss in corporate history: $61.7 billion. Washington had to come up with another $30 billion in bailout money for AIG, bringing the total to $180 billion. The world’s biggest insurer, AIG is in crisis because it insured so much of the bad mortgages and other bad debt floating around the globe.

A few days prior to the AIG announcement, General Motors announced it had lost $30.9 billion in 2008. The Big Three auto bosses went into negotiations with the White House to get $20 billion more in bailout money. Together, GM, Ford and Chrysler lost $53.4 billion in 2008. Meanwhile, U.S. demand for vehicles fell to its lowest level in 25 years.

Citigroup, the largest private bank in the U.S., had to come to Washington for its third bailout. This time the government had to buy a 36 percent stake in the bank to keep it afloat.

Profits and production swoon

On March 2, the Dow Jones average on the stock market hit its lowest point since 1997, dropping below 6,800. This drop directly reflected the economic situation. Profits are sinking. Profits in the fourth quarter of 2008 fell 37 percent at the 457 companies in the S&P 500 that have reported quarterly results. The 74 financial companies reporting lost a combined $50.5 billion. Business investment in equipment and software fell 28 percent in the fourth quarter and exports declined. Manufacturing declined for the 13th month in a row in February.

The government also revised its estimate of how steep the downturn was in the fourth quarter of 2008. It now estimates that the gross domestic product (GDP) dropped 6.2 percent, rather than the 3.8 percent originally stated. This was the biggest drop in any quarter since the fall of 1982, when a drastic downturn saw unemployment rise to more than 10 percent. Although the total number of jobless for February has not yet been announced, there was a sharp rise in weekly unemployment claims to 600,000 new claims each week. This indicates that the overall figure will rise by even more than the half-million-plus jobless added in each of the previous three months. (Wall Street Journal, Feb. 28)

The U.S. numbers were in synch with the global picture. The big capitalist powers in Europe and Japan are all in crisis and their economic decline is steeper than that of the U.S. To make the crisis of the European capitalists even worse, their governments cannot agree on measures to fight the downturn.

The capitalist economy worldwide is clearly out of control, not only of the bosses but of all their financial officials and government institutions. It is no wonder that the word “depression” is creeping into the descriptive terminology more and more.

Obstacles to even limited reform

The Obama reform plan, limited as it is, is up against the economic crisis, which threatens to overwhelm it. But it is also up against the right-wing opposition led by Rush Limbaugh and Newt Gingrich, which is openly trying to sink the Obama program. Sections of the Republican Party have called it “class warfare,” which means instead of giving every nickel to the rich while trying to get the capitalist economy back on its feet, it contains programs that may reduce some misery for the workers.

The budget calls for a rise in taxes for those making over $250,000 a year—the top 5 percent of the population. The Bush tax cuts for the wealthy would be allowed to expire next year. The plan would raise taxes on the super-rich who run the private equity funds and hedge funds. Right now much of their profit is taxed at 15 percent, which is lower than the tax rates for their employees.

The budget, if passed as is, would wipe out $4 billion in subsidies to banks that give student loans. These funds instead would go to bolster Pell grants for students. In addition, Pell grants would be indexed for inflation and the maximum would be raised on July 1 to $5,350.

There would be increased money to detect, prevent and treat HIV-AIDS. There is $4 billion to expand health care for Native people and for the Indigenous of Alaska. There are also funds to provide food stamps to low-income elderly, to rehabilitate low-income housing, to increase allocations for Head Start and Early Head Start, and to improve health care in rural communities. (New York Times, Feb. 27)

Restores family planning funds

This budget would restore money for family planning for low-income women through Medicaid, which was removed from the stimulus package earlier under right-wing pressure.

Health-care reform is predicated on savings and on squeezing money out of the medical-industrial complex—the HMOs, insurance companies and hospitals—to create a $634 billion fund over 10 years to finance various measures. It envisages savings based on improved preventive care and a number of other measures, such as common computerized data bases for medical records.

Obama’s attack on global warming is based on forcing polluters to pay for permits giving them permission to pollute up to a given amount. These payments would fund weatherizing housing, green construction and many other projects.

But the budget, despite its reversal of the Reagan-Clinton-Bush emphasis on taking from the masses, is cautious and minimal, given the magnitude of the problems it seeks to address.

The working class, especially its most oppressed sections, and the middle class need universal, affordable, quality health care now. The trillions going to the banks in bailouts instead could be used to fund the system. The cost could be drastically reduced by cutting out the pharmaceutical industry, the insurance industry, the for-profit hospitals, the HMOs, and all the parasites that use health care as a way to line their pockets.

Setting up a 10-year fund or convening a health-care council that leaves the private capitalists in place guarantees that the health-care crisis will drag on and will result in a rotten compromise. Health care for all should be a right.

There are millions of homeless people, millions more who must live crowded together, often two or three generations in one unit, and millions who are in danger of losing their homes. To overcome this housing crisis requires the investment of hundreds of billions of dollars to insure everyone’s basic right to a livable, affordable space for themselves and their families. Housing should be a right.

Gives more money to Pentagon

One outright reactionary provision of the budget is a 4 percent increase in the Pentagon budget with new emphasis on weapons to counteract resistance movements. The military budget would rise to $534 billion from $513 billion. That would be enough to put millions of workers back to work, millions of people back in their homes, or to serve as the beginning of a national health plan.

In the midst of this terrible economic crisis, Washington is planning to keep 50,000 troops in Iraq while it escalates the war in Afghanistan and spreads it to Pakistan.

But most telling about the Obama budget are its projections regarding the tax increases for the rich and its economic predictions. The tax cuts for the rich are not scheduled to go into effect until 2011. The reason, according to the administration, is that this is when the economy will recover.

The two-year wait is bad enough. But even more important is the definition of “recovery” in the budget. It projects that the capitalist economy will grow by 3.4 percent in 2010. Most experts consider this a wildly optimistic estimate. But even if that were to come true, the budget forecasts that after the recovery there will still be 7.9 percent unemployment–higher unemployment than during the present crisis.

No recovery foreseen for workers

In short, the budget is looking to bring about a recovery for the capitalist class. It expects an increase in production and in profits, but leaves the working class with massive unemployment, which is especially severe in the Black, Latin/o, Asian and Native communities. Right now a total of 24 million people are either unemployed or underemployed, according to the Center for Labor Market Studies and Northeastern University. Official unemployment was 7.6 percent as January ended, and is expected to reach 8 percent at the next announcement. So this budget means that a “recovery” of the capitalist economy in terms of economic growth could leave more than 20 million workers unemployed or underemployed.

This is a recovery strictly for the bosses. The multinational working class should take a look at these projections and see what the government and the financial experts have in store. The only way to get a working class recovery is to open up a mass struggle for jobs—not in 2010 or 2011, but right now.

Labels: aig, Citigroup, Dow Jones, economic crisis, General Motors, obama, pentagon

Today's Wall Street Journal reports that President Obama has placed limits on the salaries of executives at firms that are receiving large-scale bailout funds from the Federal government:

Under the new rules, companies that receive "exceptional assistance" from taxpayers may not pay any top executive more than $500,000 a year. Any additional compensation would have to be in restricted stock that will not vest until taxpayers have been repaid. (Wall Street Journal)

No one can object to limiting the salaries of bankers; but this announcement raises many questions.

First, while penalizing some bankers, who gets the money that they would have gotten? Shouldn't this money be turned over to a fund to help the millions facing foreclosure and unemployment.

Second, if the government can use Executive power to impose its will on private businesses, why stop there? Why not order them to stop foreclosures and plant closings? RealtyTrac currently lists 1.5 million foreclosed homes being held by banks in the U.S.

Third, why not demand that banks free up bailout money and other funds, to make them available in low-interest loans to workers, students, and families in desperate need of a real bailout. The whole justification of the TARP was to free up money to 'get the economy going again,' but banks are not lending money. They've even refused to disclose what they've done with the money that they've received. In front of Congress, the new Secretary of the Treasury Timothy Geitner has defended the banks' refusal to tell what they've done with $350 billion of taxpayers' money.

One thing that is known about what they did with some of the money, is that they made loans of $25.4 billion to finance the merger between pharmaceutical giant Pfizer and Wyeth.

According to the New York Times:

Pfizer’s bid is being financed by four banks that received federal bailout money: Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America, the people involved in the deal said. Such banks have been criticized for not doing more lending since they received the government aid.

Barclays, which acquired Lehman Brothers out of bankruptcy in the fall, is also providing financing, these people said.

Fourth, while in Miami, more than 1,000 people lined up for 35 firefighting jobs, and the Los Angeles Times reports that U.S. companies announced 241,749 layoffs last month, it has come to light that U.S. financial institutions are sitting on $3.9 trillion, which is more than four times the amount of the projected stimulus package. This money is sitting in money market accounts, earning interest for wealthy investors. The Federal government should use the same authority that it used to limit executive pay to force these investors and institutions to make this money available to put people back to work and back in their homes.

Labels: bailout, Bank of America, Citigroup, executive pay, foreclosures, Goldman Sachs, JPMorgan Chase, Lehman Brothers, loans, merger, pfizer, stimulus program, tarp, wall street, wyeth

By Fred Goldstein
Published Nov 20, 2008 10:38 PM

When Barack Obama first began his campaign back in 2006, he and his advisors and backers in the establishment had as a priority trying to deal with long-neglected aspects of U.S. capitalist society that were in decay and were endangering the world position of U.S. imperialism.

The festering issues of health care, global warming and energy, declining education, antiquated infrastructure, the global isolation of U.S. imperialism and many others were on the agenda for a future Obama administration, which was supposed to “reach across the aisle” and work out bipartisan solutions. But these were all policy issues, issues of capitalist decay arising during a period when bourgeois politics has been in a factional logjam, unable to resolve anything other than to hand the corporations whatever they asked for and attack the workers and the oppressed—during the Clinton as well as the Bush administrations.

Now, as Obama gets ready to take office, the policy issues he wanted to address all have to be subordinated to an acute systemic crisis that is global in scope and historical in proportion.

Some 1.2 million workers have lost their jobs so far this year. Unemployment has jumped from 6.1 percent to 6.5 percent and is projected to soon rise to over 7 percent. Consumer spending dropped a record 3 percent in October. Retailers are girding for the worst shopping season on record.

Citibank has just announced 10,000 new layoffs [two days after this speech, the number rose to 53,000—ed.]; Sun Microsystems has announced 6,000 new layoffs; Circuit City, the second-largest electronics retailer in the country, closed down 155 stores and is filing for bankruptcy; and the second-largest mall operator in the country, General Growth Properties, which operates 200 malls in 44 states, is on the verge of bankruptcy.

Intel, the largest microchip maker in the world, has suffered a major decline in revenue. Caterpillar, the largest construction equipment maker in the capitalist world, is planning for a downturn. GE, a giant multinational conglomerate, is planning to cut back investment and workers.

The auto industry is in crisis, with sales dropping and losses and layoffs rising. General Motors is hinting at bankruptcy in a public relations campaign to get a bailout from the Treasury—also a dangerous game of psychological warfare against the United Auto Workers, as the company is trying to set the stage to reopen contracts and get major concessions. GM recently announced it will end health care coverage for 100,000 white-collar retirees by the end of the year.

As the G-20 meet in Washington, the capitalist economies of Europe and Japan are in recession. This is the first time since World War II that the three major centers of imperialism—the U.S., Europe and Japan—have gone into recession within the same year. Japan, with the second-largest economy in the capitalist world, has had six consecutive months of contraction; Germany, the fourth-largest economy, has had six.

China, Brazil, Russia and India, the world’s most populous countries, have also had major declines in growth in the last quarter.

It is evident that there is a crisis of production and employment in the entire economic system.

The cause of the crisis can be reduced to two words: capitalist exploitation.

Why are all the toxic mortgages and other debt-backed securities going bad? Because they were based on collecting the future wages of the workers. Mortgage debt, credit card debt, school loan debt, auto loan debt, debt to pay medical bills, and all the other debts were bundled up and sold around the world. After 30 years of falling wages and a growing consumer credit system, the working class has become deeply indebted. African-American, Latin@, Asian and Native workers have suffered the most, especially single women.

Interest and fees on working-class debt have become a major source of profit for finance capital. The capitalist class, in its various forms as lenders, mortgage brokers, credit card companies, banks, auto finance companies and so on were taking advantage of the dire needs of workers in order to promote credit. These money grubbers turned around and resold the workers’ IOUs in bundles to make a quick profit.

Meanwhile, other sections of the capitalist class were intensifying the exploitation of workers on the job by busting unions, cutting wages and benefits, shortening hours, laying off and outsourcing to contract labor. The medical insurance industry, pharmaceuticals, hospitals, all raised costs to boost profits. Agribusiness and the oil barons raised the price of food and fuels, fueling inflation in the things workers need to live.

Sooner or later the whole debt structure had to collapse—and the cause was capitalist exploitation, i.e., the profit system.

The capitalist class has become more and more reliant upon debt as an artificial means of counteracting the growing problem of capitalist overproduction. As technology improves, the increased rate of exploitation and the worldwide wage competition drive wages down everywhere, making it harder for the capitalist system to generate a strong boom that can create jobs. This has become a long-term trend and signifies a new phase in the general crisis of capitalism.

Historically a capitalist recovery begins slowly as inventories are liquidated and then surges until there is another bust. Engels described the process of the classical capital bust-boom-bust cycle in his great work, “Socialism: Utopian and Scientific.”

His description still holds today, but with this modification. In the past several decades, the boom part of the cycle has become weaker and weaker. And it is this phase that creates a labor shortage, providing workers with jobs and putting them in a stronger position to bargain for higher wages.

The debt-fueled housing boom is an example of how U.S. capitalism has reached a stage of dependence upon debt to artificially stimulate the economy. The recovery from the last recession was a jobless recovery. From 2001 to 2004, after the dot-com collapse, profits were slowly recovering but jobs were still being lost. To pump up the economy and avoid a “double dip,” a lapse into a second recession, the Federal Reserve pumped billions of dollars of credit into the system by lowering borrowing costs for the banks. Much of the cheap money was used to finance the housing boom.

A housing boom is one of those areas, similar to auto, that ripples through the economy and multiplies jobs. It can help temporarily to push back a downturn. But the housing boom was all based on easy credit and speculation. It was bound to end. The price of housing went up. The supply went up. Soon there were more houses on the market than could be sold. A crisis of overproduction in housing ensued and the collapse followed, precipitating the credit crisis and the banking crisis that followed.

Without the housing boom, the economic crisis of overproduction might have come sooner.

If the present crisis were caused by financial manipulation alone, it could be cured by financial measures. But the Treasury under Secretary Henry Paulson and the Federal Reserve under Ben Bernanke have poured hundreds of billions into U.S. banks and are promising hundreds of billions more.

The German central bank has poured billions into their economy. The Bank of London has nationalized banks and also poured in hundreds of billions in bailout money. None of this has stopped the growing momentum of layoffs and short hours.

Why? Because this crisis is a crisis of overproduction. Bernanke can lower the interest rate to zero—Japan may do just that shortly. But even zero interest rates cannot produce lending if the workers are broke and there are no profits to be made in the marketplace. As they say on Wall Street, you can’t push a string.

Why would banks lend in an environment of economic crisis? It is not lack of funds or a matter of distrust that is keeping them from lending. Layoffs lead to lower spending which leads to lower profits and more layoffs. That is the classical capitalist cycle, but now it is gripping the entire capitalist world at once. There are no markets that are not shrinking. There is no haven in the world capitalist economy for investment and sales sufficient to pull them out of the crisis.

This is what globalization looks like in a period of contraction.

No one knows where this crisis is going. The Obama administration and the new regime of financial advisors may take measures to ease the foreclosure crisis and put some money into workers’ pockets. They may even try to create jobs building infrastructure. Of course, as a party, we support measures that will ease the suffering of the workers and the oppressed. But we also know that band-aids cannot overcome the contradictions of capitalism.

The beginning of a capitalist downturn hits the workers hard. The early phase of the struggle is defensive, to ward off the onslaught of layoffs and keep people in their homes. This was the course that the struggle took during the depression of the 1930s with the formation of the unemployed councils, and the move by working-class organizations to put hundreds of thousands of families back in their homes when they were evicted.

Our comrades in Detroit, Los Angeles, Boston and around the country are taking the initiative to begin those defensive struggles.

Later in the thirties came an offensive struggle with general strikes in San Francisco, Toledo and Minneapolis in 1934 and finally the great sit-down strikes of 1936 and 1937, which turned the tide in favor of the working class as a whole. We must be clear about what phase we are in, while retaining our revolutionary socialist perspective.

When the USSR and Eastern Europe collapsed, WWP chair Sam Marcy initiated a process of ideological rearmament—a study of Marxist and Leninist theory—in the anticipation that there would be a wholesale retreat from the revolutionary communist perspective.

From that period up until the onset of the present crisis, we have had to wage theoretical arguments to defend our position that the system of private property, in which a tiny group of millionaires and billionaires controls the means of life for billions of people around the globe, contains the seeds of crisis and disaster for the worldwide working class and the oppressed. With this current crisis, the question is no longer theoretical. The world capitalist crisis opens the door to struggle and to promoting socialism as the answer.

The workers need to own this vast, global system of production that they operate 24 hours a day and run society for human need and not for profit. This is the only way to abolish exploitation, racism, national oppression, sexism and patriarchy, oppression of LGBT people, imperialist war and intervention, and to tear down the walls of the prisons and their death houses.

Labels: bailout, capitalism, Caterpillar, Circuit City, Citibank, Citigroup, economic crisis, federal reserve, GE, Generlal Motors, layoffs, socialism, United Auto Workers, wall street