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

Sept. 17—With the $85-billion government bailout of insurance giant AIG, the Federal Reserve Board and the Treasury Department have made another desperate attempt to shore up a collapsing global financial structure.

This latest attempt to rescue a huge capitalist financial firm comes on top of the $200-billion-plus bailout of the two largest mortgage banks in the world, Fannie Mae and Freddie Mac, just 10 days ago.

Secret deals stick workers with the bill

President of the Federal Reserve Bank of New York, Timothy Geithner and Treasury Secretary Henry Paulson have been huddled in round-the-clock meetings, hammering out deals. It has been done in secrecy, behind the backs of the workers and the middle class, who will get stuck with the bill. They have been working out these deals with the same loan sharks of high finance whose orgies of speculation, gambling and deception in pursuit of profit led to the crisis in the first place.

Wall Street’s speculative binge has led to a truly formidable world crisis.

Over the last three days, AIG, the largest insurance company in the world with a TRILLION dollars in assets, came within hours of bankruptcy.

Lehman Brothers, a prestigious, 158-year-old investment bank with $639 billion in assets and $613 billion in debts, went under in the largest bankruptcy in U.S. history.

Merrill Lynch, another pillar of investment banking with another TRILLION dollars in assets, averted bankruptcy only after being swallowed up by Bank of America.

Washington Mutual, the largest savings and loan in the U.S., had its bond rating reduced to junk and is on the ropes.

As the bankruptcy crisis was developing on Thursday, Sept. 11, Paulson told the bankers that the government was through stepping in and that they would have to solve the problem among themselves. That was last week. Now the U.S. government has put up another $85 billion to bail out the banks. It is a sign of crisis and weakness.

While the bailout of Fannie Mae and Freddie Mac had given relief to the holders of trillions of dollars of debt owed them by the two mortgage banks, it also put an enormous strain on the financial system and was another sign of profound weakness and fragility. Further bailouts were ruled out, the government said. It was drawing a “line in the sand.”

But Paulson’s and Geithner’s declarations made no impact on the bankers. They all pursued their own immediate interests and stonewalled their own government. In the end, while Washington let Lehman Brothers fail, AIG was another story. The Federal Reserve Board and the Treasury made a humiliating about-face and stepped in at the last minute, “fearing a financial crisis worldwide.” (New York Times, Sept. 17)

The Fed bailout of AIG is instructive about the depth of the crisis. AIG is not even a bank. It is not regulated by the federal government. The Fed had to use emergency powers to intervene, which it deemed necessary not only because AIG issues insurance policies to millions of individuals and commercial enterprises but because it also has insured over $400 billion in mortgage-backed securities and other risky investments of gamblers and speculators all over the globe.

AIG has borrowed money from many of the big banks and gambled its assets in order to make bigger profits. As the mortgages began to fail and the holders of the mortgage-backed securities began to demand their insurance payoffs, AIG’s financial position was deteriorating on a daily and hourly basis.

It is a measure of the system’s financial recklessness that an insurance company, which is supposed to be regulated to keep it conservative, precisely because it is the custodian of funds that must be available to meet the emergency needs of the insured, was free to participate in the global casino.

AIG operates in over 100 countries, has 116,000 employees—62,000 in Asia—and has private banking facilities for wealthy people. It brokers deals in stocks, manages mutual funds, owns 900 planes for its leasing business, and in general has leveraged its insurance business into a globalized, speculative operation.

Crisis of workers and oppressed is ignored

The crisis of the bankers has made sensational headlines, with hour-by-hour accounts of the agony of a handful of millionaires and billionaires on Wall Street. But the capitalist media has sidelined the real drama of mass foreclosures and layoffs affecting the lives of millions of workers.

Hundreds of billions of dollars have been doled out to bankers who got into a crisis largely because of predatory mortgage lending and the reselling of those mortgages on the global capital market. No relief has been forthcoming for the victims of the mortgage banking industry.

Little attention was paid to the news that in August there were 303,879 foreclosure filings—a 12-percent increase from the previous month and a 27-percent increase from a year ago. One in every 416 households in the U.S. received a foreclosure notice in August. In California alone there were 101,714 filings, up 40 percent from the previous month and 75 percent over a year ago.

While shedding tears over the travails of bankers, the capitalist press had no headlines about a recent study entitled “State of the Dream: Foreclosed,” which showed that the foreclosure crisis has resulted in the greatest destruction of personal wealth in history in the African-American and Latin@ communities.

According to the study, African-American borrowers have lost between $71 billion and $92 billion because of loans taken out over the last eight years. The figure for the Latin@ population, which is even higher than the African-American population, shows losses of between $75 billion and $98 billion.

Alongside the financial crisis is the growing crisis of the capitalist economy overall, as overproduction results in mounting unemployment. More than 84,000 workers lost their jobs in August, bringing the yearly total up to 605,000. More than 2 million people have been added to the jobless in the past 12 months, bringing the official total to 9.4 million out of work. Long-term unemployment is also rising.

Unemployment for Black workers reached 10.6 percent, mainly due to job losses among Black women. Unemployment among single mothers and youth is also growing. And these government figures do not include millions of discouraged workers who have given up looking for jobs.

In the midst of the credit crisis, it was announced that industrial production, the basis of jobs and income, fell in August by the most in three years. There was a 1.1 decrease in output in factories, mines and utilities. Auto production went down by 12 percent, the most in a decade.

One thing is clear from the present crisis: Neither the capitalist class, which owns all the productive wealth, nor the capitalist government, which oversees the system, is in control of the economic or the financial situation.

Each measure they take to stem the credit crisis is followed by another outbreak of panic. Each time the stock market surges, it quickly loses all its gains and more. And no matter how much the pundits declare that there is no recession, the steady growth of unemployment and the decline in production continues, regardless of any so-called “economic stimulus.”

Shift in ruling class psychology

The intervention of the capitalist government in the banking crisis has brought about a sudden shift in the psychology of the ruling class as they watch their system spinning out of control. After the capitalist system got over the crisis of the 1930s, the bosses in the U.S. began to forget why President Roosevelt had taken unprecedented measures to rescue the economy. They began to scorn any government intervention in their affairs.

Of course, they have always been ready to take handouts in many forms—subsidies, military spending, special legislation, tax cuts, etc. But they have felt themselves to be the high and mighty corporate rulers of the world.

Government intervention, they said, was for Europe and for social democrats. The European ruling classes had been rocked by the workers and by class struggle, division and war. Because the European rulers were weak and needed to be propped up by the capitalist governments, they had to submit to state monitoring of their affairs. Such a course, however, was strongly rejected by Wall Street and the giant industrialists.

This latest crisis is a huge comedown for U.S. finance capital, which is used to lecturing the other capitalist governments on the evils of government intervention. Suddenly, however, the bankers and bosses are all united, from the right wing to the moderates and liberals, in applauding the Treasury and the Federal Reserve Board for their “timely” intervention. They are submitting, grudgingly but clearly, to government oversight and monitoring in the interests of saving their system from collapse.

With this crisis, the structure of U.S. capitalism is entering a new stage. The capitalist government has begun, on a piecemeal basis at first but perhaps more systematically in the future, to absorb the liabilities and bad debts of the gambling and speculating financial oligarchy. This can only deepen the crisis in the long run by driving it deeper into the organism of U.S. capitalism.

This is bound to have not only economic but political repercussions around the world as rival imperialists see the vulnerability of the rulers in the U.S. It is bound to weaken U.S. imperialism and at the same time make it more dangerous as it seeks to get out of its crisis.

It is no accident that the Wall Street Journal on Sept. 16, in the midst of in-depth reporting on the financial crisis, ran an article entitled “Keeping Their Powder Dry: Draft Boards Hang On, Just in Case.” The Journal does not necessarily speak for the whole ruling class, nor for the Pentagon at the moment. But one reflex emerging in the midst of the crisis from some section of the ruling class is beginning to think about an expanded war drive as a solution.

With the “New World Order” stoking conflict with Russia in Georgia, invading Pakistan and escalating the war against Afghanistan, the possibility of a new military adventure should never be ruled out.

Capitalism’s basic contradiction

The Democrats want to blame things on Bush and call for more regulation. Of course the financiers have gotten the government to overturn most of the regulations, dating back to the Depression, putting restraints on their gambling operations. This deregulation started with the Reagan administration and reached a high point in the Clinton Administration. At the instigation of Citicorp and Robert Rubin, who left Goldman Sachs to become Secretary of the Treasury, the Glass-Steagall Act was repealed in 1998, under the sponsorship of now McCain economic adviser Phil Gramm. The law forbids commercial banks from becoming involved in investment banking, underwriting stocks and stock market operations, underwriting and other activities that facilitated widespread hyper-speculation of the type that preceded the Depression.

And of course the Bush administration undermined all attempts to inhibit the predatory mortgage lenders and gave a complete free hand to all manner of unregulated speculation in trillions of dollars worth of speculative gambling, which increased the overall risk in the global financial system. But, Democratic Party demagogy notwithstanding, the Bush administration is not the cause of the crisis.

Government intervention, stronger regulation of the monopolies and more “prudent” practices cannot overcome the fundamental contradiction of capitalism: private ownership of the globalized, social means of production.

It is an irreconcilable contradiction that a tiny minority control the production of the world’s wealth for their own profit. It is an irreconcilable contradiction that this global apparatus stops functioning when there is a crisis of profitability for the bosses. And such a crisis always arises, sooner or later, because of the anarchy of capitalist production.

No capitalist knows where what is produced can be sold. But in the rush for “market share” for the highest profit, each capitalist grouping is compelled to expand production.

Simultaneously, the laws of capitalism compel each capitalist to reduce the wages of the workers as much as possible. In the last three decades, the capitalist class has created a low-wage capitalist system that pits workers against each other on a global basis. This just aggravates and accelerates the contradiction of the profit system.

Under capitalism production is anarchic and eventually expands to a point where the workers cannot buy what has been produced at a price that will bring the bosses a profit. This anarchy of production is being reflected in the anarchy of the financial system in the present crisis.

In the present crisis, billionaires at the top of capitalist society may be losing part of their wealth, which really existed only on paper, but they are keeping their mansions, servants, limousines and Lear jets. It is the workers who are bearing the brunt of the economic crisis.

The only way out is the way of resistance—like the movement to stop foreclosures, which is gathering steam around the country.

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Labels: aig, bailout, Fannie Mae, federal reserve, foreclosures, Freddie Mac, Lehman Brothers, Merrill Lynch, Paulson, wall street, Washington Mutual