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America's crisis takes a turn for the worse

The sharp swing against the Democratic Party in the US mid-term elections will inevitably deepen a political crisis in Washington which centres on the inability of the state to halt the historic decline of the American economy.

Obama’s inability to make any impact on a worsening economy drove voters to desperate political extremes in a rage against “big government” and its perceived failures. Conservative Democrats turned to the Republicans, whilst the Republican Party has been turned inside out by the ultra-right Tea Party movement.

The Tea Party’s God-fearing, evolution-denying, extreme nationalist representatives want to fast-track US deficit reduction by immediately shutting down government spending, including social security and publicly-funded education. One of the first decisions to be made by those newly elected will be whether to renew the programme that funds extended unemployment benefit. It runs out on December 1.

Significantly, as the electoral dust settles, the Federal Reserve – America’s central bank – is readying itself for a last throw of the dice aimed at stimulating demand. The Fed is about to announce a second massive programme of quantitative easing – printing of money to you and me.

Some are saying that Federal Reserve chairman Ben Bernanke will release a “wall of money” and as much as another $1 trillion will flood into the economy through the buying up of government bonds. It will add to the $1.75 trillion already created in the attempt to prevent financial Armageddon in 2007/8.

If it happens, the value of the dollar will fall, push interest rates down, halt the house price decline, stimulate investment and consumption and make exports from the US more attractive – or so the theory goes. But that kind of American Dream is pure fantasy.

Reality tells a different story. Despite an already declining dollar which makes US produced goods and services cheaper in international trade, they struggle to compete with commodities made by dollar-a-day labour in China, SE Asia, and Latin America. Last year US imports ($2.404 trillion) vastly exceeded exports ($1.842 trillion) in spite of a weaker dollar.

Further reductions in the value of the US currency can only accelerate the competitive downward pressure on living standards throughout the world. When US workers are obliged to buy foreign goods to feed and clothe their families they know they are cutting their own throats. The Dream is long gone.

And, despite Obama’s previous stimulus package, the Great Recession is rapidly turning into the worst slump ever. The so-called “recovery” has failed to restore the millions of jobs lost since 2008. Quite the opposite. One in 10 – close to 15 million of the American workforce – are counted as unemployed and the number is rising.

Those obliged to work part-time has more than doubled since the beginning of the recession from 4.5 million to 9.5 million. The number of “discouraged workers” no longer in the labour force because they gave up looking for work increased by more than 70% in the year to September 2010. When the unemployed, underemployed or discouraged are added together, the total reaches 17% of the workforce.

With incomes declining sharply, house prices are continuing to fall and eviction totals are mounting. Seven million homes are “delinquent” because payment deadlines have passed, are in repossession proceedings, or have already passed into the hands of the lenders. Homelessness is soaring, putting pressure on shelters which have started to charge fees of $7 (£4.50) per night.

“Big government” in the shape of the capitalist state has indeed failed because the crisis is global, with a logic and momentum beyond the reach of individual states and governments. The US election outcome provides an historic opportunity. Americans should begin the task of creating new forms of economic and political democracy in which they can forge a path to a society based on the satisfaction of the needs of the many and not the corporations. Both the Republicans and Democrats stand in the way of this much-needed social liberation.

Gerry Gold
Economics editor
3 November 2010

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Your Say


Jonathan says:

American internal democracy - along the lines of that put forward by AWTW involving all those in the States opposed to the domestic and foreign policy and who have been forever gagged and silenced and bullied by the rampant Imperialism linked with the bullying nationalism that their own ‘founding fathers’ would have retched at – and Benjamin Franklin warned against in terms of Government – is a must for the whole world. This QE is a ‘race to the bottom’ which the Fed might indeed win. But given the greater fall in productivity this would need to be followed by, what – a Dollar a day within the States – that is an awful long way even for, what John Stewart called the crazies, the Tea Party to ideologically prepare for let alone American capital to achieve. Too many arms on both sides for vilifying.

But this protectionism by other means throws an already crisis ridden elite into more and more desperate measures. Not likely to succeed they have nowhere to turn than on all the sources – including their own working class and all the others involved in production, and those in possession of foreign cheap materials vilifying them all, including how they think, as the problem and not the moribund system in crisis on a Global scale. As with Iraq it and others who don’t bend to the still military might will have the leaders and their régimes presented to the base referred to above (representing some 1/4 to 1/3 – children and youth and all trapped inside a hothousing system) as the real problem. This false ideology has to keep up with the crises needs of the American ruling class. Without the call and organization, theoretically and practically, of what is called for above they all will steal a march on all those subject to the ravages off the declining American capitalism.


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