The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.

— President Jimmy Carter, December 20, 1977

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

— President Ronald Reagan, April 20, 1983

So said Presidents Carter and Reagan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008.

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents ….  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect.

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost. Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion — or $300 billion or $3 trillion — in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy.

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly-owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

Given his role as the President, one would hope that his public appearances and remarks would serve useful purposes such as providing substantive and honest information regarding policy positions and government activity.  His responses during the YouTube Q&A were not totally egregious, but the superficial behavior at these Correspondents’ Dinners is just depressing.  Performing skits and telling jokes was the top priority last year while Operation Neptune Spear was being carried out. Again, the show had to go on.  The subjects tackled during this year’s Dinner included eating dogs, Young Jeezy, and casual homophobia.  The funniest bit, however, was the greasy comment on what he declared to be a great American tradition: “a free press that isn’t afraid to ask questions, to examine and to criticize.”

Whether or not those questions get answered, the free press he was referring to is far from traditional.  For one thing the spectrum of representative interest is sharply polarized.

For example, there are blogs and there are media conglomerates much like there are local coffee shops and there are Starbuckses.  Even though both provide similar commodities, the two sides operate in different ways because they exist for different reasons.  So even though neither ThinkProgress nor the Wall Street Journal is under any coercion, the latter is still owned by the multibillion dollar News Corporation which exists to make profits for investors.

This has two major implications for an outlet like WSJ.  Firstly, as a corporate subordinate, its terminal function is to contribute to wealth consolidation.  It may not accomplish this explicitly (e.g. “playing politics”), but it would not have been absorbed if it did not contribute to Rupert Murdoch’s bottom line.  Secondly, its massive financial backing inexorably enables it to be ultra-prominent and consequently ultra-powerful.  Its elite status will obviously influence its content by filtering out writers with non- or anti-elite sentiments.  These principles generalize to other dominant media such as the New York Times and the Washington Post.

So just whose views are the big three free press outlets representing?  An April report published by FAIR looked into which perspectives were being represented on their op-ed pages during September and October 2011 when the Occupy movement was in full swing: the movement which is now recognized to have dramatically shifted political discourse in the U.S. as recent articles in the Post and in Rolling Stone make clear.  The report revealed that elites from academia, think tanks, big business, and government institutions made up 84%, 84%, and 73% of the guest column bylines in the Times, the Journal, and the Post respectively.  Those proportions aren’t surprising because they’re pretty much taken for granted: you wouldn’t expect anyone else’s opinion to be important enough to be featured.  The study also found that op-ed writers were overwhelmingly white males: 80-90%.  Furthermore, the Occupy movement was barely discussed in the opinion pages of all three papers.  Again, given the structure of American society, it’s not that surprising. However, the connection you’re not supposed to make is the obvious one that contradicts principles of a “free press.”

To make this connection, we can start by acknowledging some major domestic concerns which, unsurprisingly, include job creation, Social Security, education, and Medicare.  The problem is that elites from academia, think tanks, big business, and government are the least burdened by these concerns.  The fact remains that there are people that depend on Social Security for survival.

Another hot issue involves reproductive rights and the War on Women.  Male op-ed writers comprised 80%, 84%, and 87% of the NYT, the Post, and the Journal respectively.  When the topics include obstetrical sonograms, contraception, abortion, and equal pay/benefits for women, the integrity of the discussion is going to suffer when male perspectives dominate.

The same logic applies to race issues.  Latinos make up 16% of the U.S. population, but their voice was confined to less than half a percent of the op-ed bylines which might not bode well for discussions on immigrant rights or border control.  Blacks were under-represented too which has frightening implications.  Michelle Alexander’s newly popular book, The New Jim Crow, discusses the scandalous incarceration rate in the United States (highest in the world) that disproportionately targets the black population and supplements a growing “undercaste”.  She traces it back to the Nixon and Reagan administrations’ schemes to exploit white working class racism and fear to gain political power.  It’s a national horror that just so happens to not really involve white elites from academia, business, think tanks, and government or their friends or their families.

The race issue is particularly egregious.  Blacks are incarcerated at a rate that is comparatively appalling and often for petty drug crimes such as marijuana possession. In prison, they’re basically free (slave) labor.  When they get out they are disenfranchised, barred from juries, and struggle to find employment and therefore health care.  The fiscal consequences of the War on Drugs or the ethics of incarceration versus treatment are topics that are usually discussed in the papers.  Lucid commentary on the grave human damage does come out, but infrequently, which is remarkable because the issue is so deeply offensive to principles of compassion and liberty that it ought to be making headlines.

Incidentally the major assertions made by Michelle Alexander in The New Jim Crow are not groundbreaking or radical.  The trajectory of the War on Drugs and its disproportionate effect on the black population had already been figured out by the mid-90s but mainstream discourse was just not ready for that kind of information.. Alexander’s study, which is deeply researched and excellently delivered, just came out at the right time.  (Actually it took two years for it to get popular). This reveals a great deal about the nature of our press.

Well, if the press’ function is to inform the public mind so as to facilitate democratic participation and influence political discourse, what can we expect to hear from elected and appointed officials?  Gil Kerlikowske, the Director of the Office of National Drug Control Policy gave a talk a few days ago on drug policy reform at the Center for American Progress.  I work in the same building and I happened to walk by him on the way in: I wouldn’t have known about it otherwise.  Even with prodding by the Center’s president Neera Tanden to address incarceration, Kerlikowske managed to avoid talking about drug war casualties by focusing strictly on drug abuse treatment.  In this capacity, he labeled the Affordable Care Act “revolutionary” for its requiring insurers to treat drug addiction like any other disease.  There was barely any mention of the incarceration disaster and absolutely no mention of the effects on the black population.

His lauding of the AFA, however, is interesting.  Obama’s health plan and his drug control strategy are similar in their ostensibly liberal motivations.  Furthermore, these superficialities are reinforced by the White House and the press.  Obamacare expands coverage which helps the poor and sick so therefore it must be populist, liberal, and benign and so on.  Similarly, the drug control strategy will treat addiction and help ex-convicts find housing and not relapse so therefore it’s humane and progressive .

Unfortunately, the sinister and anemic properties of either are rarely addressed. Obamacare’s expanded coverage is a blessing to the very entities that are responsible for the health crisis: it funnels billions to private insurers and pharmaceutical companies (24).  Similarly, targeting addiction is not an answer to the incarceration problem nor does it confront the damage to black communities.

But for the White House to highlight the hidden problems would irritate investors that influence campaigns through lobbying.  Private correction corporations such as CCA and GEO profit off of taxpayer funded incarceration.  Studies have shown private prison population grew in the last decade as their lobbying dollars increased.  A Boston Phoenix article reads: “Despite clear racial, economic, and cultural disparities, cries from constituents fell on deaf ears while law-enforcement lobbyists successfully cajoled and frightened congressional leaders”.  Operating through outfits like ALEC, they push for legislation that harshen sentencing for crimes.

Health insurance and pharmaceutical companies similarly influence the Affordable Care Act and thus the rhetoric available to Obama.

Given that vast sectors of the American population hang in the balance in all of these issues, you might assume that the “great American free press” that isn’t afraid to question or criticize would actually ask questions or speak critically in regards to these discrepancies.  But the lives and careers of politicians, business executives, and elite journalists are so intertwined and symbiotic that the public has to be marginalized.  The reason is simple, their interests are opposed.  Furthermore, the public mind is clouded by superficial dichotomies such as Democrats vs. Republicans, pro-life vs. pro-choice, drug treatment vs. overpolicing, etc.

For an elite journalist, these topics are perfectly valid on intellectual and professional levels.  For a politician, they serve invaluable rhetorical purposes.  Forgotten, suppressed, and marginalized, however, are the issues pertinent to the millions that personally have to worry about food, rent, health care, education, transportation, debt, and retirement.  That’s the real skit.  That’s the funniest joke.

The World Economic Forum is a Swiss non-profit corporation that brings together some 2,500 “top” global business and political leaders every January in a remote Swiss mountain resort. Along with the G-7, the World Bank, the World Trade Organization and the International Monetary Fund, the World Economic Forum has a strong pro-corporate agenda and is a regular target for anti-corporate globalization protests. The latter movement is a loosely knit network of anti-corporate groups that started in Asia and Europe in the 1990s, in response to the international treaty that created the World Trade Organization (WTO). Its American counterpart was born in Novemeber 1999, when 50,000 people marched in the streets of Seattle and thousands committed civil disobedience to derail the WTO Third Ministerial meeting. Currently the WTO and so-called “Free Trade” treaties, such as NAFTA, receive scant coverage in the mainstream media. Nevertheless labor and environmental activists remain deeply concerned about the power these international treaties give corporations to overturn democratically enacted labor and environmental protections.

Since 2001, grassroots activists from all over the world have been holding a World Social Forum in a developing country (usually Brazil) at the same time as the World Economic Forum. The philosophy behind the World Social Forum is that ordinary people have an even greater need for international conferences than corporate elites. It’s only by coming together and organizing that they can resist efforts by global elites to strip them of the limited democratic and economic rights they still enjoy.

Emphasis on Global Social Unrest

When the Guardian article that accompanied the report stated that Global Risks 2012 focuses mainly on economic turmoil and social unrest (as opposed to globalization and free trade), I was extremely keen to read it. Would it mention Occupy Wall Street? It sure does, right there on page 16 under “Case 1: Seeds of Dystopia”:

Two dominant issues of concern emerged from the Arab Spring, the ‘Occupy’ movements worldwide and recent similar incidents of civil discontent: the growing frustration among citizens with the political and economic establishment, and the rapid public mobilization enabled by greater technological connectivity.

The document is full of other surprises. Unlike the mainstream media, Global Risks 2012 is surprisingly sympathetic towards the Occupy movement. The authors are deeply concerned about “dystopia,” the opposite of utopia, which they define as “a place where life is full of hardship and devoid of hope.” They go on to talk about the danger of declining economic conditions in Western Europe, North America and Japan jeopardizing “social contracts” between states and their citizens. These they define as has historic understandings that workers will be guaranteed access to health care (by North America they must mean Canada – this has never been true in the US) and decent pensions in old age.

They express concern (implying that corporate CEOs should also be concerned) about the link between global recession and increasing rates of poverty, mental illness, substance abuse, suicide, divorce, domestic violence and the abandonment, neglect and abuse of children (page 18).

They talk about the large numbers of unemployed young people around the world being a “lost generation” (page 22). Even more surprisingly, they identify huge income disparity as being one of the most serious global risks. They caution that when “social mobility” (i.e. individual ability to advance socially and economically) is attainable, income disparity can spur people to work harder. When it’s clearly not, as in the current global recession, feelings of powerlessness, disconnectedness and disengagement can “take root.” (page 19).

They conclude the dystopia section with the following warning:

The social unrest that occurred in 2011, from the United States to the Middle East, demonstrated how governments everywhere need to address the causes of discontent before it becomes a violent, destabilizing force. (page 19)

Destructive Corporate Lobbying

Global Risks 2012 also talks about destructive corporate lobbying (my translation – they use more obscure, intellectually lofty language) in trying to enact environmental and health regulations: “By their very nature, the costs involved in implementing safeguards, such as quality standards and risk mitigation practices, may give some individuals, firms or organizations reasons to lobby to minimize them and look for ways around them.” (page 22)

They are equally critical of the “too big to fail” banks: “When losses can be passed on to others – as when banks are defined as “too big to fail” – excessive risk-taking is likely to occur.” (page 22).

They conclude with the argument (making the 2008 banking crisis a case in point) that dangerously lax regulations “in just one jurisdiction could trigger global catastrophe.” (page 22)

How Will CEOs Answer the Discussion Questions?

I have to admit my favorite part of Global Risks 2012 are the “Questions for Stakeholders,” inserted at the end at the end of each section to make sure the corporate elites and the politicians who accompany them to these meetings are paying attention. I would give anything to listen in to the answers JP Morgan CEO Jamie Dimon and Rex Tillerson, CEO of Exxon, give to some of these:

• What steps can be taken to reduce income disparity? (they need to get Dimon to answer this one.)

• How can appropriate regulations be developed so that firms will undertake effective safeguards?

• How can business, government and civil society work together to improve resilience against unforeseen risks? (the report uses the word resilience, which they borrow from the sustainability movement, a lot).

• How can fostering entrepreneurship prevent the seeds of dystopia from taking root? (this wouldn’t be my approach, but at least they admit urgent action is needed)

How Global Risks 2012 Came to Be Written

The World Economic Forum’s Risk Response Network (RRN) was launched in 2004 to provide public and private sector leaders with “an independent, impartial platform to map, measure, monitor, manage and mitigate global risks.” This is the RRN’s seventh annual report. It’s based on surveys completed by 469 international experts in industry, government, academia and civil society about 50 potential global risks across five categories: Economic, Environmental, Geopolitical, Societal and Technological. Risks in each category are rated according to both the potential damage they could inflict and their likelihood of occurrence. In addition, a specific risk in each category is identified as “the center of gravity,” which feeds other risks, both within the specific category and across categories.

How 469 Experts Rated the 50 Risks

• Most likely to occur: chronic fiscal imbalances and severe income disparity.

• Economic “center of gravity” around which many other risks cluster: chronic fiscal imbalances (debt).

• Most likely to occur: rising greenhouse gas emissions

• Environmental “center of gravity” around which many other risks cluster: rising greenhouse gas emissions

• Most likely to occur: critical fragile states and pervasively entrenched corruption

• Geopolitical “center of gravity” around which many other risks cluster: global governance failure

• Most likely to occur: water supply crisis, followed by food shortage crisis

• Societal “center of gravity” around which many other risks cluster: unsustainable population growth (highly controversial, but a growing number of sustainability activists agree with this view)

• Most likely to occur: cyber attacks

• Technological “center of gravity” around which many other risks cluster: critical systems failure

Is There a Split in the Ruling Elite?

It’s clear from the spelling (using “our” instead of “or” and “re” instead of “er” at the end of words) that the authors of Global Risks 2012 are either British or Canadian. I find it extremely hard to imagine a report emphasizing carbon emissions and income inequality coming out of the US. I also think it’s it significant that three of the four companies listed as report “cosponsors” are insurance companies.¹ If Exxon had helped write this document, it would surely minimize the risk of increasing carbon emissions, if it mentioned them at all.

At times there are divisions in the ruling elite – between the banking/insurance and the energy/military sectors – over specific issues. Climate change seems to be one of them. Owing to deregulation, there is significant overlap between insurance companies, which derive most of their income from reinvesting premiums, and other financial institutions. AIG, for example, is supposedly an insurance company but had to be bailed out because they owned a substantial chunk of subprime mortgages.

It’s clearly in the interest of oil, natural gas and coal companies for consumers to continue to buy and burn up as much fossil fuel as possible. Insurance companies, on the other hand, serve their shareholders best by reducing carbon emissions. They already face growing claims losses due to a massive increase in weather-related catastrophes. In this context it makes sense for them to cosponsor a World Economic Forum risk assessment document emphasizing the need for international agreement about reducing carbon emissions. It also helps explain why Wall Street investment banker (and New York mayor) Michael Bloomberg has given a $50 million donation to the Sierra Club’s Anti-Coal Campaign.

1. Marsh and McLennan, Swiss Reinsurance Company, University of Pennsylvania Wharton Center for Risk Management, and Zurich Financial Services.

The second half of the essay will detail the politics of CTD, the regime which has moved furthest from the notion of a sovereign representative democracy. We will clarify the differences and similarities between traditional military-civilian and fascist dictatorships and the up-to-date CTD, focusing on the ideology of apolitical expertise and technocratic rule as a preliminary to an exploration of the profoundly colonial hierarchical chain of decision making.

The penultimate section will highlight the reason why the imperial ruling classes and their national collaborators have overturned the pre-existing “democratic” oligarchical ruling formulas of “indirect rule” in favor of a naked power grab. The turn to direct colonial rule (a coup by any other name) was consumated by the major financial ruling classes of Europe and the US.

We will evaluate the socio-economic impact of rule by imperial appointed colonial technocrats, the reason for rule by fiat and force over the previous process of persuasion, manipulation and co-optation.

In the concluding section we will evaluate the polarization of the class struggle in a time of colonial dictatorship, in the context of hollowed out electoral institutions and radical regressive social policies. The essay will address the twin issues of struggle for political freedom and social justice in the face of fiat rule by emerging technocratic colonial rulers.

What is at stake goes beyond the current regime changes to identifying the most basic institutional configurations which will define the life chances, personal and political freedoms of future generations, for decades to come.

Decaying Democracies and the Transition to Oligarchical Democracies

The decay of democracy is evident in every sphere of politics. Corruption is all pervasive, as parties and leaders vie for financial contributions from the wealthy and powerful; congressional and executive positions have a price tag; each piece of legislation is influenced by powerful corporate “lobbies” which spend millions writing the laws and engineering their approval. Prominent influence peddlers like the US felon Jack Abramoff boast that “every congressperson has their price.” The vote of citizens counts for nothing: the politician’s campaign promises have no relation to their behavior in office. Lies and deceptions are considered “normal” in the political process. The exercise of political rights are increasingly under police surveillance and active citizens are subject to arbitrary arrest. The political elite depletes the public treasury subsidizing colonial wars and pays for their military adventures by eliminating basic social programs, public agencies and services.

Legislators engage in vitriolic demagogy in virtual Punch and Judy puppet conflicts as public displays of partisanship while in private they feast together at the public trough. In the face of the discredited legislative institutions and the overt, gross buying and selling of public office, executive officials, elected and appointed, seize legislative and judicial powers.

Decaying democracy evolves into an “oligarchical democracy” as executive officials rule by fiat; overriding democratic rules and ignoring the interests of the majority. An executive junta, of elected and non-elected officials, resolves questions of war and peace, allocates billions of dollars or euros to a financial oligarchy, and reduces living standards of millions of citizens via class-biased “austerity packages.” The legislature abdicates its legislative and oversight function and submits to the executive junta’s “accomplished facts.” The citizenry is assigned the role of passive spectators – even as anger, disgust and hostility spreads and deepens. Isolated voices of dissenting representatives are drowned out by the cacophony of mass media contracted prestigious “experts” and academics shilling for the financial oligarchy and advising the executive junta. No longer do citizens look to the legislatures for relief or redress from the executive siezure and abuse of power. To fortify their absolute power, the oligarchies emasculate the constitutions, citing economic catastrophes and all pervasive “terrorist” threats. A vast and growing police state apparatus, with unlimited powers, enforces constraints on civic and political opposition. As legislative powers are sapped and executive authorities enlarge their sphere of action, the remaining democratic freedoms are curtailed via “bureaucratic restrictions” on time, place, and forms of political action. The purpose is to minimize the critical minority from mobilizing a sympathetic majority. As the economic crises worsen and the bondholders and investors demand higher interest rates, the oligarchy extends and deepens their austerity measures. Inequalities widen, exposing the oligarchical nature of the executive junta. The social bases of the regime narrows. The well-paid skilled workers and middle class employees and professionals begin to feel the acute erosion of wages, salaries, pensions, working conditions, and future career prospects. The narrowing of social support undermines the junta’s claim to democratic legitimacy. Faced with mass discontent and discredit and with strategic sections of the civil bureaucracy in revolt, factional strife breaks out among rival cliques within the “official parties” of government. The “democratic oligarchy” is pushed and pulled in several directions: it decrees social cuts but can only find limited support in implementing them. It decrees regressive taxes but cannot collect them. It launches colonial wars but cannot win them. The executive junta alternates between force and compromise; robust promises to the international bankers and then, under mass pressure, backsliding.

Over time oligarchical democracy is no longer useful as to the financial elite. Its democratic pretensions no longer can deceive the masses. Prolonged elite factional warfare erodes its willingness to impose the financial oligarchy’s full agenda. At this point oligarchical democracy as a political formula has run its course.

The financial elite are ready and willing to discard all pretenses of ruling via democratic oligarchs. They are seen as willing but too weak; too subject to domestic pressure from factional rivals and not willing to proceed to savage cuts in social budgets, even greater reductions in living standards and working conditions.

The real power behind the executive juntas comes to the fore. The international bankers discard the “native junta” and impose non-elected bankers to rule – dubbing their private bankers as technocrats.

The Transition to a Colonial “Technocratic” Dictatorship

The naked rule by foreign bankers is disguised by an ideology which describes it as rule by technocrats who are experts, apolitical and above private interests. The reality behind the technocratic rhetoric is that the officials appointed have a career of working with and for big financial private and international interests. Lucas Papdemos, the appointed Greek Prime Minister, worked for the Federal Reserve Bank of Boston and, as head of the Greek Central Bank, was responsible for cooking the books covering up the fraudulent budgetary accounts leading Greece to financial disaster. Mario Monti, the appointed Prime Minister of Italy was employed by the European Union and Goldman Sachs. These appointments by the banks are based on their total loyalty and unstinting commitments to impose the harshest regressive policies on the working populations of Greece and Italy. The so-called technocrats are not subject to party factions, nor remotely responsive to any social protests. They are free of all political commitments … except one, to secure the payment of the debt to foreign bondholders – especially the loans owed to major European and North American financial institutions. The technocrats are totally dependent on the foreign banks for their appointments and tenure in office. They have not a smattering of a political organizational base in the countries they govern. They rule because, foreign bankers threatened to bankrupt the countries if they were not appointed. They have zero independence, in the sense that the “technocrats” are merely instruments and direct representatives of the Euro-American bankers.

The “technocrats” by the nature of their appointments are colonial officials explicitly appointed at the behest of imperial bankers and sustained by them. Secondly, neither they nor their colonial mentors were elected by the people over whom they govern. They are imposed by economic coercion and political blackmail. Thirdly, the measures they adopt are designed to inflict the maximum pain by totally altering the basic relation-between labor and capital, by maximizing the power of the latter to hire, fire, fix salaries and working conditions. In other words, the technocratic agenda imposes a political and economic dictatorship.

The social institutions and political processes associated with a democratic-capitalist welfare state, corrupted by decadent democracies, eroded by oligarchical democracies are threatened with total demolition by the emerging colonial technocratic dictatorships (CTD). The language of social regression is full of euphemisms but the substance is clear. Social programs regarding public health, education, pensions, and disabilities are slashed or eliminated and the “savings” transferred into tributary payments to foreign bondholders (banks).

Public employees are fired, their retirement age extended and their salaries reduced and their tenure eliminated. Public enterprises are sold to foreign and domestic capitalist oligarchs with services curtailed and employees shed. Employers shred collective bargaining agreements. Workers are fired and hired at the whim of the owners. Vacations, severance pay, starting salaries and overtime pay are drastically reduced. These pro-capitalist regressive policies are dubbed “structural reforms.” Consultative processes are replaced by the dictatorial powers of capital – “legislated” and implemented by the appointed technocrats. Not since the time of Mussolini and fascist rule and the Greek military junta (1967-1973) has such a regressive assault on popular organizations and democratic rights taken place.

Comparing Fascist and Technocratic Dictatorships

The earlier fascist and military dictatorships have much in common with the current technocratic despots regarding the capitalist interests they defend and the social classes they oppress. But there are important differences which disguise the continuities.

The military junta in Greece and Mussolini in Italy seized power by force and violence, outlawed all opposition parties, press trade unions and closed the elected parliament. The current “technocratic” dictatorship is handed power by the political elites of the oligarchical democracy – a “peaceful” transition at least in its initial phase. In contrast to the earlier dictatorships, the current despotic regimes retain the hollowed out and emasculated electoral facades, as rubber stamp entities to provide a kind of “pseudo-legitimacy,” which beguiles the financial press but fools few public citizens.

From the very first day of technocratic rule the key slogans of the organized movements in Italy was, “No to a government of bankers”; while in Greece the slogan that greeted the puppet pragmatist Papdemos was “European Union, IMF, Get Out.”

The earlier dictatorships began as full blown police states, arresting pro-democracy movement activists and trade unionists before pursuing their pro-capitalist policies. The current technocrats first launch their vicious all-out assault on living and working conditions, with parliamentary assent and then in the face of sustained and determined resistance by the “parliaments of the street”, proceed to escalate police state repression by degree … practicing incremental police state rule.

Policies of the Technocratic Dictatorships: Scope, Depth and Method

The dictatorial organization of a technocratic regime is derived from its policies and political mission. In order to impose policies that result in massive transfers of wealth, power and legal rights from labor and households to capital, especially foreign capital, an authoritarian regime is essential, especially in anticipation of sustained resistance. The international financial oligarchy cannot secure “stable and sustainable” long term extraction of wealth with any semblance of democratic governance, even a decaying oligarchic democracy. Hence the last resort for the bankers in the EU and USA is to directly appoint one of their own to push, shove and impose a sequence of comprehensive large scale, long-term regressive changes. The mission of the technocrats is to impose an enduring institutional framework which will guarantee long-term, high interest payments based on decades of impoverishment and popular exclusion.

The mission of the “technocratic dictatorship” is not to put in place a single regressive policy of short duration, such as a salary freeze or dismissal of a few thousand school teachers. Their intent is to convert the entire state apparatus into an efficient press to continuously extract and transfer tax revenues and income from workers and employees to bond holders. To maximize the power and profits of capital over labor, the technocrats grant the capitalists absolute power to fix the terms of labor contracts, as far as hiring, firing, longevity, hours and working conditions.

The technocrats “method of rule” is to have an ear only for the foreign bankers, bondholders and private investors. The decision process is closed and limited to the coterie of bankers and technocrats without the least transparency. Above all, under colonial rules the technocrats must ignore the protestors if possible or, if necessary break heads. Under pressure from the banks, there is no time for mediation, compromise or delays as was the case under decaying and oligarchical democracies.

Ten historic transformations dominate the agenda of the technocratic dictatorships and their colonial mentors.

1) Massive shifts in budgetary allocations from welfare to bond and bank payments.

2) Large scale changes in income policies from wages to profits, interest payments and rents.

3) Highly regressive tax policies, increasing consumer (VAT) and wage taxes and lowering taxes on bondholders and investors.

4) Eliminating employment security (“labor flexibility”), increasing the reserve army of unemployed to lower wages, intensifying the exploitation of employed labor (“higher productivity”).

5) Rewriting labor codes, undermining the balance of power between organized labor and capital. Wages, working conditions and health issues are taken out of the hands of rank and file unionists and put in the hands of technocratic “corporate commissions.”

6) The dismantling of a half century of public enterprises and institutions and privatizing telecommunications, energy, health, education and pension funds. Trillion dollar privatizations are windfall profits on a world historic scale. Private monopolies replace public and provide fewer jobs and services without adding any new productive capacity.

7) The economic axis shifts from production and services for mass consumption in the domestic market, to exports of specialized goods and services to overseas markets. This new dynamic requires lower wages to “compete” internationally but shrinks the domestic market. The new strategy translates into an increase in hard currency earnings from exports to pay the debt to the bondholders but results in greater misery and unemployment for domestic labor. Under the technocratic “model,” prosperity accrues to vulture investors buying lucrative but financially strapped local producers and real estate on the cheap.

8) The technocratic dictatorship by design and policy aims at a “bipolar class structure” in which the bulk of the skilled workers and the middle class is impoverished and suffers downward mobility while enriching a strata of local bondholders and business owners who cash in on interest payments and the low cost of labor.

9) Deregulation of capital, privatization and the centrality of financial capital leads to greater colonial (foreign) ownership of land, banks, strategic economic sectors and “social” services. National sovereignty is replaced by imperial sovereignty in the economy as well as politics.

10) The unified power of colonial technocrats and imperial bondholders dictating policy concentrates power in a non-elected power elite. They rule with a narrow social base and no popular legitimacy. They are politically vulnerable, therefore, constantly dependent on economic threats or physical force.

Three Stages of Technocratic Dictatorial Rule

The historic task of the technocratic dictatorship is to roll-back the political, social and economic advances gained by the working class, public employees and pensioners since the defeat of fascist capitalism in 1945. The unmaking of over sixty years of history is no easy task, least of all in the midst of a deep ongoing socio-economic crises, in which the working class has already experienced severe cuts in wages and benefits and the number of young unemployed (18-30 years) throughout the EU and North America ranges between 25 to 50 percent.

The proposed agenda of the “technocrats” – parroting their colonial mentors in the banks – is ever more severe reductions in living and working conditions.The proposed “austerity” occurs in the face of growing economic inequalities between the wealthy 5% and the bottom 60% between Southern Europe and Northern Europe. Faced with downward mobility and heavy indebtedness, the middle class and especially their ‘educated children’, are outraged by the technocrats call for even greater social cuts. Outrage spreads from the lower middle class to business and professionals on the verge of bankruptcy and loss of status.

The technocratic rulers, constantly play on mass insecurity and fear of a “catastrophic collapse” if their ‘bitter medicine’ is not swallowed by the anguished middle classes who fear the prospect of sinking into the working class or worse.

The technocrats call on the present generation to sacrifice, to commit virtual suicide, to save future generations. With gravity and humble posturing they speak of “equal sacrifices”, a message belied by the firing of tens of thousands of employees and the selling of billions of euros/dollars of the national patrimony to foreign bankers and investors. Lowering public expenditures to pay bondholders and entice private investors erodes any appeal for “national unity” and “equal sacrifice” ..The technocratic regime strives to act decisively and quickly to impose its brutal regressive agenda, the rollback of sixty years of history before the masses have time rise up and bring them down.

To preclude political opposition the technocrats demand “national unity”, (the unity of bankers and oligarchs), the backing of the decadent electoral parties and their leaders and their total submission to the colonial bankers’ demands.

The technocrats’ political trajectory will be short lived given the draconian systemic changes and repressive structures they propose, the best they can accomplish is to dictate and implement policies and then return to their lucrative sanctuaries in the overseas banks.

Technocratic Rule: Stage One

With the unanimous backing of the mass media and the full backing of the powerful bankers, the technocrats take advantage of the downfall of the despised and discredited politicians of the past electoral regimes. They project a clean government image which speaks to a regime which is efficient and competent, capable of decisive action. They promise to put an end to deteriorating living conditions and partisan political paralyses. At the onset of their rule the technocratic dictators exploit the justified popular disgust with privileged “do-nothing” politicians to secure a measure of popular consent or at least passive acquiescence from the majority of the citizens drowning in debt and in search of a “savior.”

It should be noted that among the most politically aware and social conscious minority, the bankers resort to a colonized “technocratic regime” cuts no ice: they immediately identify the technocratic regime as illegitimate deriving powers from foreign bankers. They affirm the rights of citizens and national sovereignty. From the beginning, even under the cloak of emergency powers, the technocrats face a core of mass opposition.

The bankers realistically recognize the technocrats must move quickly and decisively.

Stage Two: Technocrats’ Shock Policies

The technocrats launch 100 days of the most egregious class warfare against the working class since the military/fascist regimes. In the name of the Free Markets, the Bondholder and the Unholy Alliance of political oligarchs and bankers dictate edicts, and laws are passed, immediately firing tens of thousands of public employees. Scores of public enterprises are rushed to the auction block. Job security is abolished and firing without cause becomes the law of the land. Regressive taxes are decreed and households are impoverished. The entire income pyramid is turned on its head. The technocrats widen inequalities and deepen immiseration.

The initial euphoria greeting technocratic rule is replaced by bitter reproaches. The lower middle class looking for a paternal dictatorial resolution of their condition, recognize “another political swindle”. As the technocratic regime races to fulfill its mission to the foreign bankers, the popular mood sours, bitterness spreads even among its ‘passive collaborators’. There are no crumbs from the table of a colonial regime empowered to maximize the outflow of state revenues to bondholders.

The compromised political oligarchy tries to revive their fortunes and “questions” the particularities of the technocratic “tsunami” smashing the social fabric of society. The scale and scope of the dictatorship’s extremist agenda and the ongoing build-up of mass frustrations frightens the political party collaborators, while the bankers urge them on to bigger and deeper social cuts. The technocrats in the face of the burgeoning popular storm begin to cower.

The bankers call for greater backbone and offer new loans for “keeping the course.” The technocrats bunker down – alternating between pleas for time and sacrifice with promises of prosperity “around the corner.” Mostly they rely on constant police mobilization and de facto militarization of civil society.

Mission Accomplished: Civil War or the Return of Oligarchical Democracy?

The outcome of the “experiment” with a colonial dictatorial technocratic regime is difficult to predict. One reason is because the measures adopted are so extreme and extensive, that they unify almost all important social classes (except the top 5%) against them at the same time. The concentration of power in an “appointed” elite further isolates them and unifies most citizens in favor of democracy against colonial submission and unelected rulers. The measures approved by the technocrats face the unlikely prospect of full implementation, especially by civil servants and public employees facing firings, pay cuts and reduced pensions. The across the board cuts undermine “divide and conquer” tactics. Given the scope and depth of the downgrading of the public sector and the indignity of serving a regime clearly under colonial tutelage, it is possible that breaks and fissures will take place in the military and police apparatus especially if they provoke popular uprisings which turn violent. The technocratic juntas cannot ensure that their policies will be implemented. If not, revenues will falter; strikes and protests will scare off predator buyers of public firms. The big squeeze will undermine local business, production will decline the recession will deepen.

Technocratic rule is by its nature transitory. Under threat of a mass revolt the new rulers will flee to their overseas financial sanctuaries. Local oligarchical collaboraters will hasten to augment their billion dollar euro overseas bank accounts in London, New York and Zurich.

The technocratic dictatorship will make every effort to hand power back to the oligarchical democratic politicians with the proviso that they retain the regressive changes in place. Technocratic rule will end up with “paper victories” unless the overseas bankers insist the “return to democracy” operates within the “new order.”

The application of force could boomerang. The technocrats and democratic oligarchs renewed threats of an economic catastrophe for non-compliance will be counter-manded by the reality of real existing misery and mass unemployment. For millions the living catastrophe resulting from technocratic policies will outweigh any future threats. The rebellious majority may choose to rise up and overthrow the old order and take its chances in an independent democratic socialist republic. One of the unforeseen consequences of imposing radical colonial appointed technocratic dictatorship is that it clears the political landscape of parasitic political oligarchies and lays the groundwork for a clean break. It facilitates renouncing the debt and reconstituting the social fabric of an independent democratic republic.

The serious danger is that the discredited politicians of the old order will demagogically attempt to seize the democratic banners of the “anti-dictatorial anti-technocrat” struggle to bring back what Marx called “the old crap of the previous order.” The recycled political oligarchs will adapt to the “restructured” new order of eternal debt payments as part of a deal to maintain the ongoing process of unending social regression. The revolutionary struggle against the colonial technocratic rulers must continue and deepen, to block the restoration of the democratic oligarchs.

While the 1% has trillions of dollars — more wealth than the bottom 90%! — the 99% struggles to get by with massive debt, high unemployment, mounting foreclosures, costly and deadly wars, declining social services, threats against Social Security, relentless bills, regressive taxation, crumbling infrastructure, rising tuition, crowded classrooms, predatory banks, an anemic democracy, and chronic anxiety. This level of gross inequality is patently unfair and must be remedied.

Wall Street is everywhere. Where are you?

In San Francisco, there is a bakery called Arizmendi, named after the founder of the Mondragón cooperative movement in the Basque region of Spain. It is a worker-owned collective, so instead of the profit being sucked out by someone of the 1% who doesn’t work there, the workers are paid well, have good benefits, treat themselves kindly, money is reinvested in the business, food is donated to shelters, and the workers make their own collective decisions, while producing high-quality vegetarian food, so there is no exploitation and no sense of alienation. Arizmendi is an anomaly, but it doesn’t have to be.

While average real wages are essentially flat and top marginal tax rates for people and corporations way down over the past couple of generations, there have been increases in hours worked, worker productivity, corporate profits, CEO salaries, financial speculation, the stock market, millionaires and billionaires, international free trade agreements, foreign investment, outsourcing, military spending, U.S. foreign military bases, imprisonment, debt, tuition, health care
costs, rent, homelessness, depression, and anxiety.

So, although the causes and demands of the Occupy Movement seem to vary, they all cluster around a core principle: support the need of the 99%, not the greed of the 1%.

Especially in this richest country in the world:

If we had economic policies for the 99%, we wouldn’t have poverty, deprivation, and many of the social problems associated with poverty and deprivation.

If we had tax policies for the 99%, we would have steeply progressive taxation, as we did in the 1950s, to create a fairer, more stable, middle-class society without the extremes of obscene wealth and obscene poverty. Further, we would tax destructive activities the most, while lessening or eliminating taxes on necessities and productive goods and services. It is simply unjust that GE, ExxonMobil, Chevron, Boeing, Bank of America, Verizon, Citi, Goldman Sachs, FedEx, and about two-thirds of corporations paid less federal taxes — zero! — than any individual taxpayer in recent years.

If we had jobs policies for the 99%, we wouldn’t have unemployment, there wouldn’t be involuntary underemployment, and we’d have many more meaningful jobs with living wages and safe working conditions. There is always much work to be done and many people who want to work, yet jobs are often scarce.

If we had housing policies for the 99%, we wouldn’t have homelessness, unaffordable housing, and inadequate housing, while the elite have mansions and multiple houses. As with food, water, clothing, and other necessities of life, housing is a human right (UNHR, Art. 25), yet we treat it as just another commodity sold for profit.

If we had property policies for the 99%, we wouldn’t have absentee ownership. Additionally, we would break up monopolies and oligopolies, disallow corporations that are too big to fail, revoke corporate personhood, and better devise and regulate corporate charters, while encouraging employee ownership, cooperatives, collectives, and communes. We would also have various lending libraries, not just for books, but also for tools, toys, and many other items that are either used
temporarily or infrequently.

If we had healthcare policies for the 99%, we wouldn’t have 50 million Americans without health insurance, millions more underinsured, high monthly premiums, high co-payments, overpriced procedures and medicines, overcrowded emergency rooms, and people going bankrupt due to huge medical expenses. We would have high-quality universal single-payer healthcare.

If we had education policies for the 99%, we’d have free public education from preschool through graduate school for all who qualify and we would pay teachers more than stock brokers. Student loans would be less necessary, but would accrue at lower interest rates and could be repaid with various forms of community service. Further, education wouldn’t simply be geared toward tests, but would be oriented toward basic skills as well as critical thinking, problem solving, creative expression, sustainability, social movements and societal improvement,
people’s history, educational holism, and a whole range of relevant people’s education that focuses on the needs and interests of the 99%.

If we had energy policies for the 99%, we wouldn’t have oil and coal companies making hundreds of billions in profits, while polluting the world and increasing global warming, or tax-subsidized, uninsurable nuclear plants that threaten health and safety, but would instead support an array of decentralized safe and renewable energies, including solar, wind, wave, tidal, geothermal, hydrogen, biomass, hydroelectric, and others. We would also focus much more on conservation and efficiency.

If we had environmental policies for the 99%, we would clean up the plethora of Superfund sites, get dangerous chemicals out of foods and toys, minimize chemicals in our society, eliminate carcinogenic products, discourage carbon and methane emissions that increase global warming, raise efficiency standards for vehicles, appliances, and electronics, protect our air and water, restore forests and wetlands, encourage local, organic, and vegetarian eating (LOVE), institute the
Precautionary Principle, and ensure environmental justice.

If we had transportation policies for the 99%, we would support and subsidize many forms of public transportation and expand it, including high speed rail, as well as facilitating bicycle use, electric car sharing, and walkability.

If we had trade policies for the 99%, we wouldn’t have so-called free trade agreements that facilitate the investments and capital transfers of multi-billion dollar transnational corporations, but instead would have fair trade agreements that mutually benefit workers, producers, consumers, and the environment. We would also substantially reform the IMF, World Bank, and WTO.

If we had legal policies for the 99%, we wouldn’t imprison people for non-violent offenses, would expand local and specialized courts, mediation, collaborative justice, alternative sentencing, restitution, community service, and would seek social policies, including all of the above, to prevent crime more than punish it. Legalizing, or at least decriminalizing, marijuana and hemp would be an important step as would strengthening and enforcing laws against corporate and environmental crimes.

If we had entitlement programs for the 99%, we would be preserving, strengthening, and expanding the very successful Social Security and Medicare, removing contribution caps for high income earners, with the 1% paying their fair share.

If we had investment policies for the 99%, there would be a tax on speculative investments, as the U.S. once had (perhaps 1%), and further disincentives for speculating in food, water, housing, healthcare, education, energy, and other necessities of life.

If we had banking policies for the 99%, there would be high capital reserve requirements, disincentives for banks to speculate, and incentives to lend money in local communities for local needs. States and other jurisdictions would have their own banks. There would be preferential treatment for non-profit credit unions.

If we had agricultural policies for the 99%, we would support small farmers, farmers’ markets, organic agriculture, and industrial hemp, instead of giant agri-business, the chemical industry, the livestock industry, the sugar industry, the corn ethanol industry, the cotton industry, and the tobacco industry.

If we had food policies for the 99%, we wouldn’t have hunger, crappy school lunches, and genetically engineered food. We also wouldn’t have fast food and processed food products that are cheaper than real foods and chemicalized produce that is cheaper than organic fruits and vegetables. Dangerous chemicals shouldn’t be sprayed on our farms and animals shouldn’t be tortured and killed to produce unhealthy food for profit. Healthy, compassionate, environmentally-sustainable food should be the norm, but it’s apparently not as profitable for the 1%. We would change that.

If we had electoral policies for the 99%, we would have one-person-one-vote instead of one-dollar-one-vote with the millions and millions of people’s voices much more influential than the thousands of highly-paid corporate lobbyists. Further, we would reduce barriers to voting and for third parties, while incorporating democratizing schemes, such as ranked choice, instant run off, none of the above, and proportional representation.

If we had foreign policies for the 99%, we wouldn’t be fighting oil wars costing trillions of dollars and way too many lives, maintaining a thousand foreign military bases, supporting foreign militaries and dictatorships, but instead would be supporting democracies, democratic movements, and sustainable development around the world. Helping to clean up the world’s water, for example, would cost a fraction of the bloated U.S. military budget, yet would provide much more hope to
hundreds of millions of people around the world, while providing substantially better national security for all. Likewise with building schools, hospitals, and clinics.

While this declaration is not comprehensive, it is a good start, though it needs you.

Like modern day Marie Antoinettes, the 1% tell us to go shopping and eat cake, while they continue to privatize massive profits and socialize exorbitant costs. We the 99% no longer want their bread and cake crumbs; now we have our sights set on the bakery. Our society can be modeled after Arizmendi Bakery with its democratic and participatory structure, which is a microcosm of how the 99% can become the 100%, how we can control our destiny and live more secure, fair, and meaningful lives.

If we had social policies for the 99%, we would support need not greed, people before profits and corporations, and we would get money out of politics, reclaim our democracy, reduce racism and sexism as well as other oppressive social divisions, and promote social justice with every policy and program from the local to the global and from the personal to the political.

I support the need of the 99%, not the greed of the 1%. Which side are you on?

He is still sinking today. According to the Pew Research Center poll released Aug. 25: “For the first time in his presidency, significantly more disapprove than approve of the way Obama is handling his job as president (49% vs. 43%), and… 38% strongly disapprove of Obama’s job performance while 26% strongly approve.” The poll shows that 22% approve of the job performance of Republican congressional leaders while the figure is 29% for Democratic leaders. At 43%, the Democratic Party is viewed more favorably than the GOP at 34%.

At issue now is what the important and very disappointed liberal, progressive and labor union sector of the Democratic constituency is going to do during the 2012 election campaign, which already seems well under way 14 months before the voting.

Many Democratic Party supporters, especially those of the center-left, virtually venerated their candidate during the 2008 campaign. Liberals and unionists not only chanted slogans on cue at rallies but volunteered and donated money to elect him. The union movement invested a few hundred million dollars. Obama was not only viewed as the anti-Bush redeemer but the rescuer who would bring the party left wing back to relevance after being exiled to the sidelines when the leadership began its nearly four decade trek to end up right of center.

During the earlier campaign in Des Moines, Oprah Winfrey — who is arguably the most influential woman in the world — declared to a crowd of 15,000 enthusiasts, “I am here to tell you, Iowa, he is the one. He is the one!” But in her New York Times column Sept. 3 titled “One and Done?,” Maureen Dowd devilishly observed, “The One is dancing on the edge of one term.”

Even though Obama will occasionally pretend to liberal populism to mesmerize selected audiences during this campaign, his first term record of concrete concessions to conservative ideology cannot be camouflaged. As viewed from the party center left, and even from the center, the Obama Administration’s record is lamentable when matched against reasonable Democratic voter expectations in 2008.

Most Democratic voters, liberal or not, expected a reduction in U.S. military violence, not the increase Obama produced. They preferred a strengthening of civil liberties, not a continuation of the Bush Administration’s Patriot Act and additional erosions of rights. They sought progress on reducing environmental despoliation and global warming, not policies that produce opposite results. Many anticipated at least moderate efforts to mitigate the appalling increases in economic inequality, and to alleviate the hyper-inequality afflicting some national minorities, but nothing has been forthcoming.

So far, it is premature to anticipate how many defections are expected from the Obama camp due to increasing malaise and anger from much of the liberal sector and its further left cohorts who usually end up on the Democratic Party treadmill every four years. They are caught once again — although by surprise this time for many — in the familiar lobster-like pincers of the lesser evil/greater evil dilemma.

Most fear that voting for existing small third party progressive alternatives will help elect the “greater evil” right/far right half of the ruling duopoly, so they will vote for the center right Obama, who occupies political territory once claimed by the now extinct “moderate” wing of the Republican Party. The White House inner circle, Democratic Party bigwigs and the main sector of the ruling class are counting on it, and seek to raise a record-setting $1 billion dollars to keep their man in the Oval Office.

The Democratic Party strategy for gaining a second term in the White House seems based on two main assumptions about the Republicans, as well as blaming the GOP for everything except Hurricane Irene, and putting forward a popular program that after the elections may never see the light of day.

(1) The first assumption is that the GOP will be perceived by much of the electorate as having moved too far to the right, alienating independent voters who will now vote for Obama in greater number, and keeping the dissident Democrats in line. There is also the possibility of splits between the Tea Party stalwarts and the less doctrinaire parent party as a whole and possibly within the TP itself.

(2) The second assumption is that the GOP simply does not have a broadly attractive presidential candidate if the field remains narrowed to Tea Party favorites such as Texas Gov. Rick Perry, Minnesota Rep. Michele Bachmann, and former Alaska Gov. Sarah Palin, or flagrantly opportunist conservative former Massachusetts Gov. Mitt Romney, backed up by secondary candidates including libertarian Texas Rep. Ron Paul and longshot mainstream Republican former Utah Gov. John M. Huntsman. At this point Perry (an aggressive climate change and evolution denier, who thinks Social Security is a Ponzi scheme) and Romney (who probably was the last of the “moderate Republicans” until raw ambition and hypocrisy drove this multimillionaire to the farther right) have the inside track. Palin hasn’t announced yet.

For his part, President Obama will strive to convince the American people that the Republicans are entirely responsible for the political gridlock in Washington. He will charge the GOP with putting petty party interests ahead of “American,” not merely Democratic, interests, intentionally conflating the two to imply the Republicans are lacking patriotism. The White House will propagate the notion that Tea Party extremists left Obama with “no choice” but to cut social programs to lower the deficit instead of fighting harder for taxing the rich, and “no option” but to put Social Security, Medicare and Medicaid up for grabs — concessions that were in fact entirely voluntary. It is highly doubtful for obvious reasons that the Democratic candidate will repeat his most stirring crowd pleaser from the 2008 campaign — “Our time has come, our movement is real, and change is coming to America.”

The Democratic domestic platform will be a glistening cornucopia of promises and good intentions for every sector — the right, center, and even a trifle for the left. In essence, however, it will tilt toward conservatism. There will be elevating talk about needed programs, but it is highly doubtful a viable social agenda that serves the needs of an increasingly desperate American people will emerge from an Obama triumph, including anything more than token gestures toward rebuilding infrastructure or protecting the environment. Foreign policy will remain the same, as will military/national security strategy and its ruinous price tag. Full spectrum power and global domination remain the name of the imperial game.

This may keep the bulk of Democrats content and attract independents. Most rank-and-filers have followed their party into the center right over the years, consciously or often not even aware of the political shift, and remain comfortable with Obama even though the blush has departed the rose. Most liberals are no longer sanguine and some will fight back within the party and may be able to wrest small favors.

Obama will be traveling on a bumpy campaign road, however, and there will be some potential Democratic voters who stay at home, probably including younger and first time voters who played a big role in 2008, and Latino voters dismayed by the Obama Administration’s George Bush-like immigration policies, among others.

Several score liberal, progressive and labor organizations are complaining loudly, from Move-On, Campaign for America’s Future, and Progressive Democrats of America to the AFL-CIO federation of 56 unions. It is expected that a developing coalition of such forces will exert considerable pressure on the Democratic Party leadership to include at least a few key liberal programs in the platform, although most campaign priorities are ignored or delayed indefinitely after the election.

Nearly 70 groups that describe themselves as progressive sent a communication to President Obama Aug. 30 insisting that he fight for a jobs program “that does not just tinker around the edges.” Similar groups are pushing for a legislative drive to “Restore the American Dream.”

Some groups are threatening to withhold campaign contributions should Obama ultimately agree to making cuts in federal entitlement programs. A grassroots group called the Progressive Change Campaign Committee composed of liberals who raised money for the Democrats in 2008 brought 200,000 signed pledges to Obama’s national campaign headquarters in Chicago in July with precisely that message.

The most important critic is the 10.5 million-member AFL-CIO and its new community affiliate, the 2 million members of Working America. Total U.S. union membership may have suffered a precipitous decline since its apogee in 1954, when it constituted 33% of the workforce, compared to 11.9% this year — but the unions are key to the Democrats’ existence, although the party has given very little in return.

Criticism of the Democrats of any kind is a fairly new attitude for the AFL-CIO, after many decades of conservative, pro-war, Cold War, pro-business leadership from former AFL and AFL-CIO presidents George Meany and Lane Kirkland from 1952 to 1995. The more militant John Sweeney, federation president 1995-2009, broke with many of the earlier right wing practices while remaining close to the Democratic leadership.

Former United Mine Workers leader Richard Trumka, who was part of the now-retired Sweeney’s winning New Voices reform team, succeeded to the presidency. He has been remarkably vocal this year about the failure of the Obama Administration to fight the right and to support progressive programs for jobs, the Employee Free Choice Act, a public option for healthcare, and raising the minimum wage from $7.25 to $9.50 an hour as Obama promised in 2008. Free Choice was the labor movement’s key legislative priority. It would have removed several barriers to increasing union membership — but the White House didn’t even bring the bill to a vote, knowing conservative Democrats would join anti-union Republicans to defeat the measure, not that Obama twisted any arms on behalf of labor.

In addition to public criticisms, Trumka has been suggesting that the AFL-CIO intended to declare a certain independence from the Democratic Party. In early June he told union nurses meeting in Washington that “We want an independent labor movement strong enough to return balance to our economy, fairness to our tax system, security to our families and moral and economic standing to our nation…. We can’t simply build the power of any political party or any candidate. For too long we’ve been left after the election holding a canceled check and asking someone to pay attention to us. No more!”

In the equivalent of aiming a hefty whiff of grapeshot across the White House lawn, Trumka declared Aug. 25: “This is a moment that working people and quite frankly history will judge President Obama on his presidency. Will he commit all his energy and focus on bold solutions on the job crisis or will he continue to work with the Tea Party to offer cuts to middle class programs like Social Security all the while pretending the deficit is where our economic problems really lie?”

Some other indications of the labor movement’s more active stand include the recent federation announcement that it is organizing a nationwide week of demonstrations for jobs in 450 locations in October. On Sept. 4 it was reported that union donations to federal candidates at the beginning of this year were down about 40% compared with the same period in 2009. In August, a dozen trade unions, including the 2.5 million member AFL-CIO building trades division, said they would boycott next year’s Democratic National Convention in Charlotte, N.C., because of “broad frustration with the [Democratic] Party” and to protest the event’s location in an anti-union right-to-work state.

Despite some unprecedented criticism, and positive evidence of a tilt toward labor independence, a break with the Democratic Party is not in cards for the 2012 election. But it is a long delayed warning that has a powerful potential should it be ignored. A token of opposition may transpire next year by union refusal to back selected Blue Dog Democrats; perhaps labor candidates will run against some conservative Democrats in primaries or in some cases stand as third party election entries against anti-union candidates of the two ruling parties. Some money may be withheld and there may be fewer volunteers.

When President Obama took office on Jan. 20, 2009, the news media often compared him favorably to Dr. Martin Luther King, suggesting, in effect, he was the fulfillment of King’s “Dream,” a reference to the great civil rights leader’s “I Have a Dream” speech at the 1963 March on Washington. On the anniversary of the march Aug. 28, Rep. John Lewis (D-GA), who was a civil rights fighter in his youth and who at spoke at the historic event, speculated on what King would say to Obama were he alive today, in a public statement that was both a plea and a sad censure:

“Dr. King,” Lewis wrote, would tell President Obama “that it is his moral obligation to use his power and influence to help those who have been left out and left behind. He would encourage him to get out of Washington, to break away from handlers and advisers and go visit the people where they live…. He would urge Obama to feel the hurt and pain of those without work, of mothers and their children who go to bed hungry at night, of the families living in shelters after losing their homes, and of the elderly who chose between buying medicine and paying the rent….

“[He would tell him] to do what he can to end discrimination based on race, color, religious faith and sexual orientation…. There is no need to put a finger in the air to see which way the wind is blowing. There is no need to match each step to the latest opinion poll. The people of this country recognize when a leader is trying to do what is right…. Let the people of this country see that you are fighting for them and they will have your back.”

This is no doubt true, but fighting for the people is simply not among Barack Obama chief priorities.

Some contend that the takeover was accomplished last January, when the new Republican House majority assumed office. Granted that the intransigent buffoonery of the right/far right party is a substantial factor, but it by no means is the only factor, as the Democrats suggest.

The Tea Party (TP) phenomenon is a symptom of one of the more bizarre political moments in American history between the odd couple that constitutes the two-party system, not the principal causative agent. It is a new formation but composed of the old hard core right wing and religious right reinvigorated with conservative populism, anti-government libertarianism, garnished with an element of racism in response to a non-white chief executive, and performing the political equivalent of wilding in the streets.

The larger Republican Party and its leadership may not be as fanatical but is going along with the far right because it’s producing positive practical gains for conservative ideology and programs, and seems to have tied the bewildered and misled Democrats into impotent knots. The big danger for the GOP is going so far to the right that it gets trounced in the 2012 elections, which is what the White House is counting on.

Others maintain seizing the asylum was facilitated when President Barack Obama took office in January 2009 — the argument being that he is a weak pushover who doesn’t understand how to fight for his beliefs.

Obama, however, is a tough, exceptionally ambitious politician who knows what he wants and goes after it with cool precision. How else could have migrated to the U.S. Senate and the presidency of the United States in five years after an unremarkable dozen years in academia and the obscurity of the Illinois state senate? With virtually no record of accomplishments, he whipped the formidable Hillary Clinton electoral machine, then the McCain/Palin opposition, and then his own party’s left wing in the process.

The president does indeed fight for his convictions, much to the dismay of the liberals and progressives — a prominent sector of his own party constituency whom he mocked as the “professional left,” then rendered powerless by furling his brows. The problem isn’t the president’s “weakness” but his now only partially disguised moderate conservative convictions that allow him to pull his party to the right in the name of bipartisanship, even if it takes humiliating his most fervent supporters.

It wasn’t Obama’s fear and trembling but self-confident chutzpah during the deficit debates when he gratuitously consigned the greatest achievements of the New Deal and Great Society to the future chopping block, and in House Speaker John Boehner’s opinion gave the Republican leadership 98% of what it actually sought.

In fact there was no real debt crisis or probability of default. Raising the debt limit is as American as Thanksgiving dinner, and it’s an economic necessity in a recession. Obama had a perfect right to avoid default unilaterally by invoking his 14th Amendment obligation to pay the country’s bills. He chose to allow the charade to fester. Wall Street was well aware there would be a last minute agreement to cut programs and not raise taxes, although the mass media converted the farce into a potential national calamity until the end.

Liberal critics and the trade union movement were appalled by Obama’s primary focus on reducing the deficit during a severe economic crisis as opposed to recognizing that the first priority should be heavy government investment in creating jobs. The headline over economist Paul Krugman’s New York Times column told it all: “The President Surrenders.”

Continuing high unemployment is one of the main reasons working class/middle class families may experience a painful double-dip recession, extending the crisis many years. Officially, 9.1% or 14 million American workers are jobless. Black unemployment 16.7%. When the total includes “discouraged workers” who have given up constant job seeking for lack of success, along with part-time workers who cannot obtain needed full-time employment, the pool expands to nearly 30 million workers or 16.2% of the labor force.

Obama responded to intense criticism and dismay about his inattention to unemployment from various quarters by putting forward a jobs program in a major speech to a joint session of Congress Sept. 8. The proposal, titled the American Jobs Act, appeared to offer considerably more breaks and financial incentives to businesses to hire more employees than to the jobless workers.

The chief executive stressed the bipartisan the nature of his proposal, maintaining that virtually all of its aspects were supported by conservatives as well as Democrats, and assuring Republicans fixated upon deficit reduction that “everything in this bill will be paid for” through a scheme to increase the amount of money the to be sliced from future spending. Part of such reductions will derive from cuts in Medicare and Medicaid, just as the liberals and unions feared. Much of the $447 billion pricetag will go to tax breaks for business and a reduction in payroll taxes to employees and companies.

The initial reaction to the plan by liberal economists was that it will create jobs but hardly cause a serious reduction in the jobless rate, assuming that it passes Congress without big cuts. The plan envisioned many jobs would derive from a campaign to rebuild a portion of America’s decaying infrastructure, but it is extremely doubtful this will get off the ground. More details are expected next week.

There was also no compelling necessity for Obama to decide “you have to put everything on the table” for the budget cutters including Social Security as well as Medicare and Medicaid. That was the administration’s political preference, regardless of bitter howling from the 83-member Congressional Progressive Caucus, co-chaired by Reps. Raúl Grijalva (D-AZ) and Keith Ellison (D-MN). The House Democratic Blue Dog coalition of fiscal conservatives has only 26 members but patently enjoys considerably more influence in the White House than the marginalized progressives. The GOP controls the House, but the hyperactive Tea Party Caucus, chaired by Rep. Michele Bachmann (R-MN), has 23 fewer members than the Progressive Caucus, and it has been far more effective because it has leadership support.

The Progressive Caucus has been sharply critical of what the White House and the Democratic political and funding powers are giving away to the conservatives, but few dare speak as frankly as Rep. Dennis Kucinich (D-OH) — the best and boldest of the remaining center-left House members — during an interview with Truthdig Aug. 4 in discussing the deficit agreement with the Republicans:

I think that this idea that somehow the White House was forced into a bad deal is politically naive. When we saw the White House signal early on that it was ready for cuts in Social Security, Medicare and Medicaid by actually setting aside bedrock principles that the Democratic Party has stood on for generations, that signal indicated that they were ready for a deal that would involve massive cutting of social spending, and increasing or locking in increases for war, and helping further the ambitions of the Defense Department, not touching the Bush tax cuts. And that’s exactly what happened.

During his June 8 speech, Obama justified cutting two of the three historic Democratic Party achievements in these words: “I realize there are some in my party who don’t think we should make any changes at all to Medicare and Medicaid…. But with an aging population and rising health care costs, we are spending too fast to sustain the program. And if we don’t gradually reform the system while protecting current beneficiaries, it won’t be there when future retirees need it.”

This is doubletalk, based on catering to conservatism by refusing to consider a number of available alternatives to program reduction. But the case appeared closed, according to an analysis of Obama’s speech in the Sept. 9 New York Times: “Republicans and Democrats are no longer fighting over whether to tackle the popular entitlement programs — Medicare, Medicaid and Social Security — but over how to do it.”

It should be noted that the Obama White House routinely shifts to the right on issues that do not necessarily depend on House votes, undercutting the argument that the Republicans always tie the president’s hands. The administration’s dreadful environmental record, for instance, is largely independent of the antediluvian climate change deniers in Congress. The White House decision to abandon the Environmental Protection Agency’s tough new air pollution regulations Sept. 2 was a concession to big business, which could have lost some excess profits due to reduced emissions of smog-causing chemicals, not the result of a filibuster or lack of votes.

This “betrayal,” as it has been termed by environmental leaders, follows recent Oval Office decrees to allow more oil drilling in the Arctic and Gulf of Mexico, approval of the tar sands Keystone XL oil pipeline from Canada to Texas, calls for more nuclear power plants, and increased drilling for polluting natural gas as well as utter passivity toward climate change. None of these decisions were “forced” upon the Obama Administration.

What all this suggests to us is that the White House is dedicating its principal efforts to imposing a more conservative economic and political agenda on the American people, and that part of the process is bending over backward to create an informal but virtual government of national unity between the center right and right/far right ruling parties.

The Obama Administration evidences a breezy willingness to give away the Democratic Party’s tattered remnants of liberalism, to weaken some past attainments achieved after years of struggle, and forego fighting for new social programs. The result has been two or three steps to the right, by commission or omission, for every nebulous step to the “left,” such as the administration’s health care plan, which was based on the moderate Republican effort in Massachusetts.

Much closer political unity with the right wing was the meaning of the continuing mantra during the 2008 Obama campaign about extending his hand “across the aisle,” governing “as Americans not as Republicans or Democrats” and insisting that “There is not a liberal America, or a conservative America, but a United States of America.”

As we declared in this newsletter a few days before Obama was elected almost three years ago: “Does this mean there is no need for political struggle — that lion and lamb are about to bed down together, solving the problems of the country and world with some pillow talk among all us Americans finally freed from the stressful complications of politics? This notion is preposterous, of course.”

Why would President Obama put forward such a policy? There are several factors, but in our view the main one is an effort to address America’s declining superpower status globally and domestically, economically and politically. The erosion of U.S. power was hastened during eight years of Bush Administration mismanagement and imperialism, two lost wars, record military spending, tax cuts for the rich, enormous debts and finally the Great Recession.

In his jobs speech Obama emphasized the need to “show the world once again why the United States of America remains the greatest nation on Earth.” Retaining world “leadership,” i.e., geopolitical economic and military supremacy, has been a constant refrain from Obama since at least two years before winning the presidency, and is obviously a factor in the support he receives from a large sector of those who rule America.

Domestically, the White House seeks to strengthen the capitalist sector, reorganize the economy to confer even greater powers upon the corporations, banks, Wall St. and the wealthy; renegotiate downward the social contract with the working class and middle class by further limiting popular spending, entitlements, and government programs to help the people; and reduce union power even further while mumbling pro-labor sentiments. In addition, there has been an effort to reassert the unifying spirit of national chauvinism, militarism, and warrior worship.

Internationally, the White House policy is to reinvigorate American global domination; refurbish Washington’s dilapidated international reputation; retain U.S. hegemonic interests in the Arab world by intervening in the regional uprisings; restore a more subtle form of U.S. dominion in Latin America; and reverse recent history by finally winning some wars for the $1.4 trillion Washington forks out annually for the Pentagon and national security (i.e., the Afghan “surge” to forestall yet another defeat, extending the war to western Pakistan, crushing tiny Libya and keeping U.S. troops in Iraq and Afghanistan long past the deadline for complete withdrawal).

But if the Democrats are right of center these days and making concessions for functional unity with the right/far right party why are the Republicans creating dysfunction and saying “no” to everything and creating political havoc? Because they want a lot more and think they can grab it. The GOP is obtaining a good political deal at bargain basement prices. For its part, the White House is selling out cheaply to clear the shelves of old liberal merchandize to make room for new more conservative product of its own. Since Republican antics usefully convey the public impression of “forcing” Obama to make concessions against his will, the Democrats won’t get too much blame for the even more corporate and unequal, even less generous and forgiving, America to come.

Conservatives have wanted to destroy the progressive gains of President Franklin D. Roosevelt’s Great Depression era New Deal since their inception in the 1930s, including Social Security. And the right wing backlash against the activism of the 1960s, focused on hard fought social and cultural advances as well as the abundant liberal legislation of President Lyndon B. Johnson’s Great Society — including Medicare and Medicaid — has been never ending since the 1970s.

The result is a blanket of conservatism that gradually began to cover much of the U.S., along with stagnant wages, the dwindling of the American Dream and the end of significant new government social programs for the people. Now, in the midst of a devastating economic breakdown and cutbacks in essential federal and state government services, the once center left Democratic Party is offering the to put the three crown jewels of the Roosevelt-Johnson period “on the table” to be examined by the new bipartisan Joint Selective Committee for Deficit Reduction, which is due to make decisions before the new year.

One thing is certain about the 2008 election. The American people wanted change, big change from their next government. Candidate Obama promised change they could “believe in.” The people were encouraged to respond in unison by chanting “Yes we can,” entertaining hopes of fewer wars, more secure incomes, greater attention to health, education, job creation and the environment, some help for the poor, and perhaps more equality with an African American in the White House. The Democratic platform was filled with empty generalities, but the campaign remained intentionally vague about what its “change” was all about. This was the tip-off to an impending deception that became obvious after the election, when the changes they hoped for were not what Obama had in mind.

Now, following several grave concessions to conservatism before, during and after the early summer deficit fiasco with more to come, President Obama has began to indulge in populist rhetoric about jobs and infrastructure to galvanize the faithful into providing campaign dollars and innumerable volunteer hours to defeat the “evil doers” in 2012.

We’ve seen constant layoffs with no attention paid to one fundamental question: What are these unemployed people to do now? There are no jobs of value being created for them. Our media has diligently reported the layoff numbers, sometimes even helping Wall Street when the bottom line of companies look to be improving through the cutting of “fat”. It’s as if those unemployed individuals are worth mentioning in their aggregate numbers, but the actual humans are thought to evaporate like so many electrons that brought the newscast yesterday.

Could it be that reality is finding its way to Wall Street? It’s possible, at least until they can figure out another trick to pull for the next round of pump and dump. But sooner or later, the ploys will fail and it will be all dump.

At this point, the fundamentals of reality are but a novelty to these people. And in fairness, they really haven’t had to operate under the same sets of rules that the rest of us do. On Main Street all it takes is one medical trauma to lead one to financial ruin. Change jars sit on counters to help with chemotherapy costs for local kids (probably dosed by something industrial titans made a killing off of). And sometimes the jars get taken down, but usually when the change is counted out to help with the funeral expenses. Not one person on Wall Street lives in that world.

We are told to care about Wall Street because it affects our pensions, right? I hear that one sometimes from Boomers who still have them, and a few fellow Gen X’ers in certain professions. If you have a pension, it’s probably being sliced, diced and consumed with a nice $350 bottle of wine at this very moment. Your pension crumbs stick to Paul Ryan’s fleshy lips as he plots with the usual suspects. This is where your pension doom springs from. The Dow could hit 20,000 (whatever the hell that means) and they would find a way to punish you out of it.

If only the UP/DOWN INDICATOR on the screen could give a running tally of those being screwed over to prop up business as usual; that is, the continued funneling of remaining resources to the gov/corp welfare for its wealthy program. “Sweet potato dumplin’….. did you see the Screwed Over index today? It’s up to 302 million people right now. Holy guacamole!” (this is how everyone talks away from the corridors of power, we’re all so colorful in our gingham and rocking chairs).

They say that the debt debacle may be a cause for some of this turmoil. After all, we inhabit a world where confidence and submission to the decree of authority is essentially the economy. I don’t think you could have scripted a more confidence-eroding spectacle than what we witnessed last week. We didn’t even get a satisfactory dénouement with a John Boehner crying fit. And all Obama wants is a good hamburger, goddamit.

We saw wrangling over cutting the subsistence level funds to the elderly and infirm discussed as pure inevitability, but there was no harsh talk about  diminishing the true cause of our bankruptcy — that of the Empire prolonging wars. That reality was barely tickled during the debt talks. If we were a cheesy Western, I know what color our hat would be.

The fact that reality can’t be put on hold indefinitely is a new concept for our men and women of power. They aren’t used to constraints of any kind. Imagine the corruption that would emerge if you were never called on for mistakes. I don’t think they accept lessons from cause and effect they personally experience either. I’m sure David Koch didn’t think twice during his cancer treatments as he lorded over a cancer causing juggernaut of industry.

Strange superstitions abound during upheavals, and sadly harsh circumstances can bring even more whimsy and denial of reality. I’ve heard from many individuals, usually in the workplace, that all of this turmoil will be sorted out by a higher power, and they then go on autopilot. I’m not trying to erode religious beliefs, but I have to say that as I see it, if a higher power is looking down on all of this, it is certainly because we are the “control” in an experiment. The helpful mitigation is going on with the other planet! We are subject to cause and effect, and we should have the grace and dignity to plunge forward chasing real solutions with no reliance on others of any stripe to save us (worldy or otherworldly!).

We are certainly in a fading, pathetic comedy, the kind that comes from the end of an Empire. And on that note, I think this is fitting:
All enterprises that are entered into with indiscreet zeal may be pursued with great vigor at first, but are sure to collapse in the end (from Tacitus, a guy who witnessed a case study of something similar).

This is looking suspiciously like the logical end to indiscreet zeal.
I hope that the “eroding confidence” of the markets bleeds over into a wholesale questioning of all the underpinnings that bind us to their false reality — the one that only benefits a few. Times of unraveling are wildly dangerous, but the rapid changes make outliers become possible players in the new set-up.

Let us grab what is coming with discreet zeal and a full appreciation of the most basic of truths, that of plain and simple reality.

Twelve men (well, maybe, toss in a woman) will decide how about $1.4 trillion is to be slashed from Social Security, Medicaid, and Medicare.  Perhaps, there’ll be a bit of symbolic fat cut from the Pentagon as well.  Said recommendations to be voted up or down by the US Congress? With the possibility of zero amendments?  None.  Nada.  And even the political maneuver of a filibuster tossed out?

So that old, antiquated – and often inconvenient – legislative body, the US Congress, made of elected officials (albeit elected in a very flawed manner) is to be pushed aside.  To be nullified.

Said legislative body just voted to destroy itself.

That is a coup.  Albeit it’s not a military coup, but the word ‘coup’ does not require military tanks in the streets or troops swarming onto Capitol Hill.

Sure the US Congress had its deep failings, including plenty of Senators and Congressmen and women owned lock-stock-and-barrel by powerful corporate interests, including an excess of ill-informed, bullying and posturing members, including committee meetings routinely held behind-closed-doors.  Not to mention many extraordinarily cowardly Senators and Congressmen who would rather not have to take the political heat of their decisions.  Yet, for all its failings, the US Congress was at least a stab at democracy. Was.

Let’s get this straight right now.  This isn’t just a Committee.  This isn’t a Special Joint Commission.  This isn’t the Joint Select Committee on Deficit Reduction.

In 2010 a few Democrats took alarm at President Obama’s then recently appointed Simpson-Bowles Deficit Committee.  The critics feared that the Committee’s findings would necessitate large segments of the US population being reduced to eating cat food.  Thus, the moniker, the Catfood Commission.

It was a nice twist on the old phrase of the rich princess (apocryphally Marie Antoinette) confronted by starving peasants, saying, condescendingly, “Let them eat cake.”  Yes, let them – particularly the vulnerable, the old, the unemployed, the poor, the disabled — eat the equivalent of cat food.  In fact, perhaps, actually consume cat food.  Yes, to get right down to brass tacks, let them eat bits of rendered animals, road kill and ash.

Already commentators on the Left are renaming the latest version, the Catfood Commission on Steroids.

Still in a spirit of levity one could rename the former Catfood Commission, the Mincemeat Commission.  (There was always a problem with the phrase, Catfood Commission.  Too many people in the US are ardent pet lovers and might actually think there is a commission appointed to study and regulate the ingredients of Kitty’s supper.)

The Mincement Commission on Steroids.

It’s called making mincemeat of the US Constitution, the US Congress, the legislative process, the electoral process. It’s putting accountability and transparency through a meat grinder – and what comes out the other end?  Shattered lives, a plummeting economy and a democracy in name only.

Is levity appropriate at this moment?

This is not shooting oneself in the foot.  This is not just some temporary, weird Tea Party madness.  This isn’t just President Obama trying to push his agenda through Congress.  This isn’t just a committee with a fancy name.  Or a funny name.  This isn’t as it was recently described in the New York Times a “New Budget Panel.”  This isn’t a slightly bothersome mosquito that will “erode authority” (another Times quote) in the US Congress.

This is a coup.

There’s even a name for this particular type of coup.  A “self-coup.”  A duly constituted government assumes extra-constitutional powers and votes to circumvent the power, the messiness, the insight, the silliness, the saneness, the inanity, the wisdom of an elected body that supposedly writes the laws of the land.

A coup.

One of those nasty, totally undemocratic events.  Events the US has, for decades, carefully directly engineered in country after country, sometimes with up-front, military intervention, sometimes through covert action and behind-the-scenes deployment of CIA assets, sometimes with adroit political maneuvering – and lots of money poured into the right places.  Whether it was Guatemala, Panama, Iraq, Haiti, Nicaragua, Honduras, and dozens of other countries, the US government has plenty of experience with subverting democracy.

It was bound to come home to haunt us.  It has.

The question is, in these dog days, these “too hot to fish” days of August with the wealthy in the Hamptons, much of the country simply disgusted by the recent posturing in Congress and the unemployed looking for increasingly scarce work, who is going to protest?  Who is going to resist?

And how?

This is a question we absolutely must tackle.  We can’t afford not to.

The debt ceiling, contrary to popular belief, is in no way tied to future spending. It is instead related to already allocated funds. By raising the debt ceiling, Congress simply confers its formal authorization to the executive branch to continue with spending commitments it — Congress — has already authorized. A failure to raise the debt ceiling would thus not limit future spending in any way, but merely see the country renege on current financial obligations.

The entangling of the debt ceiling with future expenditures, then, is not inborn in the actual process of raising the ceiling itself. It is instead a result of a calculated choice made by the president and Congressional leaders. And herein lies the manufactured nature of the crisis.

But with this understood, why, then, has each political party chosen to so eagerly engage in the destructive political theatre unfolding before our eyes?

For Democrats, the eagerness to dance to the beat of the debt ceiling drum is due to the simple fact that the party has become beholden to the austerity-bent financial elite. No longer a party comprised of liberal economic Keynesians (i.e., those believing in a strong social safety net and governmental spending as a means of stimulating lagging demand), the Democrats are now a party of fiscally conservative economic neoliberals intent on slashing governmental spending. A brief foray into the history of this metamorphosis is in order.

All Are Now Neoliberals

Prior to the 1980s, the Democratic Party was indeed a party of Keynesians—in fact most Republicans were too, with President Nixon even declaring, “We are all Keynesians now” back in 1971. This consensus helped ease the path for liberal Democrats to enact the party’s landmark social welfare programs: Social Security and Medicare/Medicaid. And it was in this vein that the Democrats came to assume the mantle of the “party of the people”—however wrought with problems this notion truly was.

Yet, as the economic turmoil of the early 1970s became further entrenched, leaving the orthodox Keynesian proscriptions unable to adequately restore robust rates of capital accumulation and economic growth, the Keynesian model over time came to be abandoned. And with the subsequent rise of Reagan to the presidency in 1981, a return to an unfettered free market ideology had begun. Neoliberalism had arrived.

Much as Keynesianism had before it, neoliberalism soon ascended to distinction as the economic bipartisan consensus—endangering the once enshrined Keynesian welfare state in the process. And thus it was in 1996, that the Democratic Bill Clinton (working alongside Congressional Republicans) came to level the first substantial blow to the rather frail American social safety net.

Clinton’s euphemistically deemed welfare reform — which threw scores of destitute welfare recipients onto the rolls of exploitative state workfare programs — was triumphed for “ending welfare as we know it.” Clinton, shepherding the rise of the “centrist” New Democrats and the transition of his party to that more of Reagan than of the people, might as well have declared, “We are all neoliberals now.”

Returning to the present, we now find President Obama continuing along the path Clinton first forged. In fact, the president—seeking to preserve his stark financial advantage over his 2012 competitors—finds himself obligated to toe a strict fiscal line. In other words, he must pursue a continued rollback of the American welfare state that his principal backers — the financial elite — hold as a prerequisite for restoring proper rates of capital accumulation. In failing to appease his corporate campaign donors, the president would be left to face reelection without his critical financial lifeline. This would create a near fatal weakness, given that Mr. Obama has little with which to galvanize his party’s traditional working class base. After all, any gains he may have accrued in the enactment of his meek health care reform legislation are surely to be of secondary importance to an electorate of which 25 million of whom are either jobless or underemployed.

Hence it is the Democrat Obama who oversaw the renewal of the Bush era tax cuts (including a payroll deduction that siphoned more funds out of the Social Security Trust Fund, paving the way, no doubt, for its future “salvation”). And hence it is the Democrat Obama who readily offered cuts to Social Security and Medicare in his recent debt ceiling negotiations with House Republicans. It is the Democrat Obama, in short, who vigorously pursues the unraveling of the social safety net. What the president’s financial backers want, they get. In the end, you indeed dance with the one that brought you.

Drowning Government in the Tub

If the Democrats have come to be the party of Reagan, the Republicans have become the party of Grover Norquist (the rabid anti-tax crusader and founder of the influential Americans for Tax Reform). It was Norquist who once quipped that his goal was to shrink government down to where “we can drown it in the bathtub.” The Republicans now appear intent on actually accomplishing this.

At the vanguard of this Republican attack is the party’s ultra-right Tea Party faction — for whom no amount of cuts are ever deemed to be enough. For the Tea Partiers, emboldened by the rising stock of their presidential hopeful Michele Bachmann, failing to raise the debt ceiling is seen as just another means to shrink the government down to the size of a bathtub.

Establishment Republicans — as equally tied to the financial class as their Democratic rivals — seem content at the moment with temporally irking the financial class with their appeasement of their more radical Tea Party colleagues. For the Republican leadership, the risk/reward scale still tilts heavily towards a rather bountiful reward, given the role envisioned for the Tea Party to play in the Republican’s ultimate aim of unseating President Obama in 2012. As Senate minority leader Mitch McConnell has already stated, the primary task of Senate Republicans is just that: defeating Obama.

Therefore, establishment Republicans are willing to allow a wide discretion to the Tea Party, even as it helps steer the debt ceiling debate ever closer to the cliff’s edge. In the Republican’s constant search for any means by which to inflict another, perhaps even fatal, political wound to the president, the risk is undoubtedly well worth it.

The Bipartisan Consensus

The two political parties, though, do still share substantial commonalities. The principal at the moment being their common willingness to remain laser focused on the debt debate. Both remain intent on doing so because neither is in possession of any viable solutions for the bevy of other, and more substantial, problems facing the nation. Thus, the longer the attention remains on the debt, no matter the toxicity of the political atmosphere, the better for both. For as unemployment creeps ever higher (currently at 9.2%), neither party in the end has anything resembling a jobs agenda. Just as neither party has a means (or desire) of getting out of Afghanistan and Iraq (needless to say Libya, Pakistan, Yemen…).

The origin of the general ineptitude of both political parties is found in the formation of their neoliberal consensus and the accompanying financial calamity left in its wake.

What occurred in 2008, in brief, was the catastrophic collapse of the neoliberal ideology. It was neoliberal free market ideologues like Hank Paulson and his Wall Street brethren, recall, who turned to the state for salvation. With such a public discrediting of its fundamental tenets by its most ardent prophets, neoliberalism was unmasked. All lingering neoliberal rhetoric is now really understood to be nothing but a farce. The discrediting and eventual disbanding of the neoliberal model appears to be unfolding along the same general trajectory that ran the Keynesian model aground in the 1970s. It will assuredly be a protracted process, but set in motion it has.

Yet, because each party moved headlong toward building the neoliberal consensus over the past three decades, neither is currently positioned to fully capitalize on its associated disaster. Therefore, until a new economic model fully emerges within either party, which is capable of properly restoring a sufficient rate of capitalist accumulation (albeit only biding the time until the next inevitable crisis is to occur, as long as remaining within the capitalist framework), the attention of both parties is to remain on the national debt. The orchestrated political spectacle will continue apace.

Only a tiny dent was made in the massive problems facing the nation. The missing $2.6 trillion from the Social Security trust fund, which played a major role in creating the economic crisis, is still gone. Except for Senator Tom Coburn (R-OK), nobody explained to the American people that the only reason that Social Security is in any trouble is because the government has stolen all of the surplus Social Security revenue and spent it on other programs.

On March 16, 2011, Senator Coburn said, during a Senate speech:

Congresses under both Republican and Democrat control, both Republican and Democrat presidents, have stolen money from social security and spent it. The money’s gone. It’s been used for another purpose.

The following morning, Senator Coburn said on MSNBC:

We have stolen $2.6 trillion from it. We put paper money in there. But the problem is we spent the money. We didn’t just take it. We took it and spent it.

To the best of my knowledge, no member of Congress, or other high government official, has attempted to rebut Coburn. How could they? Every member of Congress knows that what Senator Coburn said was absolutely true. They also know that there will not be enough revenue, from the payroll tax alone, to pay full Social Security benefits this year, or in future years. The government will have to take revenue from the general fund, to replace some of the stolen Social Security money, if full benefits are to be paid. This basic fact, which only a few members of the public know about, is the primary reason that so many politicians are calling for cuts in Social Security benefits. They do not want the government to have to repay the looted money.

What about the numerous articles that say Social Security has enough money to pay full benefits until 2036? They are based on the assumption that the $2.6 trillion in surplus revenue, generated by the 1983 payroll tax hike, was actually saved and invested in marketable U.S. Treasury bonds. But that was not done. As Senator Coburn has said, all of the $2.6 trillion in surplus Social Security revenue has already been spent. The money is gone.

Until 2010, Social Security had always been a net gain, meaning that money contributed by workers had always exceeded the amount sent to retirees. This surplus means that Social Security, as is, should be sustainable until 1936, but that’s assuming the economy won’t seriously unravel, but even if it will, Social Security should be the very last program to be tampered with. Waste is needless wars and bank bailouts, not money spent on the old and the disabled.

In a traditional society, one must take care of one’s aging parents, and let’s not sugarcoat this. There is a Vietnamese proverb, “One mom can feed ten children, but ten children can’t feed one mom.” In Saigon, an old lady also confided to me, “My daughter pinched my inner thigh out of spite the last time she gave me a bath, so I said to her, ‘Why don’t you go ahead and kill me already?’”

In the Republic of Goldman Sachs, NASCAR, and Lady Gaga, however, most kids won’t be around to pinch our inner thighs as we fade into senility. Also, more American women won’t have any children. In 1970, it was only one in ten. Today, it’s one in five. Fewer of us are also getting married. What you have, then, is a huge aging population without any income beyond the Social Security check that arrives each month.

Substituting for the missing children, three workers now support each retiree, but this is only fair, since for decades, these old people were the de facto filial sons and daughters of other senior citizens.

As working citizens, we have no choice but to participate in Social Security, but this has never been a problem, since the vast majority of us has always recognized its necessity. Who’d want to be old and curled up under a bridge?

At $1,177, your average social security check will pay for a one bedroom apartment in a semi-slum neighborhood, plus enough leftover for discount groceries, bought with several fistfuls of coupons. It’s not much, but it’s survival, and not something to be messed with, unless, of course, you belong to the very rich.

The wealthy hate Social Security because they don’t need it. Even the concept of surviving on a grand a month boggles their minds. That is so pitiful! Such chump change won’t even get them three bottles of Pinot Noir at Bistro Bis, a favorite of belt-tightening advocate, Paul Ryan. Never been there, but if I go, I’ll order a Spam musubi. Can I have an extra plate, please? Me and the wife will share.

For the wealthy, for people whose earnings derive mostly from investments and dividends, and not grunting work, it is somehow scandalous that we should get a thousand a month after a lifetime of honest labor. They can steal from us to finance their endless war and banking shenanigans, but it’s not OK for us tapped out lumpens to have a minimum income in old age? Instead of gutting Social Security, we should wipe out the superfluous Department of Homeland Security.

This vicious campaign against Social Security is nothing but class warfare, pure and simple. Unless we do something about it, and soon, the ruling class will continue to rip us off as we sweat, and starve us when we’re no longer useful. They and their enablers, Bush, Obama and Boehner, et al., are not of us or among us. Never on the streets except when hustling votes, they never see the senior citizens already sprawling on our sidewalks.

Old people of limited means are a drag, really, since they can’t be sent to war, and you may have to clean up after them, instead of the other way around, as is customary with the poor. What good is a poor person who won’t clean your toilet, give you a sensual massage or kill and die for the empire?

According to Japanese legends, Ubasuteyama is a mountain where old people are abandoned to die. With each cut to Social Security, we will be erecting our own Ubasuteyama.

Whether out of extraordinary resolve or sheer desperation, a “show me the money” policy is exactly the course Fed Chair Ben Bernancke is pursuing at full throttle. Faced with the unenviable task of reflating a deflating and uncooperative economy, the Fed opted last fall to take the “easy money” quotient a notch higher by formally initiating a second round of quantitative easing, while tacitly acknowledging the possibility of QE3, QE4, and so on into the undefined future. With Fed Fund rates effectively at or very near zero and a trillion dollars already in reserves, the Fed is in other words doing all it can to get the “credit-as-money” spigot flowing.

While hardly a ringing endorsement of the Fed, the truth is that the Fed has few other “money spigot” tools at its disposal.¹ So it was that – in an op-ed appearing in the November 4 issue of the Washington Post – the beleaguered Bernancke reminded the nation that the Fed cannot, by itself, solve all the problems rippling through the American economy. That process said Bernancke “will take time and the combined effort of many parties including the central bank, Congress, the administration, regulators and the private sector.”

Although the Fed for its part has shown unusual resolve to go the distance, the stimulative activities of the private sector – disconcertingly led as they are by a handful of big banks – are mostly focused on overseas “opportunities” in the emerging markets and not stimulative activities here at home. This combination of “cheap” dollars and cheap emerging market prices has of course enabled the financial sector to do quite well, despite increased risk. Meanwhile even those regulators not previously captured by special interests find themselves increasingly hobbled by a complex matrix of old, new and proposed regulations interlaced with a variety of deregulation schemes which together dilute the likelihood of effective action – and maintains the regulatory environment for “rogue Wall Street firms to kill small American businesses for profit.”

That leaves Congress and the administration. While both are also arguably captured by special interests, they are clearly feeling the intense pressure of a cash-strapped public. Hence the recent tax-cut bill which will add nearly a trillion dollars to the federal debt but do little to stimulate adequate money (as credit) creation where it is needed most – not in the financial economy headquartered on Wall Street but in the real economy, here on Main Street. Now caught between the proverbial rock and a hard place, the Fed, by its own admission and despite its high minded goals, appears every bit as needy as the erstwhile Jerry Macguire.

Main Street’s Woes Belie Wall Street’s Gains

For the moment, the Fed’s “easy money” goal of raising asset prices seems to be working, albeit not necessarily in sectors – such as real estate – where it would do the home economy the most good. Capitalizing on stockpiles of cash, good credit and “cheap money” secured by uber-low interest loans and back-stopped by TARP, the big banks and large corporations – together with a small army of investment funds – have been having a field day speculating in potentially lucrative but nevertheless risky ventures, inflating as they go various commodity prices such as wheat, corn, hogs and similar commoditized foods, as well as health care, precious metals and oil – and raising the possibility of igniting dangerous currency wars through revved up currency speculation.

Surging prices for necessities such as food, oil, and health care send mixed signals to ordinary Americans because inflation in the U.S. economy (after stripping out volatile food and energy prices) is actually at the lowest level it has been since 1957. Clear evidence of this phenomenon appears in the retail sector where for months retailers have been slashing prices on a seemingly endless supply of goods. While bargain hunters and incurable sentimentalists appear to have responded for the holidays at least, one has to wonder how the slimmest of profit margins can sustain not only retailers but their suppliers – and in turn, the myriad of producers and raw materials providers needed for finished goods, even if these are sourced from cheap-labor countries.

Ominously, job growth (with the exception of part-time jobs) is also going mostly nowhere, a fact which – however contra-indicative of an apparent holiday spending spree – does nothing to reverse the troublesome downward spiral in prices and wages. Consensus also has it that higher-than-normal unemployment will be with us for years to come. All of which affirms Bernancke’s preoccupation with stagflation and deflation – and bodes poorly for the Main Street economy inasmuch as “falling prices often also mean falling wages, as businesses respond to declines by cutting output and jobs.”

Wall Street gains make it clear that the banks and investor class are doing very, VERY well, thank you very much. Another portion of the population, perhaps as much as a third overall, is doing reasonably well – or at least well enough to keep up appearances. We have in other words, two Americas which, if understood, helps us make sense of conflicting economic data. The top 20% of Americans are prospering and spending handsomely despite carrying the major share of the tax burden, while the next 20% represents a fragile middle class that has become “mostly a figment of nostalgia and/or political illusion.” In real terms, the bulk of Main Street, including drop-off portions of the shrinking middle class, is bleeding profusely with one of every six Americans unemployed and countless more chronically “underemployed.”

Unfortunately for those most severely affected, the level of suffering is masked by the fact that there are “wide variations of hardship in the 50 largest metropolitan areas” – and official estimates do not always paint accurate pictures. As but one example, Detroit’s mayor and local leaders maintain that Detroit’s unemployment rate actually hovers near 50%, a figure far above official estimates of 30%.

Contributing to the probability of an increase in Main Street woes is the likelihood of a second dip in the housing recession – meaning home prices have yet to hit bottom. This translates into progressively fewer Americans who will be able to tap into home equity as a means of getting themselves through tough times – and it could bring about another tsunami of foreclosures. In turn, local real estate and other tax revenues will continue to decline even as demand for social services increases. This spells additional trouble for state and local governments, with states themselves collectively facing a $140 billion dollar operating budget shortfall next year alone.

Big Trouble Ahead for State and Local Budgets?

Indeed, state and local operational budgetary problems are becoming serious enough to threaten the inviolability of once “super safe” municipal bonds – which heretofore have been considered an attractive investment that comes with the added benefit of providing state and local government with funds for community improvements. Because bonds are essentially loans which the issuer (be it corporate or governmental entity) must pay back with interest, income streams of the issuer must be adequate enough to satisfy the terms of the loan. Unfortunately, low tax revenues and weak economic outlook are now compromising the bond issuer’s (borrower’s) ability to meet the terms of the loan – so much so that municipal bond defaults have been running triple the usual rate.

Economic forecasts that are tepid at best lead anaylsts to “fear that at some point, investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones.” Big name financial analysts such as Meridith Whitney and bond experts such as Marilyn Cohen go so far as to pose the possibility of widespread muni bond defaults.

While not everyone believes state and local budget problems are severe enough to create a ripple effect of bankruptcies, it is nevertheless unsettling to recall that the Great Depression actually began – and was prolonged – as various municipalities, mostly in the South and Midwest, began cutting services and defaulting on bond debt. A re-play of the Great Depression notwithstanding, the one thing most agree on is that states and communities with high levels of debt and poor revenue prospects will at the very least see the cost of borrowing head skyward, as investors head for cover.

Compounding muni market fears is the fact that, while investors of muni bonds may at one time have been lucky enough to have ended up with the equivalent of a piece of Central Park in satisfaction of debt defaults, today many such investors may not fair so well. This is in part because the states themselves are ill-prepared to help themselves much less troubled municipalities, and in part because, in the words of SEC Commissioner Elisse Walter, “investors in municipal securities [have become] in many ways ‘second-class citizens’ who [do] not receive the protections customary in many other sectors of the U.S. capital markets.”

Although states themselves cannot declare bankruptcy and typically look to other ways to satisfy their debt obligations including recasting pension contracts, increasing taxes and slashing programs, they can, at their discretion, help municipalities in trouble. States are, however, much less likely to provide such help when they themselves are in financial trouble. So what happens when a state refuses to rescue a troubled municipality? The municipality can potentially be forced into bankruptcy, leaving bond holders holding the bag.

As fiscal pressures have mounted, states seem to be turning to unorthodox methods in order to remain operational. This is verified by new evidence – emerging as a result of SEC investigations of New Jersey, Florida, California and elsewhere – which suggests that many states may be papering over their fiscal troubles by providing fraudulent information about their finances to muni bond investors. The states do this in a variety of ways, including keeping liabilities under wrap through delayed filings or by burying them in opaque documents. They also may resort to deferring payments of obligations and re-characterizing bond debt as revenues.

In the case of Illinois, for example, heavy borrowing and a history of deferring bill payments has led three major credit-rating agencies to rank Illinois as one of the two riskiest states for bond investors, California being the other. In his final quarterly report, published January 7 (2011), former Illinois Comptroller Dan Hynes warned that “the state could face $7 billion to $10 billion in unpaid bills by the end of the current fiscal year… Any use of bonds to deal with the state’s fiscal condition will continue to impact the state’s cash management practices in the future, as the state must adjust to those higher debt service obligations.”

Despite such warnings, “Illinois plans to borrow more than $3 billion to pay the bills for FY2011 and in June 2010, the legislature permitted the university systems to borrow millions more to make up for the fact that the state has not made the payments it had promised them.” In other words, Illinois is not only borrowing more to pay its own bills (by floating bonds) but it also has begun allowing other entities within its purview the new privilege of borrowing as a means of helping that entity to meet the state’s portion of obligations to it. This according to the non-profit Sunshine Review, which is a collaborative research organization dedicated to state and local government transparency.

The Sunshine Review further reports that: “As of the end of August 2010, Illinois had borrowed $9.6 billion in the prior 12 months.” For Illinois residents this means that as much as $551.3 million extra will have to be shelled out for the state’s borrowing over the last year alone. In addition, “more than half the state’s additional borrowing costs, amounting to approximately $301.2 million, will come due in the next five years.” And adding still more salt to taxpayer wounds, “the cost of insuring five-year Illinois bonds to protect $10 million of debt against default in June 2010 rose to $370,000, a record, from a low of $155,000 in January, 2010. The price fell back to $281,000 at the end of July 2010.”

In addition to the myriad problems associated with borrowing to pay obligations (about which we have only touched upon here), there is another problem connected to the budgetary process – and it lies in current accounting practices which rely on the cash basis method (also referred to as modified accrual basis). This according to the Institute for Truth in Accounting, a professional group of financial and public policy experts dedicated to reform of the GAAP accounting practices now used under the Comprehensive Annual Financial Reports (or CAFRs). For example, “the state of Illinois routinely delays Medicaid payments to healthcare providers. Each year the budget appears balanced on a cash basis even though the state does not provide sufficient funding for the Medicaid program.”

While arguing that “objectively better” accounting systems are universally employed in the private sector, the IFTA said that its research found that the current accounting system “does not give all stakeholders an accurate diagnosis of the financial health of state governments because the accounting principles recommended are biased towards the interests of government officials. The current structure and funding mechanism of the GASB make it difficult for members of this board to not be influenced by constituency groups that represent governmental officials and their staff.”

Thus, says former SEC Chairman Arthur Levitt, “At the core of the [muni] problem are questions about how governments manage pension funds, what investors know, and when they know it. The case against New Jersey revealed that the state has made unfunded pension fund promises to its employees, and compounded the problem by not being forthright with bond investors.”

In ideal circumstances, pension funds are supposed to keep up with benefit promises through a combination of employer and worker contributions, together with market returns from a fund’s investment portfolio. But, says Levitt, those revenue streams have slowed to a trickle as states have cut back on their own contributions, employees have contributed too little, and hoped-for investment gains have shriveled up. If investors discover that the muni market has instead become a way to paper over irresponsible promises, they will flee it, and that could spell disaster.

Investor anxiety has become significant enough that “some analysts have suggested that the Fed could ease muni market worries by purchasing muni debt or lending to struggling borrowers.” But on January 7, Fed Chair Ben Bernancke nixed the idea on legal, political, and practical grounds, saying “that if municipal defaults did become a problem, it would be in Congress’s hands, not his.”

But assuming that Congress will bail out any state in terminal trouble is itself a very risky gamble. Why? Because “[a]nything that the feds do for one state they’d have to do for others, which would turn into a bottomless and politicized spending pit.” With balance sheet problems of its own to contend with, the federal government is hardly in a position to bail out a string of troubled states, this fact being reinforced by growing taxpayer objections.

All of which brings us back to the unchartered waters of quantitative easing. Will QE2 and beyond be able to provide the kind of economic relief so desperately needed by Main Street? This is likely to remain an open question for some time to come because the money spigot used by the Fed can only create money as bank credit – and credit becomes far more expensive, indeed sometimes altogether unobtainable, for those in financial distress. Which of course translates to a “tight” money (as credit) supply – right where it is needed most, here on Main Street.

Should QE2 (or maybe 3 or 4) somehow ultimately work well enough to satisfy squeaky wheels, there’s still that pesky question forever lurking in the background: Can we REALLY keep borrowing our way into prosperity – or is there a better way? ²,³

Stay tuned.

1. While Fed tools may be limited, its options within that framework of tools are less so. In this video presentation prepared for the American Monetary Institute, ex-marine and long time AMI board member Dick Distelhorst explains that the Fed actually has the ability to issue “money,” based on reserves, directly to the American people instead of to the banks as it has been doing, thereby bailing out the people instead of the banks. While this interesting option would still be based on debt (that is to say, creating money at interest based on bonds held in reserves), it does nevertheless raise the important question as to why the Fed chose to support the errant banks instead of the people who are forced to pay for the bailout. Answers to that question may potentially be found in 13 Bankers by Simon Johnson and James Kwak and similar books along with articles such as this, this, and this. But particularly for the purposes of this article, the present author has charitably conjectured that the Fed unwittingly over-looked this option in favor of fractional reserve monetary (that is, credit/debt) expansion – which of course can only be done by the banks, but which could potentially get more money (as credit) into the system.
2. Monetary expert Will Abrams explains Canada’s experience under two types of monetary systems, one built on debt – the other on the creative and consumptive activities of the people.
3. For an abbreviated, step-by-step explanation of our current monetary system see “Money Owed and Owned.” Or see this more technical description.

In response to a question about Social Security, Senator Reid said, “it’s fully funded for the next forty years.” Now, I have been a long-time admirer and supporter of Harry Reid ever since he took a strong stand to end the looting of the Social Security trust fund 20 years ago, but I cannot condone such a big lie, which adds to the confusion about the true status of Social Security.

In 1990, Reid, along with a few other senators, was trying to protect the future of Social Security by telling the truth about it.  In a speech on the Senate floor, on October 9, 1990, Senator Reid made the following statement:

The discussion is are we as a country violating a trust by spending Social Security trust fund money’s for some purpose other than for which they were intended.  The obvious answer is yes…On that chart in emblazoned red letters is what has been taking place here, embezzlement.  During the period of growth we have had during the past 10 years, the growth has been from two sources.  One, a large credit card with no limits on it, and, two, we have been stealing money from the Social Security recipients of this country.

Senator Reid was right in denouncing the raiding of the trust fund in 1990, but he didn’t follow through with his battle.  Once he got into a leadership position, he abandoned his fight to end the looting and just ignored the illegal practice after that.  The practice, which Reid described as “embezzlement” in 1990, has continued, unchanged, to this very day.  Every dollar of the $2.5 trillion in surplus Social Security revenue, generated by the 1983 payroll tax hike, has been looted and spent on such things as tax cuts for the rich, two wars and other government programs.

Enough surplus Social Security revenue has been generated, by the 1983 payroll tax hike, to fund the payment of full Social Security benefits until 2037.  But none of the surplus revenue was saved or invested in anything. It was all spent and replaced with IOUs that are nothing more than claims against future tax collections.  Since the government has made no provisions to repay any of the $2.5 trillion, there is no way that Senator Reid can accurately say that Social Security “is fully funded for the next forty years.”

Beginning in 2015, the cost of Social Security benefit payments will be greater than the payroll tax revenue, and the gap between revenue and benefit costs will get bigger and bigger with each passing year.    ]

The government’s $2.5 trillion debt to Social Security is the real reason that so many politicians want to cut benefits.  They are trying to find a way to avoid having to repay the looted money.  I agree with Senator Reid’s contention that Social Security benefits should not be cut, but, instead of lying, he should be telling the truth about the looting, and demanding that the money be repaid.

It is time for Senator Reid, President Obama, and all others who are participating in the Social Security debate, to lay the truth on the line before continuing with the debate.  The basic, indisputable truth is that, although the 1983 payroll tax hike has generated enough surplus revenue to fund full Social Security benefits until 2037, that money has already been spent and is not now available for paying benefits.  The $2.5 trillion in surplus revenue is a legitimate debt that the government should repay, but no provisions have been made for the repayment of any of the money.  This means that the government will have to  1) raise taxes, 2) reduce spending on other government programs, or 3) borrow the money from someone else  in order to replace the looted Social Security money.

Given the fact that the national debt has skyrocketed from $1 trillion in 1981 to almost $14 trillion today, I think borrowing should be ruled out as an option for repaying the money.  Also, I don’t believe that it would be possible for members of Congress to agree to cut enough spending from other programs to replace the Social Security money.  If I am correct on these two points, that leaves raising taxes as the only viable option for repaying the money.

Given the fact that much of the surplus revenue from the 1983 payroll tax hike ended up in the pockets of the super rich in the form of income tax cuts, I propose a special tax on this group of taxpayers to recoup the missing Social Security money. The government used revenue from the Social Security payroll tax hike to fund tax cuts for the rich because that was where the money was.  I think the government should recover the “embezzled” money by taxing the rich.

The tax increase could be phased in gradually as the money was needed to pay benefits.  Just as it has taken 25 years for the government to “embezzle” the $2.5 trillion, the money could be repaid in installments over the next 25 years.  This would be a fair and economically sound way to undo the terrible wrong that has been done to the baby boomers, who have contributed more to Social Security than any other generation.  All previous generations had been required to pay only the cost of the previous generation’s benefits.  However,  the 1983 Social Security legislation required the baby boomers to prepay the cost of their own benefits, in addition to paying for the benefits of their parents’ generation.  The extra Social Security tax that the boomers were required to pay, by the 1983 legislation, has been taken from the boomers and given to the rich.  It is time to rectify that wrong.

We can be sure that the rich, who would have to pay the higher tax to fund the repayment of the Social Security money, will fight any such legislation with every weapon at their disposal.  But they are a small percentage of the voting public.  By contrast, Social Security directly or indirectly affects most Americans.  If those who truly care about the future of Social Security would organize and exert their full political powers, such legislation could be enacted, and Social Security could be made whole again.

One of the primary reasons that the Social Security trust fund today holds no real economic assets with which to pay benefits to the baby boomers is the fact that much of the money was used to fund tax cuts for the rich.  Since the rich got money that rightly belongs to Social Security taxpayers, why not use the political system to transfer that money from the rich back into the coffers of the Social Security trust fund?  Think about it.

A lot of people speak of those IOUs as if they can be pulled out and exchanged for money to pay benefit checks.  They can’t. As the Clinton administration budget of 2000 explained, the securities in the Trust Fund ‘do not consist of real economic assets that can be drawn down in the future to fund  benefits.  Those special-issue bonds can only be redeemed by raising taxes, cutting spending elsewhere, or borrowing — exactly what the government would have to do if the Trust Fund didn’t exist.  The Trust Fund, said the Clinton budget message, ‘does not, by itself, have any impact on the Government’s ability to pay benefits.

On December 20, distinguished business columnist, Allan Sloan, seven-time winner of the prestigious Loeb award, business journalism’s highest honor, called the trust fund “a mirage” in his Washington Post column.  In the column, titled, “New tax law reveals the mirage of the Social Security trust fund,” Sloan wrote:

My problem with the trust fund is that it’s a snare and a delusion for people who think that it makes Social Security financially sound.  It doesn’t do that, because having government IOUs in a government trust fund doesn’t make it any easier for the government to cover Social Security’s cash shortfalls than it would be if there were no trust fund.

These are not new revelations.  I have spent the past decade relentlessly trying to expose the Social Security fraud, and prominent government officials were screaming out the warnings two decades ago.

On October 13, 1989, Senator Ernest Hollings of SC stood on the Senate floor and  warned, “…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of  the Social Security trust fund…in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21^st century version of Confederate bank notes.”

The Kansas City Star editorial and Allan Sloan’s Washington Post column seem to have stunned the AARP and the NCPSSM into silence.  These organization have repeatedly claimed that the Social Security surplus is invested in U.S. Treasury bonds just like those held by the Chinese government.  They have battled my efforts to get this same message out for a decade, but they seem to have had the wind knocked out of them by the Star and Allan Sloan.  So far, they have made no attempt to rebut either of the two articles.  The AARP and the NCPSSM have been claiming for years that the trust fund holds enough assets to pay full Social Security benefits until at least 2037, when, in fact, in the words of the Kansas City Star, it has no “real economic assets that can be drawn down in the future to fund benefits.”

The Kansas City Star and Allan Sloan have exposed the trust fund myth so clearly that I think the national debate will now turn to how and why the United States government violated both the public trust and federal law for a quarter-century in a way that caused a major transfer of income from the lower and middle class to the richest of all Americans.  By imposing a hefty increase in the regressive payroll tax in 1983, and then using a large portion of the new revenue to offset the lost revenue resulting from the unaffordable income tax cuts that went primarily to the richest Americans, the United States government engineered a major transfer of income from the lower and middle classes to the richest of all Americans.

So where does that leave Social Security?  The approximately $2.5 trillion in surplus revenue, generated by the 1983 payroll tax hike, rightly belongs to the Social Security trust fund and to American workers who paid the extra taxes.  But the money is all gone — “borrowed” or “stolen” by the federal government and spent for general government operations.  None of the money was saved or invested in anything, so the trust fund contains no real economic assets with which to supplement the payroll tax which will become inadequate to pay full benefits after 2015.

I believe it is time for the public to demand, in a very strong way, that the government make arrangements to repay its debt to Social Security.  It is futile for the AARP and the NCPSSM to continue to insist that Social Security is in fine shape and has enough assets to pay full benefits until 2037.  This just isn’t true.  What the organizations need to do now is put political pressure on the government to move quickly to enact legislation that would require the repayment of the looted money, as it is needed, over the next 27 years.  There is no way that the government could possibly come up with the $2.5 trillion in the near future, given the budget crisis.  But it can make a legal commitment to repay the money in installments.  Will that happen?  Not without major political pressure from the majority of Americans. The AARP and the NCPSSM have frittered away the past ten years when the problem could have been resolved. If the looting could have been stopped when I first began actively urging such action in 2000, the trust fund would today hold approximately $1.5 trillion (the amount looted during the past 10 years) in “good-as-gold” real assets.  Instead, it holds no real economic assets.

The reason I don’t believe the government will honor its debt to Social Security without major political pressure is that it does not legally have to repay the money.  The government certainly has a moral obligation to do so, but, because of a 1960 U.S. Supreme Court ruling, it has an out.  In the case of Fleming v. Nestor, the Court ruled that nobody has a “contractual earned right” to Social Security benefits.  This ruling was based on Section 1104 of the 1935 Social Security Act which specifically states, “The right to alter, amend, or repeal any provision of this ACT is hereby reserved to the Congress.” Based on this strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security.

Many people argue that the government could not default on its debt to Social Security because of the effect such action would have on financial markets and the nation’s public image.  If the government held the same kind of real bonds that are traded on world markets, this would be true.  Public-issue, marketable U.S. Treasury bonds are default-proof, and that is the kind of bonds that the Social Security surplus revenue was supposed to be invested in.  If this had been done, Social Security would be in fine shape today.  But, instead of using the surplus Social Security revenue to buy such bonds in the open market, the government chose to spend the money and issue IOUs to replace the spent money.  These IOUs are non-marketable and could not be sold to anyone, even for a penny on the dollar.  The government has the legal authority to declare these IOUs null and void.  Since these IOUs are not traded, such action would have little effect on financial markets, and foreign governments would probably consider such action as an internal matter between the American government and its citizens.

The Social Security trust fund does not hold any real economic assets that can be drawn down to pay future benefits.  That is an indisputable fact today, and it has been true ever since the 1983 payroll tax hike was enacted.  Every dollar of the $2.5 trillion in surplus revenue, generated by the payroll tax hike, has been spent on programs unrelated to Social Security, leaving nothing to save or invest.

A few United States Senators tried to sound the alarm two decades ago, and I have dedicated the past ten years of my life to trying to alert the public to the awful truth about the Social Security trust fund.  For more than a quarter of a century, the United States government, under five presidents, has hoodwinked the American public into believing their Social Security contributions would be used for future Social Security benefits when, in fact, all of the surplus Social Security revenue was used to fund such things as tax cuts for the rich, two wars, and other government programs.

Today, thanks to the efforts of the editorial board of the Kansas City Star, and thanks to the courage and competence of Allan Sloan and a few other journalists, the big bad secret is finally out, and I think it is too late to get this cat back in the bag.

In addition to promising many times during the campaign that he would not raid the Social Security trust fund, George W. Bush made additional pledges after he was sworn in as President.  In his first State of the Union address, delivered on February 27, 2001, Bush said, “To make sure the retirement savings of America’s seniors are not diverted in any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security, and for Social Security alone.” Four days later in his national radio address to the American people, Bush said, “We’re going to keep the promise of Social Security and keep the government from raiding the Social Security surplus.”

Once Bush became president, he reneged on his promise to protect Social Security, and he spent all of the approximately $1.5 trillion in surplus revenue that came in during his eight years in the White House.  But the American people have not been widely informed about Bush’s breach of promise.  It is understandable that, with the 911 terrorist attacks, two wars, and many other major news stories, the looting of Social Security would be pushed to the back burner. However, with the current economic problems, and proposals to cut Social Security benefits in the news today, the story of the awful truth about the Social Security trust fund should be front and center, but it is not.

Although I have been screaming from the rooftops for the past decade in an effort to expose the Social Security scam, my efforts have not been welcomed by the news media, by the AARP and the NCPSSM, or by the United States government.   I thought I would get the message out when my book, The Looting of Social Security, was published by a New York publisher in 2004, but that book became the victim of foul play.  I dared to publicly challenge Federal Reserve Chairman, Alan Greenspan, on national TV, when I appeared on CNBC on February 26, 2004.  I held a copy of the book in front of the camera and said, “Alan Greenspan should be ashamed of himself for what he is not telling the American people.”

Several weeks later my book was censored and removed from the market by someone, some organization, or possibly some government official.  With such a major effort to keep the public from finding out about the looting, I was dumbfounded when President Bush openly admitted it in February 2005.  Bush’s campaign to partially privatize Social Security was not going well, so his advisors apparently decided that they needed more ammunition with which to convince the public that Social Security was in trouble.

On Wednesday February 9, 2005, President Bush openly admitted that surplus Social Security revenue, generated by the payroll tax, is spent on other government programs.  President Bush’s exact words, as quoted in the official White House Press Office’s news release, were: “Some in our country think that Social Security is a trust fund—in other words, there’s a pile of money being accumulated.  That’s just simply not true.  The money—payroll taxes—going into Social Security are spent.  They’re spent on benefits and they’re spent on government programs.  There is no trust.”

On the following day, during a speech in Pennsylvania, President Bush said,  “Now one of the myths about Social Security is there’s a pile of money sitting there accumulating …That’s not the way the system works.  Every dime that goes in from payroll taxes is spent.  It’s spent on retirees, and if there’s excess, it’s spent on government programs.  The only thing that Social Security has is a pile of IOUs from one part of government to the next.”

This was a clear admission by the President of The United States that all Social Security surplus money had been spent and that the Bush administration was continuing to spend Social Security money each and every day.  The president was verifying everything I had been saying for the past four years.  I expected that the president’s acknowledgment would make the Social Security trust fund fraud the leading news story the following day, but it was barely covered by the media.

Today, five years after President Bush publicly acknowledged that the Social Security money was all being spent by the government, most Americans do not have a clue that this is happening.  Why is that?  Is there some kind of pact between the government and the major news media to keep the awful truth about the trust fund a secret?  Were journalists so intimidated by what happened to Dan Rather when he covered a story that the White House did not want covered that they have become too cautious in exercising their freedom-of-the-press rights?  I don’t know the answer to the awesome puzzle.  All I know is that the Social Security trust fund has been routinely and systematically raided for the past 25 years under five presidents and their Congresses. Nothing changed after the 2000 presidential election, but the major news media, who widely reported the looting in 2000, are not reporting it today.

I have repeatedly contacted CNN, and all the other major news networks, in recent months and I have submitted numerous op-ed pieces to the large newspapers trying to get this story out.  Now with the deficit commission recommendations for cutting Social Security benefits, the story is more important than ever. The American people deserve to know that, beginning in 2015, Social Security will be unable to pay full benefits unless the government begins repaying the looted money.  The government has made no provisions for repaying the money it owes to Social Security and is trying to find a way to avoid having to repay the money.

The American people were officially told by the Government Accountability Office (GAO) on January 21, 2005 that, “There are no stocks or bonds or real estate in the trust fund, It has nothing of real value to draw down.” In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.”  That sentence reads:   “Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

The President of the United States has said,  “Every dime that goes in from payroll taxes is spent.  It’s spent on retirees, and if there’s excess, it’s spent on government programs.  The only thing that Social Security has is a pile of IOUs from one part of government to the next.”

When will the public be told the truth by current government officials?  When will journalists begin asking public officials the tough questions, that cry for answers, about the true status of the trust fund? The hour is late.

The reason for the potential social security dilemma is well known; revenue will be insufficient to accommodate the needs of an increased senior population. From the day of its first payment, check number 00-000-001, issued to Ida May Fuller in the amount of $22.54 and dated January 31,1940, Social Security obligated itself to pay benefits that exceeded the contributions from the earliest retirees. The increase in life expectancy and constant cost-of-living adjustments additionally strained the Social Security fund. The government greatly increased payroll taxes (FICA) to assure Social Security operated in the black. After substantial increases in the payroll tax during the Reagan administration, the payroll tax remained insufficient to satisfy future demands. The near future retirements of the “baby boomers” will greatly decrease the worker to retiree ratio, and the Social Security “trust fund” will be empty in the third or fourth decade of the 21st century, or possibly earlier.

Retirees deserve more than the present Social Security system has afforded them. The government created Social Security to meet immediate demands, consistently altered the system to meet growing demands and now is in a dilemma of how to meet future demands. Social, cultural and economic factors change, and a retirement plan must be able to adjust to the changes. It is obvious that a new system is required that can respond to the exigencies of a dynamic economy. The present economic crisis (not predicted by conventional economists) intensifies the problem and verifies the need for a more secure and stable retirement system.

A chilling scenario awaits a nation with an aging population and reduced birth rate.

This chilling scenario has partly arrived; wages have been relatively stagnant, while an increasingly aging population solicits more social security funds. Fortunately, inflation remains low – dampened by a prolonged recession, controversial statistics and decreased global demand for many products. Unforeseen elevated unemployment, predicted to remain for a lengthy time, complicates the budgeting for the OASDI.

That’s not all: not prominently considered is that as the population ages and births decline, family life changes. Modified lifestyles and cultural patterns evolve and the new patterns will force industries to reconfigure production. Changing demographics will modify consumer preferences in clothing, housing, entertainment, food, and partially reorder the consumer economy. The changes might be slow and adaptation might enable absorbing the shocks. Nevertheless, the economy will be perturbed.

Another overlooked condition. The present social security beneficiaries must either directly use their investments for expenditures and slowly use up their assets, which they gamble to remain at adequate price levels, or transfer equity investments to fixed income investments and live from fixed income interest. Low interest rates, unsteady stock market and the push for private retirement plans mystify the choices.

It’s all patchwork and contradictions

The exit of the ‘baby boomers’ from the work force leads to increased investment demand for fixed income securities. This drives up the price of fixed income securities and drives down their yields, resulting in less retirement income. The patchwork proposition that investment of social security funds in equities can assist in maintaining the social security fund and yield greater benefits for retirees is not proven, and might prove counter-productive. For this concept to be effective, the employed workers, through their Keogh plans, will purchase the securities that the retirees sell to turn their assets into cash or fixed income investment. In effect, the employed workers through their own Keogh plans, must maintain high security prices and will still finance retirees in a similar manner to the “pay as you go” plan. In addition, two severe stock market declines in ten years have softened the call for turning social security into an investment scheme. Still unknown, and not discussed too loudly, is how will SS be able to meet its present obligations if FICA funds are diverted from the ‘trust fund’ to investments.

The Social Security problem arises from the failure to recognize that the present system had built-in-problems from the start and patch-work cannot repair them. With corporations deserting their original pension commitments and the U.S. government’s Pension Guaranty Corporation rescuing the insured, with the stock market falling periodically and investment at these occurrences going strongly into U.S. government bonds, it is obvious that America’s citizens are depending upon their government for an assured retirement income.

By using a major portion of the taxed FICA contribution to provide present benefits, Social Security is unable to create sufficient reserves for future retiree benefits. On paper, FICA, and not rather the general revenue fund, finances SS. However, to workers, the FICA payment is only another form of taxation, and the result is the same as if they paid FICA to the general revenue fund. Many workers never recover their total payments after retirement. To them, the FICA payments are the same as any tax.

Moving money from one accounting line (Social Security Fund) to another (general revenue), while maintaining the same result, resonates as a sleight of hand operation. It is a ‘smoothie,’ but the benefit of the change is that Social Security will become a true retirement plan, actuarially and financially. However, going from a ‘pay-as-you-go’ plan to a true retirement plan, does not automatically solve the SS financial problems. Only a properly calculated ingestion of money can place a retirement plan on a sound basis. The proposed change focuses on this calculation. This focus more carefully scrutinizes means to improve the retirement plan and resolve the financial issue.

Proposals for keeping the retirement system solvent continually circulate without decision. Nevertheless, we have a lack of discussion on what may be the most critical failure of the Social Security retirement plan – It operates as a ‘pay-as-you-go’ plan rather than as a true retirement plan. Changing its stature from ‘pay-as-you-go’ to a true retirement plan might establish a social security system that is competitive with an annuity of a private industry plan and yield advantages that private industry plans cannot provide.

Can Social Security Function as a Pension Plan?

Payroll taxes of workers, rather than general revenue taxes, support retiree income. Social Security determines the formula that shifts a portion of wage earners to retiree income. No matter how it is sliced, diced or construed, the present OASDI system is almost a National Pension Plan; the government raises funds by taxes and distributes these funds to give retirees a fixed income. The system only needs improvements; a more just retirement income for everyone and a certainty that the funds will always be there.

Social Security, modified to be a national pension plan, has the capability to provide a secure, stable and advantageous pension for retirees. Security results from the strength of the government system. Stability results from the guaranteed income. The added advantages: Government control allows quick adjustment of retirement benefits according to family status, cost of living and total income.

If the nation accepts the original objective of the Social Security system as “to pay benefits that provide a minimum degree of social security,” and realizes the obligations to the retirement community with SS functioning as an income distribution plan, then SS becomes a national pension plan financed from the budget. A modified framework for the Social Security system uses the forecasted expenditure for Social Security as a budget item in a unified budget. One modification would be to have tax revenue support the budget item termed Social Security Benefits. The individual’s W-2 tax form would become an accounting entry for determining future benefits.

Placing SS benefits in a unified budget, and making certain that general tax revenue finances the budget item, has several advantages:

(1) The present payroll taxes are regressive and unfairly affect lower incomes. Income taxes are progressive.

(2) The Social Security budget is mandatory. If it increases, other budget items can decrease in order to maintain taxes at the same level. Taxpayers will not complain if the Social Security budget increases, as long as their total tax bill remains constant.

(3) Since Social Security is a major portion of the Federal budget, other budget items will be forced to compete with it and will have increased scrutiny. Wasteful and unnecessary budget items will be “under fire.”

The SS system cannot escape the fact that its outlays are beginning to exceed its revenues.

How will its own budget be balanced?

As of now, the distributions of payments to retirees are well accepted. Continuing those distributions and refining them as economic changes occur are a matter of priority, and Social Security deserves high priority. After all, Social Security payments are only a transfer of payments from children and grandchildren to their elders – a family affair. Instead of family wage earners directly supporting their parents, the wage earners will be indirectly supporting them. In other words, no matter the costs involved, as long as they are reliable and sensible, the public will be prepared to pay them.

The costs of the retirement program have a greater return than other government programs. As mentioned previously, its payments instantly recirculate in the economy and do not prevent the economy from moving forward. Defense programs often result in production of weapons of dubious benefit to the economic structure. Many government programs are wasteful, resulting in no advantageous to the American community. Foreign aid either subsidizes purchase of American goods or moves money and resources out of the country.

Securing the National Pension Plan

The American constitution states that everyone is created equal, and America does everything to make its citizens unequal. Why is a Wall Street broker, who already earned huge sums during a lifetime and has sufficient funds for retirement, worth any more to the public than other workers who worked hard and received insufficient earnings to secure a satisfactory retirement? A National Pension Plan equalizes public benefits and enables private pension plans or other retirement income means to complement the public plan.

Regardless of previous income, aren’t retired workers who worked equal years and hours and exceeded some minimum wage in each year entitled to near equal public pensions? This concept conjures a socialist vision of equalizing the wealth. No relation. Government operations – medical, defense, and schooling all provide equally for citizens. Earnings don’t determine Medicare benefits. Retirement income deserves equal treatment, with qualified workers receiving a basic income that allows for acquiring the staples in life – food, housing and clothing. The Department of labor can determine what constitutes a basic income.

Preparing huge sums for a financial future clouds the future and skews the present. There is only one guarantee; the U.S. populace will fulfill an obligation to their retired parents and grandparents. The National Pension Plan makes Social Security more relevant, more simple, and more equitable. By making it a budget item, its solvency is resolved. Rather than treating Social Security as an adjunct to America’s economy, it is preferable to integrate the needs of the retirement community into the needs of the entire society. A responsible society distributes resources and shares sacrifices.

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

— Warren Buffett

The most important and popular social and tax programs in the United States are threatened by a self-styled “Bipartisan National Commission on Fiscal Responsibility and Reform”.  Appointed by President Obama on February 18, 2010, co-chaired by two longstanding champions of Wall Street:  ex Senator Simpson (R, WY) and former Clintonite White House Chief of Staff Erskine Bowles.

The Commission Report issued November 10 proposes to slash social security payments, reducing recipients to poverty, raise the retirement age to 69 ensuring that millions of workers will die before they can retire, or enter retirement in ill health; reduce or freeze cost of living increases through inflation indexes which understate by half the rises in food, gas, hospital and education.  The Commission proposes deep cuts in Medicare, increased Medicaid co-pays and slashing $54 billion from graduate medical education.  The Commission proposes to eliminate tax breaks including deductions for home mortgage interest payments while taxing employer provided medical insurance.

The same Commission Report proposes to reduce capital gains and income taxes for the rich by up to 24%.

President Obama and the Republican leadership praised the Commission and wants “to give them space to work on it”.

The so-called crisis of Social Security is a result of the Republican and Democratic governments siphoning off payments into the general fund.  The forthcoming shortfall (2030) can be easily remedied by lifting the payroll tax ceiling, for the rich, taxing all earned income.  Medical costs can be reduced by 50% by replacing the for profit corporate health insurance and pharmaceutical corporations with a non-profit national health system, similar to successful programs in Europe and Canada. Both Medical plans and Social Security can be easily funded by imposing a 1%sales tax on the sale of stocks and bonds.

The deficit proposals put forth by Obama’s Bipartisan Commission threaten to push the one-third of retirees who depend mainly on their social security payments into the food kitchens or destitution.  The added cost and reductions in health care will increase the mortality rate among working families.  The increase in retirement age will result in “work until you die”, with no time for leisure, travel or grandchildren.  It is time to send a message to Washington:  cut Social Security and Medicare and home interest deductions and you will visit Washington on your own time.

Missing from the discussion is a real analysis of the role that race has in framing our national political, economic and historical narrative that can explain why public policies to limit the redistributive functions of government are the focus of conservative political groups in the form of “smaller government” advocacy. Indeed, the modern Tea Party can be said to have gotten its initial inspiration from CNBC’s Rick Santelli’s outburst on the floor of the Chicago stock exchange in which he blamed the federal government for giving subsidies to “subprime” mortgage holders who “were making bad economic decisions.” Santelli claimed that he would organize a Chicago Tea Party against President Obama’s plans to provide support to homeowners facing foreclosure. Of course, “subprime” became quickly coded by race and has been associated almost completely with homeowners of color whose experiences with foreclosure and mortgage debt had to be made somehow different and distinct from the experience of “mainstream” white American households who were morally superior and thus more deserving public sympathy.

The resulting global economic downturn has only prolonged the anxiety even as the crisis spread around the world. Yet, while the U.S. is generally recognized as the model for liberal capitalism, it is social democratic Europe who have recently gone through their own political wave of right wing ascendency, partly due to demographic shifts under increasing immigration from former colonies where the most severe fiscal austerity packages are being proposed. Still, the U.S. pushes forward with stimulus packages to spur job growth and diplomatic attempts to convince European governments to increase their own consumptive spending. The responses of the working class majorities among the U.S. and Europe are equally divergent, as the European working classes have taken to mass action against austerity measures in countries such as Greece and now France.

In the U.S. the greatest momentum among the working class majority is towards the mid-term election of more conservative politicians that include many who would not only raise the official retirement age of American workers [to levels three years higher than that being proposed in France and Greece, for instance] and some who would actually privatize the social security system, effectively eliminating the program completely.

In this context it is quite easy to understand why progressives in the US might be envious as they look across the Atlantic for inspiration and a glimpse of what working class responses to the economic crisis could be.¹ However, any notion that the mass movement of left and progressive forces against austerity in France can be replicated in the US fail to appreciate the glaring distinctions between the two countries, most importantly the impact of racial/ethnic division in fueling the hegemonic status of conservative/right ideological perspectives in US political discourse.²

Even as many Americans tend to underestimate the real level of inequality in the United States,  overall tolerance for inequality is much higher in the US than in Europe, and France in particular. In fact, although a recent study has shown that Americans might prefer to live in a more socially equal society,³ deeper analysis has shown that when race/ethnicity is made an explicit factor, acceptance [particularly by white Americans] of inequality increases. Specifically as the image of poverty becomes framed as predominantly people of color, urban African-Americans and Latino’s in particular, support among whites for redistributive policies is reduced.⁴ In fact, as Alesina and Glaeser’s research has shown, approximately 50% of the difference in support for redistributive policies between the U.S. and social democratic European countries can be explained by racial/ethnic heterogeneity.⁴

Once that is accepted it becomes clear that the reason why the working class white majority in the US will not organize and demand progressive policies, [they are, in fact, demanding greater austerity upon themselves as manifested through the Tea Party platforms] is that their primary aim is not to secure social rights for the working class as a unified social class identity across racial/ethnic lines but to secure the privileged rights of white working class households apart and socially distinct from workers of color. This is the only way to truly explain why Congressional Democrats have fallen short in gaining the support of this group to Republicans by 10 points in both 2006 and 2008 and watched their deficit balloon to 29 points in the recent mid-terms.

But to truly understand how this came about we must review the history, in particular the New Deal and the original Capital/Labor consensus that existed since WWII but began to collapse in the mid to late 1970’s. In the national trauma that followed the Great Depression and WWII, a new “Social Structure of Accumulation” was established that intended to stabilize the relationship and quell disputes between labor and capital through a capital-labor accord or consensus.⁵

The consensus, which became embodied in the New Deal and the Wager Act of 1935 [that preceded the war] created a fragmented system of social protection that actually reinforced the racial/ethnic privileges demanded by the white working class to remain socially and spatially distinct from Blacks. It ensured, [for white workers] full employment in manufacturing industries, provided substantial benefits in terms of health and retirement and a middle class standard of living that didn’t require a great deal of formal education.

By limiting labor/capital negotiations on social projection benefits and wages to the firm level rather than nationally or industry wide as in solidarity bargaining strategies institutionalized across Europe, white workers in the US were able to secure social rights within racially exclusive union-brokered deals for themselves without having to share those gains with African-American [and Latino] workers excluded from union protection.

African-Americans under New Deal policies experienced new forms of social exclusion from New Deal social protections for the white working class. The racially fragmented social policies laid the structural foundations for the increase in racialized income and wealth disparities in two geographically based forms.

In the north, the capital/labor consensus enabled unionized white workers to deny Black workers union membership, access to quality jobs that could support social mobility into the middle class and the many social protections won through disputes against capital.
⁶

In the south the compromise over New Deal legislation enabled racist state governments to determine eligibility and levels of support through unemployment and social insurance programs that effectively eliminated Black workers from eligibility since they were largely confined to agricultural and domestic labor.⁶

While African-American workers were. by default, excluded from social protection programs that were tied to work, when they did receive benefits they typically got lower benefits due to their confinement to the lowest wage sectors of these industries. This left African-American workers disproportionately reliant on “means-tested” programs associated with poverty, which meant that conservatives could then racialize poverty and demonize these social welfare programs for political gain as resulting from deviance rather than the structural realities of race and the predominant political economy accumulation represented by the capital-labor consensus.

Again the primary compromise of the original capital-labor consensus which stabilized the relationship between the two was that white workers would be allowed to maintain their social distance [and superiority] over Black and other workers of color due to their exclusion from the better manufacturing jobs, under-funded education and exclusion from protection and advocacy by mainstream labor unions.

The Civil Rights Movement would disrupt that arrangement. Despite the fact that the national Civil Rights leadership was literally forced to abandon economic justice frames in their advocacy or risk being blacklisted as Communist, the movement’s success had far ranging redistributive political economic implications. For instance, the Civil Rights Act barring discrimination by race in areas of employment, education and housing brought Black workers into direct competition with white unionized workers in manufacturing sectors, forced white school districts to teach Black children along side white children and allowed the emerging Black middle class to abandon socially integrated Black communities for middle class suburban neighborhoods that elevated their asset values while giving them access to wider job possibilities and social networking opportunities.

The success of the Civil Rights Movement was made possible in no small part due to the rising national productivity and high economic growth rates enjoyed throughout the post-war period supported by an expansionary Keynesian macro-economic policy. Liberal reformers believed that continued high growth rates in the national economy would allow them to extend employment opportunities to African-American workers without asking white workers in segregated labor markets to sacrifice their perceived entitlement to exclusive social rights.⁷

During this period, the country’s macro-economic priority was to maintain full employment [as supported by the Full Employment Act of 1946] to ensure that aggregate demand continued to grow in order to support a growing economy. According to liberal economic theory of racial reform, “blacks, who suffer more in periods of high unemployment and recession, can be most effectively helped into the economic mainstream by increasing the aggregate labor demand through a policy that boost the overall demand for goods and services in the economy.”⁸

An expansionary government that increases public spending on public works projects, and entices businesses and consumers to spend more by reducing the cost of credit [or buying out their troubled asset portfolios] can raise the level of aggregate demand in the economy which will lead to growth and increased employment. So long as the national economy continued to grow at a good pace, workers of color could be integrated into the labor force without competing directly with white workers for scarce jobs. However, in order for these policies to work, the populace must be willing to cope with the potential outcome of rising inflation due to increased deficit spending.⁷ Further, if growth slows, resulting in an increase in long term unemployment amongst white workers, this would amount to the remaining employed white workers being asked to tax themselves in order to offer inclusion and opportunity for Black workers who then compete against them for jobs. As this scenario began to unfold, it would eventually destabilize the tense peace of the post-civil rights reform era.

Empowered by the successes of the Civil Rights Movement, African-American demands for social rights to accessing public services, education and in redress of past labor discrimination meant not only a direct loss of jobs for white workers but a reduction in their socially privileged status vis-à-vis Black workers. Coupled with the inflationary pressures that followed the OPEC oil shocks of the early 70’s, white workers began to entertain political ideas that questioned the relevance of the old capital-labor consensus.

Since white workers were no longer able to rely on the power of the state to enforce their segregated social privilege and spatial distance from Black workers, they eventually bought into free market ideologies that promoted “merit based” allocation of economic opportunity through liberated free market preference. They could safely express their “racial preferences” for social and spatial separation from African-Americans by supporting the establishment and, indeed, the exalting of private markets in areas such as housing, public education and health care. In short, they would be assured through the expansion of free market ideology only limited competition for jobs since the neoliberalization of national and local governance would deny Blacks access to quality education, poor health care and few transportation options necessary for jobs that increasingly abandoned downtown urban districts for majority white suburban labor markets.

There would, however, be one last vestige of the Civil Rights era that would remain as a persistent thorn. Affirmative Action was instituted as national policy in the wake of the Civil Rights Movement to redress years of employment and educational discrimination by qualified Black job applicants and workers who were passed over for admissions, jobs and promotions. However, during the white backlash that began in the mid-late 70′s and culminated in the election of Ronald Reagan as president in 1980, affirmative action began to reframe as a policy of reverse discrimination and the unfair awarding of positions to “un”qualified Black applicants.

A collective myth began to emerge among working class whites that “real Americans” and true citizens didn’t rely on public services or government interference in their favor in order to secure their livelihoods. The ability of an individual or household to achieve a good quality of life through private rather than public or collective means became a symbol of true citizenship and a moral litmus test on who deserved to be serviced by the institutions of the nation.

Of course, this myth neglects the long history of collective organizing by labor unions and economic justice organizations to secure the labor standards that made the original capital-labor consensus possible. As important, the collective myth of individualism was effective in abstracting from public knowledge the role that government played in supporting the social development of society and in the maintenance of vital public infrastructure and services. This is how we eventually get to Tea Party activist shouting slogans such as the now iconic; “keep the government out of my medicare”.

The result of all this, however, was the hegemonic rise of the neoliberal free market social theory which began to be grafted and adopted on to any and every social issue that confronted society. The dominance of neoliberal ideology laid the ground for a rolling back of the ability and will [by electing right wing ideologues who had no intention of enforcing the Civil Rights Act and were hostile to redistributive economics and targeted labor policies] of government to intervene on the behalf of Black and other workers of color.

The roll back of the state through deregulation also removed any protection the white working class had from the disruptions and volatility of the “free” market by weakening their own bargaining power against capital. Further, the shift from full employment policies meant there was higher unemployment and a larger reserve army of labor which [along with the retreat of unions] further weakened the bargaining power of labor and enabled capital to completely abandon the capital-labor accord that sustained the New Deal state. The result has been a higher share of national income going to profit rather than to worker’s wages.

The before tax profit rate to capital on national income reached 11.6% by 2005, the highest level since 1966. On the labor side, the share of national income going to workers fell to 56.9% of national income, its lowest levels since 1966.⁵ Intensified global competition justified a shift from national policies that sought to redistribute economic development socially between groups and spatially between regions, forcing both to take on more entrepreneurial positions in order to attain meaningful employment under conditions of “labor flexibility” and to attract the necessary investment to sustain growth in urban markets.⁹ Stagnating and declining real wages allowed profits to reach record highs but also meant that capital had to look abroad to emerging markets for a consumer base that could absorb its productive output which began to bias toward high end services in the financial and knowledge sectors rather than production of real commodities.

The fragmenting of the national economy into low wage/low skilled service sectors and high wage/high skilled technology and knowledge sectors meant that the white working class has lost its primary means of social mobility into the middle class. The traditional  path through stable, socially segregated manufacturing labor has been largely outsourced or automated. Meanwhile, as inequality rose to its highest levels since the Great Depression, households had to take on more debt in order to finance their middle class consumer based lifestyles. By 2007, household debt as a percentage of disposable income rose to 128.8% from 59% in 1982.⁵  When this became unsustainable, the asset bubbles began to burst in 2001. It was only a matter of time before the white working class would erupt and demand action on its behalf.

The modern “Tea Party” is a direct result of this history as the white working class aims to reestablish some measure of segregated social privilege and protection in a volatile free market. Without those protections the white working class cannot sustain or reproduce a white social identity as the mainstream middle class that is privileged and distinct from workers of color. And let’s be clear.  Whites cling to racial identity not out of reverence to heritage or culture but due to the social status and privilege it confers. The deification of the “founding fathers” and the religious zealotry surrounding their interpretation of the National Constitution has more to do with their ability to claim sole ownership over the national narrative and a sincere understanding or acceptance of the document’s intended logic. All this coalesces to make the movement quite schizophrenic as they claim to want and need government action yet they despise the fact that an institution which used to be their sole possession increasingly must consider the needs of a broader group [i.e. “we want to take our country back!”].

However, as this article argues what the Tea Party is rallying against is not “big government” per se, but the type of “universalist” government that would be advocated by the left to address, through policy, the social inclusion of marginalized groups into the mainstream. So a “public option” that would “reduce” the real concerns white working class Americans have with the current state of health care to the concerns shared by people of color is unacceptable as it denies their right to an exalted social status and potentially will force them to share waiting room space in hospitals and doctor’s clinics with those they deem socially undesirable.

For that reason, the white working class will likely never be emotionally able to make the obvious connection between their interest and the interest of progressive political activists and communities of color. At least for some generations yet, this will be the case. So in their self-induced paranoid delusion they must shift further and further to the right in hopes that they can somehow retool the state to act in their favor while excluding “the other” from access to those same social rights and privileges.

The fundamental dispute between right leaning conservatives and left leaning progressives is over this issue of inclusion. For the right, the national narrative is a country founded and established by white Anglo-Saxon Protestants and that entitles them to higher social privileges but also it entitles them to inform or demand of the rest of us of the pace, place and space of our integration into the country’s mainstream, if at all.

The progressive coalition is an amalgamation of liberal whites and excluded or marginalized social groups who, for better or worse, are attempting to come together and discuss openly the nature of their inclusion, and to rethink the narrative of the country as a diverse nation and sometimes to demand it. The willingness of the left progressive coalition to have this discussion is its strength and a weakness as it provides little comfort for those who are more attracted to the dictated outcomes that an autocratic leadership can provide. It should be no surprise, then, that the Tea Party Movement attracts a fairly large share of fundamentalist Christians as well.

This should help us understand how structural racism influences public policy, and in the case of the Tea Party, leads to the rise of a reactionary social movement that on the face of it continues to befuddle liberal political pundits as it appears to consistently advocate for economic positions contrary to its own interest. It’s only when we understand the white working class majority, and the Tea Party by extension, are voting not against their economic interest but against a universalization of social rights that would extend to all ethnic groups. Only then can we can gain real appreciation of the task that lay before progressive advocates. It also sheds some light on the consistent charges of the white working class to the elitism of liberal white America who assumes that these groups are somehow ignorant of their true interest or are being led astray. They are much clearer in their goals than we would like to give them credit for.

Yet we have to be careful not to fall into the trap of a “race vs class” discussion that is so familiar to progressives. For at the same time, the point isn’t to call out the movement or any individuals within it as racist or bigots even as they may be. The goal is to understand how structural and institutional racism operates in a liberal free market context and more broadly how race and the politics of white racial identity act to limit the ability of progressive forces to establish a more redistributive system of governance. In short, how race acts as justification for white working class support for neoliberal policies of governance. How the persistence of racial inequality can be made consistent with rising aggregate prosperity.

For the last three or four decades, white leftists in the U.S. have been frustrated at their inability to recruit support from among the white working and middle classes. Throughout this time they have refused time and again to confront the way race is utilized consistently as a wedge in American politics to blunt the potential of progressive coalitions. Refusal to acknowledge and understand the race wedge leaves the white left ineffective as organizers of the white working class, leaving this group open to right wing conservative ideologies that are more comfortable utilizing race as a political weapon to consistently repopulate their base of support. More importantly, inability to confront race as a means of broadening its support has not only meant the left are ineffective, but has allowed conservative and liberal ideologues to altogether eliminate a critical left perspective from the public discourse in America.

In the U.S. the “left” is occupied by liberals in what is actually the political center. A quick sweep of American political talk shows that typically feature someone from the right in public debate against a liberal centrist [who is labeled as representing the left] as if a true left opinion did not exist or had no thoughts that the country should feel a need to consider or respect. The delegitimizing of the left discourse in American politics as “extreme” can be contrasted with the inclusion of right wing conservative discourse that allows extremist rhetoric like that espoused in Tea Party gatherings to be treated as legitimate discourse. A great example of this is in the national debate on reforming social security as an austerity measure to cut national deficits. The right and center debate the issue within their major frames.  Right wing focuses on individual responsibility leading to calls for privatization and centrist commitments to managerial reforms that can make the program solvent for at least another century at best.

Completely absent from the debate [the left or critical class analysis] is the role that rising inequality has in leaving the program short of funding. U.S Social Security is funded by a tax on all income below $90thousand. The greater proportion of American income are held by people who make more than the $90thousand cap means that a larger share of national income is not being taxed to contribute to the system. Learning to confront the race wedge is critical to any strategy to develop a broader progressive coalition that can open public discourse to a critical class perspective.

1. “Why France Matters Here Too,” Monthlyreview.org.
2. See: The Right Nation – Conservative Power in America by: John Micklethwait and Adrian Wooldridge.
3. Building a Better America – One Wealth Quintile at a Time by: Michael I. Norton and Dan Ariely.
4. Fighting Poverty in the US and Europe: A World of Difference by Alberto Alesina and Edward Glaeser
5. Social Structure of Accumulation Theory by Victor Lippit, in: Contemporary Capitalism and its Crises; edited by: Terrence McDonough, Michael Reich, and David Kotz.
6. Race, Money and the American Welfare State; by Michael K. Brown.
7. The Political Economy of Hope and Fear: Capitalism and the Black Condition in America by Marcellus Andrews.
8. American Dilemma by Gunnar Myrdal.
9. See: The Neoliberal City: Governance, Ideology and Development in American Urbanism by Jason Hackworth.

Under a paper money system, a determined government can always generate higher spending and hence positive inflation.
– Ben Bernanke, future Fed Chairman (in 2002)

My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt – so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.
– Ben Bernanke, future Fed Chairman (in 2002)

The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not.
– Bill Gross, PIMCO’s managing director

On Wednesday, November 3rd, the Bernanke Fed announced that it stands ready to resume money printing to stimulate the economy through quantitative money easing, an euphemism for printing more dollars. Indeed, it intends to buy $600-billion of longer-term Treasury securities until the end of the second quarter of 2011, plus some $300 billion of reinvestments, on top of the some $1.75 trillion of various types of securities, many of which were mortgage backed securities, that it has added in 2009 to its balance sheet, currently standing at a total of $2.3 trillion. There could even be additional increases in newly printed money as the Fed intends to “regularly review and adjust the program as needed to best foster maximum employment and price stability.”

After the election of fiscal conservatives on November 2nd, it seems that printing money is the only instrument left for the Obama administration to stimulate the economy. I fail to see, however, what is “conservative” about that. Actively debasing a currency to stimulate an economy used to be a Third-World economic recipe, a recipe for disaster. Now, the United States government feels that is the only way to get out of the economic doldrums.

But U.S. economic problems are essentially structural in nature, and are due to a bad housing mortgage policy, a bad industrial policy, a bad financial policy, a bad fiscal policy, a bad foreign investment policy, too much entitlement debt, severe demographic problems related to the aging baby-boomers, and to very costly wars abroad. Relying exclusively on monetary quick fixes to correct them misses the mark and may have serious unintended negative consequences down the road.

In fact, it is likely that in the long run, this extreme monetary policy risks exacerbating rather than correcting the problems. Economic structural problems cannot be corrected with monetary means. They rather require real economic solutions. That means correcting the housing mortgage mess and devising an industrial strategy, a fiscal strategy, and an investment strategy that can put the economy back on its tracks of economic growth.

But, for better or worse, the Federal Reserve Board (Fed) seems to be the only branch of the U.S. government left that can still function properly, that is not caught in a permanent political gridlock. As a consequence, for the time being at least, bankers are in charge of the U.S. economy. Since they are the ones who created many of the current problems, this is not very reassuring.

Let’s remind ourselves that the Fed is a semi-public, semi-private organization that has a long history of creating financial asset price bubbles in the U.S and around the world, essentially because the U.S. dollar is an international key-currency widely used around the world and is an important part of other central banks’ official reserves.

Thus, the real danger is that the Fed will again overdo it and create unmanageable financial and monetary bubbles in the coming years. It did it in the past. It did it in the late 1960′s and early ’70s, and we witnessed the same scenario unfolding with the Greenspan Fed in the late 1990s, when excessive easy money helped inflate the Internet and tech stock market bubble. We saw this again in the early 2000s, when easy Fed money helped inflate the housing bubble. And now, we’re seeing it again with the Bernanke Fed. As a general rule, a central bank should not push the monetary gas pedal to the floor and be obliged to slam on the monetary brakes later, thus placing the real economy on a roller-coaster of booms and busts. That is not the way to run a large economy.

But because of the circumstances, the Fed may be at it again. This time it is busy creating a massive bond bubble, some important currency misalignments and a massive gold and commodity price bubble. We should also not forget that abnormally low interest rates and lower bond yields increase the present value of pension liabilities of most defined benefit pension plans.

Therefore, I would not be surprised to see a pension crisis developing in the coming years under the current Fed monetary policy. Of course, all of these bubbles are interrelated but when they come crashing down, four or five years down the road, maybe sooner, the economy may then be in worse shape than it is today. My most likely scenario is for the Fed to keep the monetary gas pedal way down until the 2012 election, and then slam on the monetary brakes thereafter to salvage what will be left of the imperial dollar.

If so, this could be a partial repeat of Japan’s experience in mismanaging its economy in the early 1990′s until 2000, a period known as the lost decade.

The current Fed’s monetary policy is to flood financial markets with liquidity, i.e. newly created dollars, and, in the process, devalue the U.S. dollar, spur American exports and prevent deflationary expectations from taking hold and from making already high debt loads even heavier. For this, the Fed has been engaged since 2009 in round after round of money creation and interest rate reductions to the point of pushing short-term monetary rates close to zero and keeping short-term real rates negative. But if the economy is in a liquidity trap, [http://en.wikipedia.org/wiki/Liquidity_trap] as it is fair to assume it is, although a central bank can print all the money it wants, this is unlikely to stimulate the real economy for very long. —This is like pushing on a string. Printing money, if it is an emergency temporary measure, can help mitigate the effect of having too much debt and debt-service costs relative to income, as is the case today with many debtors in a debt liquidation mode. However, if this becomes a feature of monetary policy for too long, it can have disastrous consequences.

In general, it can be said that the Fed can manipulate short term interest rates by artificially increasing demand for short term securities, but inflation expectations are a big component of long term interest rates and are much less influenced by the Fed. Therefore, if the Fed’s intention of printing large amounts of new money raises fears of future inflation, long term interest rates may rise rather than fall, and this is bound to hurt long-term productive investments.

Moreover, make no mistake, with globalized financial markets, a large chunk of the newly created dollars is flowing out of the United States and is invested in higher interest rate countries, pushing the dollar further down and these countries’ currencies further up. Of course, some of the newly created money will immediately find its way in the stock market, but there is no certainty that this will induce already stretched banks to increase their banking loans to businesses.

Another consequence is this: The current outflow of U.S. dollars helps keep the dollar exchange rate low, but when the Fed is forced to aggressively raise interest rates, as it will inevitably be forced to do later on, the reverse will happen and the U.S. dollar will likely overshoot and then become overvalued. This is the case today with the Japanese yen which became unduly strong when the Japanese carry trade (too much cheap money invested abroad returns home) collapsed.

What counts for most people, however, is that the Fed’s zero-interest rate policy has not cured the structural housing mortgage crisis, since home foreclosures are still very high. The Fed now places most of its hopes on a currency devaluation, which is the old trick of the “beggar thy neighbor” policy, i.e., trying to export one country’s unemployment to its trading partners by devaluating the currency. This was a form of protectionism much relied upon during the 1929-39 Great Depression. This may work for a while, at least as long as other countries can absorb American exports without launching their own money printing process in order to prevent an appreciation of their currencies.

Indeed, is it likely that countries which see their currencies being revalued by the Fed will remain passive? The Fed is implicitly making the bet that these countries will not retaliate, and that the international dollar-based currency system will remain intact. But for how long? Sooner or later, some central banks around the world will have no choice but to impose capital controls in order to slow down the inflow of unwanted outside money and the onslaught of imported inflation, and prevent their exchanges rates from rising too high too fast. If they do, the entire process of economic globalization may begin to unravel.

Meanwhile, foreign central banks, for example, could accelerate their rush to dump the U.S dollar and to accumulate gold and other more stable currencies such as the euro, the Swiss franc, the British pound, the Canadian dollar and the Australian dollar. China has already begun to do just that. The share of dollar official reserves would then decline from about 60 percent presently to perhaps less than 50 percent. That may signal the beginning of the end for the “imperial dollar” which has dominated the international monetary system since the Bretton Woods conference of 1944.
This is to be followed closely.