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Vol. 75/No. 28      August 1, 2011

Working class is rulers’ target
in U.S. debt ceiling ‘showdown’
(front page)
Behind the supposed partisan showdown in Washington over raising the $14.3 trillion federal “debt ceiling,” Democrats and Republicans alike aim to impose cuts to Social Security, Medicare, Medicaid, and other social programs vital to workers and farmers.

President Barack Obama, for example, is floating the idea of increasing the eligibility age for Medicare from 65 to 67 and further reducing cost-of-living payments to Social Security recipients. The divided Republican membership in Congress peddle their own belt-tightening remedies.

Failure to raise the government’s debt “limit” by August 2 “could plunge the world economy back in recession,” the president told the press. Federal Reserve chairman Ben Bernanke warned of a market crisis similar to the one that followed the 2008 bankruptcy of the Lehman Brothers investment house.

To pressure Republicans to vote to lift the debt limit, Obama is using scare tactics. He told CBS News he can’t guarantee Social Security checks will be sent out August 3 “because there may simply not be the money in the coffers to do it.”

But the big danger to Social Security comes from bipartisan plans to raise the eligibility age, gut cost-of-living protection, and eventually push up payroll taxes, not from the looming vote in Congress. In the short term, noted Andrew Biggs in The American July 12, “By itself, the payroll tax would cover around 93 percent of all Social Security payments.”

No such threats are posed for bondholders, however, a group that largely coincides with the class of propertied ruling families in the United States. They continue to receive payments on interest and principal—their “contractual rights”—as they have at every turn in government bailouts during the 2008-2009 financial crisis, from Bear Stearns to General Motors, you name it.

But bondholders are not of one mind today about hiking the “debt ceiling.” Bill Gross, founder of Pimco, the world’s largest bond fund, warns of dire consequences if it’s not raised. In the July 13 Washington Post, he says, “Don’t mess with the debt ceiling,” as a default on U.S. bond payments would introduce “fear and unnecessary volatility into the economy and global trade.”

But Stanley Druckenmiller, a well-known former fund manager for financier George Soros, says that what bondholders want most are steep cuts in social spending now, to ensure their payments are stable and secure over the long haul.

“A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we’re behaving,” he told the Wall Street Journal in mid-May.

On August 2 he said that Washington would only experience a “technical default,” in which investors may have to wait a short period for a particular interest payment. In exchange for that, “I’m going to get massive cuts in entitlements … so my payments seven, eight, nine, 10 years out are much more assured.”

Echoing Druckenmiller’s doubts that bondholders are fit to be tied over the August 2 deadline, Bloomberg News columnist Caroline Baum wrote a July 14 opinion piece, headlined “Worried about Debt Limit? The Bond Market Isn’t.” Despite warnings by government officials that a default would increase borrowing costs and interest payments, “why is the bond market trading like a passive observer?” she asked.

One reason, Baum noted, is that the United States, in the words of one banker, “still looks pretty good compared to the risks associated with European debt.” This includes countries increasingly threatened with default such as Greece, Ireland, Portugal, Spain—and now Italy—as well as stronger capitalist powers like France and Germany that hold sizable amounts of the debt from their smaller brethren.

Workers and farmers across Europe, too, face the ax to their jobs, wages, pensions, medical care, and working conditions.

“The issue is the federal debt itself, not the debt limit,” says the Bloomberg News columnist, throwing her lot behind massive cuts in social programs needed by working people. “Not much point wasting a lot of time and energy on the dress rehearsal.”  
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