The Financial War Against The US Economy

By Michael Hudson
Courtesy Of "Naked Capitalism"

Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no larger military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers.

Workers have become so deeply indebted on their home mortgages, credit cards and other bank debt that they fear to strike or even to complain about working conditions. Losing work means missing payments on their monthly bills, enabling banks to jack up interest rates to levels that used to be deemed usurious. So debt peonage and unemployment loom on top of the wage slavery that was the main focus of class warfare a century ago. And to cap matters, credit-card bank lobbyists have rewritten the bankruptcy laws to curtail debtor rights, and the referees appointed to adjudicate disputes brought by debtors and consumers are subject to veto from the banks and businesses that are mainly responsible for inflicting injury.

The aim of financial warfare is not merely to acquire land, natural resources and key infrastructure rents as in military warfare; it is to centralize creditor control over society. In contrast to the promise of democratic reform nurturing a middle class a century ago, we are witnessing a regression to a world of special privilege in which one must inherit wealth in order to avoid debt and job dependency.

The emerging financial oligarchy seeks to shift taxes off banks and their major customers (real estate, natural resources and monopolies) onto labor. Given the need to win voter acquiescence, this aim is best achieved by rolling back everyone’s taxes. The easiest way to do this is to shrink government spending, headed by Social Security, Medicare and Medicaid. Yet these are the programs that enjoy the strongest voter support. This fact has inspired what may be called the Big Lie of our epoch: the pretense that governments can only create money to pay the financial sector, and that the beneficiaries of social programs should be entirely responsible for paying for Social Security, Medicare and Medicaid, not the wealthy. This Big Lie is used to reverse the concept of progressive taxation, turning the tax system into a ploy of the financial sector to levy tribute on the economy at large.

Financial lobbyists quickly discovered that the easiest ploy to shift the cost of social programs onto labor is to conceal new taxes as user fees, using the proceeds to cut taxes for the elite 1%. This fiscal sleight-of-hand was the aim of the 1983 Greenspan Commission. It confused people into thinking that government budgets are like family budgets, concealing the fact that governments can finance their spending by creating their own money. They do not have to borrow, or even to tax (at least, not tax mainly the 99%).

The Greenspan tax shift played on the fact that most people see the need to save for their own retirement. The carefully crafted and well-subsidized deception at work is that Social Security requires a similar pre-funding – by raising wage withholding. The trick is to convince wage earners it is fair to tax them more to pay for government social spending, yet not also to ask the banking sector to pay similar a user fee to pre-save for the next time it itself will need bailouts to cover its losses. Also asymmetrical is the fact that nobody suggests that the government set up a fund to pay for future wars, so that future adventures such as Iraq or Afghanistan will not “run a deficit” to burden the budget. So the first deception is to treat only Social Security and medical care as user fees. The second is to aggravate matters by insisting that such fees be paid long in advance, by pre-saving.

There is no inherent need to single out any particular area of public spending as causing a budget deficit if it is not pre-funded. It is a travesty of progressive tax policy to only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding, exempting higher earnings, capital gains, rental income and profits. The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth, by falling on low wage income at a much higher rate than that of the wealthy. This is not how the original U.S. income tax was created at its inception in 1913. During its early years only the wealthiest 1% of the population had to file a return. There were few loopholes, and capital gains were taxed at the same rate as earned income.

By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default.

The government’s seashore insurance program, for instance, recently incurred a $1 trillion liability to rebuild the private beaches and homes that Hurricane Sandy washed out. Why should this insurance subsidy at below-commercial rates for the wealthy minority who live in this scenic high-risk property be treated as normal spending, but not Social Security? Why save in advance by a special wage tax to pay for these programs that benefit the general population, but not levy a similar “user fee” tax to pay for flood insurance for beachfront homes or war? And while we are at it, why not save another $13 trillion in advance to pay for the next bailout of Wall Street when debt deflation causes another crisis to drain the budget?

But on whom should we levy these taxes? To impose user fees for the beachfront reconstruction would require a tax falling mainly on the wealthy owners of such properties. Their dominant role in funding the election campaigns of the Congressmen and Senators who draw up the tax code suggests why they are able to avoid prepaying for the cost of rebuilding their seashore property. Such taxation is only for wage earners on their retirement income, not the 1% on their own vacation and retirement homes.

By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default. This enables bondholders to treat the government in the same way that banks treat a bankrupt family, forcing the debtor to sell off assets – in this case the public domain as if it were the family silver, as Britain’s Prime Minister Harold MacMillan characterized Margaret Thatcher’s privatization sell-offs.

In an Orwellian doublethink twist this privatization is done in the name of free markets, despite being imposed by global financial institutions whose administrators are not democratically elected. The International Monetary Fund (IMF), European Central Bank (ECB) and EU bureaucracy treat governments like banks treat homeowners unable to pay their mortgage: by foreclosing. Greece, for example, has been told to start selling off prime tourist sites, ports, islands, offshore gas rights, water and sewer systems, roads and other property.

Sovereign governments are, in principle, free of such pressure. That is what makes them sovereign. They are not obliged to settle public debts and budget deficits by asset selloffs. They do not need to borrow more domestic currency; they can create it. This self-financing keeps the national patrimony in public hands rather than turning assets over to private buyers, or having to borrow from banks and bondholders.

Manufacturing Poverty

By CHERI HONKALA
Courtesy Of "CounterPunch"

On December 10, community leaders all across the country held vigils and rallies outside Congressional offices to defend the safety net and protest the so-called “fiscal cliff” negotiations in Washington, DC. It was part of a coordinated national campaign on International Human Rights Day, the 64th anniversary of the signing of the Universal Declaration of Human Rights. Among other provisions, the Declaration proclaims the inalienable human right to jobs, housing, health care, education, and social security.

The “fiscal cliff” is an artificial crisis created by Congress as a ploy to dismantle the safety net programs the American people have built up and relied on for generations. In their own words, corporations want to “use the fiscal cliff as an opportunity” to push for tax cuts for themselves and benefit cuts for the rest of us.

Although the “fiscal cliff” is allegedly about the federal budget deficit, many proposals actually under discussion show that it has nothing to do with the deficit whatsoever.

For one, President Obama proposed a so-called “chained CPI” formula that would cut Social Security benefits, especially for the poorest and most elderly. Social Security currently runs a 2.7 trillion dollar surplus, is a separate fund that by law cannot increase the deficit, and in fact has never contributed a penny to the deficit in its entire 77-year history.

Another proposal is a $134 billion corporate “tax repatriation holiday”. This would INCREASE the deficit and proves that the “fiscal cliff” is really designed just to raise corporate profit even if it means plunging millions of Americans into poverty.

Social Security, Medicare, Medicaid, and affordable housing have been and are now fully funded and paid for through our payroll and income taxes, and are supported by an overwhelming super-majority of voters. They are the property of the American people and the inheritance we have prepared for our children and grandchildren. A “grand bargain” or any other kind of compromise that in any way diminishes or weakens these programs in order to enrich corporations is totally unacceptable.

The idea that America has become so impoverished that it can no longer afford the most elementary necessities of its people is patently absurd. As a nation we are richer and more productive than ever. Despite declining industrial employment, our manufacturing OUTPUT is higher now than it has ever been, thanks to the technological revolution. The attacks on the safety net are deliberate efforts to artificially introduce poverty in the midst of plenty.

The solution to the deficit is not difficult: it is to make banks and corporations pay their taxes. In the 1940s, corporations paid 50% more taxes than individuals. Today, they pay 75% LESS than individuals. There is no shortage of money. Corporations continue to reap record profits year after year, but they are paying fewer taxes.

Jill Stein and the I have a plan that addresses the deficit, and more importantly the unemployment epidemic and the looming climate crisis. It is called the Green New Deal that would create millions of jobs providing human services and building sustainable infrastructure. What we have in America today is not a deficit problem at all but a human rights problem. The time has come for us to reject the poverty agenda of the “fiscal cliff” promoted today by both Republicans and Democrats. The time has come to provide a job, housing, health care, and education to every American.

"Congress Is The Biggest Threat To America's Economy"

“Something has gone terribly wrong,” said Senator Joe Manchin III, Democrat of West Virginia, “when the biggest threat to our American economy is the American Congress.”

... a fundamental ideological chasm between the majority of lawmakers and an empowered group of Congressional Republicans — fueled by some Tea Party victories in both chambers in 2010 — has made it more difficult than ever to reach fiscal and budgetary compromises.

Each fight has left Democrats and Republicans both more distrustful and wary of working together, each in search of a voter mandate to push its vision to the fore. In some ways, that dynamic has come full circle.

In 2011, right after their big midterm victory, Republicans were able to push Democrats out of their comfort zone on spending, using short-term measures to keep the government open and the debt ceiling as weapons against the Obama administration. After the 2012 election, Democrats are using that same strategy to tear Republicans from their orthodoxy on taxes, and the Republicans’ pain is evident.

As a result, members of both parties have become increasingly addicted to short-term solutions to long-term problems, cobbling together two- and three-month bills and short-term extensions to fight over again and again until the string has run out on many major pressing issues.

Also, a change in the way this Congress does business — the elimination of home-state earmarks that once greased so many Congressional deals — and the escalating use of the Senate filibuster to prevent debate on even routine legislation have further hamstrung lawmakers in their efforts to get anything done.

“This is one of the lowest points of the U.S. Senate,” Senator Barbara A. Mikulski, Democrat of Maryland, remarked as she ticked off what she said were other nadirs in a long Senate career. “This is what we’re doing to ourselves.”

Via: "The New York Times"