Letter from the United States: ‘Fiscal cliff’ fraud an excuse for attacks

To believe the capitalist media, there is a specter haunting the US — the danger that we are about to fall over a fiscal cliff come January 1.

This is presented as if it were a natural phenomenon, a physical cliff the nation is hurtling toward — something must be done before we go over and crash on the rocks below!

President Barack Obama, the Democrats and Republicans in Congress must come to a compromise to avoid the impending catastrophe, we are repeatedly told.

The “fiscal cliff” is an agreement made by the Democrats and Republicans that unless they can come to an understanding before the end of the year on slashing social spending and modifying (or not) the Bush tax cuts, there will be an across-the board massive cut in spending, including for the war budget, and the Bush tax cuts would expire.

If this happened, it would take out about US$800 billion in purchasing power from the economy over the next year, and this would likely result in a new recession.

How did this nutty agreement come to be made?

Last year, there was a fraudulent crisis when Republicans in Congress refused a routine request from the Obama administration to extend the debt ceiling. They insisted the Democrats agree to slashing Social Security and Medicare, and keep Bush’s regressive tax cuts for the wealthy as conditions.

Actually, Democrats and Republicans agreed on the need to cut social spending. They disagreed on how much to slash, and how fast, and details on which programs to cut. The Democrats also want the wealthy to pay a little more tax.

The Democrats balked at the more draconian Republican budget proposals. These were then put into a bill passed by the House of Representatives but stalled in the Senate. It was known as the “Ryan budget”, named for the hard-right Representative Paul Ryan, who would become Mitt Romney’s running mate.

There was never any doubt the debt ceiling would be raised. There was no chance the US government would default on the interest and debt repayments it owes its capitalist creditors.

The debt ceiling was raised amid a manufactured atmosphere of crisis, but there was no agreement on the budget. A bipartisan decision was reached to create another fake crisis that would occur after this year’s elections in the form of the fiscal cliff.

The hope was that the industrial cycle would be well into its upward phase, including in housing. With significant improvements in employment, workers would be less worried about layoffs and therefore feel less need for social insurance.

Cuts in social spending, it was hoped, would be easier to sell.

But that has not happened. The recovery remains anemic. There have been some slight improvements in employment, and in the housing market. But for most people it feels like the recession never ended.

New jobs are in mainly lower-paying industries. Some of the increase in employment is for part-time work. For employed workers, wages are being eroded.

Housing foreclosures continue, and many workers’ homes are “under water” — more is owed on their mortgages than the selling price of the homes.

Conditions for Blacks, Latinos and millions of poor white workers are desperate. Poverty is on the rise.

If Romney had won the presidency, and the Republicans had taken over the Senate as well as keeping control of the House, they could have steam-rolled their budget into law.

It is likely in that scenario, Romney would have faced the hatred of a majority of the people. A billionaire finance capitalist preaching the need for austerity for everybody but the very rich like himself, would have been something to see.

If that had happened, the prospect for a huge militant fight-back against the “fiscal cliff” cuts would have been many times greater than will likely be the case with the Obama victory.

The ruling rich was divided over the election, but a decisive sector came to realise that electing Obama would be in their best interests.

The election also resulted in the Republicans keeping control of the House and the Democrats the Senate. Hence the need for a compromise on which cuts in social spending will be made and how drastic they will be.

As well, there will be some compromise on raising taxes in some form on the wealthy, as well as maintaining the Bush tax cuts for working people and the lower 98%.

As Obama said in his first press conference after the election, how can he be expected to call on “ordinary Americans” to accept austerity (he used the term “sacrifice”) if the rich are seen to be getting off scot free?

Key in this statement was his intention to drive austerity forward.

There definitely will be no cuts to the war budget in the “fiscal cliff” agreement.

But could the fiscal cliff cause an economic disaster? Theoretically, if the government yanked a big enough amount of purchasing power out of the economy, it could trigger a deep recession.

But there is no realistic chance the Democrats and Republicans will do that. Far from desiring a return to deep recession, the ruling class is very alarmed by the failure of the US economy to recover in the normal way after the financial panic and associated sharp recession.

Even if there is no “grand compromise” before the end of the year, the cuts dictated by the financial cliff will not come all at once. The crisis atmosphere would continue until an agreement was reached.

It remains to be seen what the cuts to things such as Social Security, Medicare, Medicaid, education — the potential list is long — will look like.

It also remains to be seen what kinds of fight backs develop among the millions already suffering under this long period ushered of financial crisis, sharp recession and anemic recovery.

Sooner or later there will be another recession. The new period began in the US and then spread to Europe and elsewhere, like a wave. The resulting deep crisis in Europe may send the wave back to US shores.'

[Barry Sheppard was a long-time leader of the US Socialist Workers Party and the Fourth International. He recounts his experience in the SWP in a two-volume book, The Party — the Socialist Workers Party 1960-1988, available from . Read .]