Translated from Gegenstandpunkt: Politische Vierteljahreszeitschrift 2-2011, Gegenstandpunkt Verlag, Munich

Crisis Management in the U.S.
The nation fights against its economic decline

A. Conflicting ways out of the recession

In the United States, a political dispute is raging over the right direction for the nation. The “change”-President and his Democrats propagate the necessity of checking and, if possible, reversing the progressive decay of the country, especially the process of de-industrialization and the impoverishment of entire sections of the population. The Republican opposition, radicalized by the “Tea Party” movement, rejects all of the state’s corrective interventions into the course and results of capitalist competition as eating up funds and sabotaging America’s traditional path to success. The dispute rages, fittingly, over revenues and expenditures in the nation’s budget. What makes the debate so explosive is the fact that the Republican opposition has used the legally stipulated debt ceiling as leverage for extorting and credibly threatening to remain obstinate even in the face of government insolvency.

I. Culture War in America

1. The political debate — getting out of hand

In the opening remarks to his State of the Union speech this year, the American President took the assassination attempt on a Democratic congresswoman in Tucson, Arizona, as an opportunity to direct a serious admonition to his political colleagues and adversaries, and to the American people as a whole:

“And as we mark this occasion…we pray for the health of our colleague…Gabby Giffords. It's no secret that those of us here tonight have had our differences over the last two years. The debates have been contentious; we have fought fiercely for our beliefs. And that's a good thing. …But there's a reason the tragedy in Tucson gave us pause. Amid all the noise and passion and rancor of our public debate, Tucson reminded us that no matter who we are or where we come from, each of us is a part of something greater — something more consequential than party or political preference. We are part of the American family. We believe that in a country where every race and faith and point of view can be found, we are still bound together as one people; that we share common hopes and a common creed…Now, by itself, this simple recognition won't usher in a new era of cooperation… New laws will only pass with support from Democrats and Republicans. We will move forward together, or not at all — for the challenges we face are bigger than party, and bigger than politics. At stake right now is not who wins the next election … At stake is whether new jobs and industries take root in this country, or somewhere else. It's whether the hard work and industry of our people is rewarded. It's whether we sustain the leadership that has made America not just a place on a map, but the light to the world.” (Obama, State of the Union Address, 2011)

The President thus drew a direct connection between the attempted assassination of a member of Congress and the “noise, passion, and rancor” of the public debate and dispute in the country. He let the attack “remind” him — and he reminded his public at the same time — how important it is that the unity of the nation not be harmed by this fight; according to Obama, nothing less than America’s exceptional position in the world of states is at stake. The message he wants his audience to take home from the events in Tucson is fitting: the time has come for America to leave behind its political conflicts and work toward the higher goal of a national revival across all political divides.

All over the country, Obama’s appeal to the community of all Americans was met with approval. Except for the far Right, nobody considered it absurd that the attack could be taken as an expression of general political agitation seizing the country:

“[The assassin] Jared Loughner… appears to be mentally ill. …But he is very much a part of a widespread squall of fear, anger and intolerance that has produced violent threats against scores of politicians and infected the political mainstream with violent imagery. .. threats against members of Congress had tripled over the previous year, almost all from opponents of health care reform. An effigy of Representative Frank Kratovil Jr., a Maryland Democrat, was hung from a gallows outside his district office. Ms. Giffords’s district office door was smashed after the health vote, possibly by a bullet. The federal judge who was killed, John Roll, had received hundreds of menacing phone calls and death threats, especially after he allowed a case to proceed against a rancher accused of assaulting 16 Mexicans as they tried to cross his land…It is facile and mistaken to attribute this particular madman’s act directly to Republicans or Tea Party members. But it is legitimate to hold Republicans and particularly their most virulent supporters in the media responsible for the gale of anger that has produced the vast majority of these threats, setting the nation on edge… They seem to have persuaded many Americans that the government is not just misguided, but the enemy of the people.” (“Bloodshed and Invective in Arizona,” Editorial, New York Times, January 9, 2011)

Not even the Republican rabble-rouser Sarah Palin cared to dispute the claim that the attempted assassination was the product of an aggressive political mood spreading throughout the country. The attack on Giffords was dealt with as an extreme case of a general rise in the brutality of political mores, a symbol and expression of a fundamental decline in the political culture of the U.S. But hardly did the diagnosis appear when the question as to who was to blame for the universally maligned atmosphere of hatred began to be used as a weapon in the dispute between the parties. This battle now also turns on the issue of who, while of course continuing to slander the political adversary, at the same time best embodies the unity of all good Americans.[1]

No wonder, since the interparty disputes have been increasing rather than abating; even after the attack on Giffords, there is no bipartisan will for political collaboration. Each political dispute is fought out in the spirit of the fundamental question of whether the other side’s plan will rescue the nation from recession or plunge it deeper into it. Furthermore, the adversaries are not content to insult each other, but are taking action: the President and the Congress, the Obama administration and the courts, the federal government and individual states are all using legal and political means to torpedo the policies put forth by the opposing party and to present their own respective version of how to combat the recession. That is how, six months after the attack, the parties have ended up in a battle over the national budget that has even shaken world stock exchanges. But it is not that Obama and his opponents have been using an inappropriate tone in suspecting each other of bringing disaster on the nation. In their inflammatory speeches, they reveal how much they see the current recession as a fundamental crisis of the nation and how adamant each side is that only its chosen way can bring the cure. Even the content of their incendiary discourse suits its purpose: both sides prove that there is no alternative to their plans by presenting them as projects for rescuing the true America; obstructing their respective plans would thus bring ruin to the American way of life, not only economically and politically, but above all in a moral sense.

2. The fundamentalism of Obama’s “change” and the counteroffensive of the “Tea Party” movement

Obama himself is the best example. The President does not miss any chance to present his reforms and restoration project as an initiative to (re-)establish something much greater and more worthy than merely the economic and political might of the nation: an America that is a “light to the world,” incomparably good and full of moral integrity, corresponding to the true nature of its inhabitants, but lost under the reign of his predecessor. In this America, individual freedom and state-organized public spirit are in balance; everybody has opportunities irrespective of race and origin, and state power takes care that “big business” also makes its contribution to the success of the community. That is roughly how Obama views the idyllic homeland of honest Americans of all colors, races, and walks of life, in whose service Obama places himself and his project. This is definitely true for his reform of health care. But even when it comes to things like coping with the “Deepwater Horizon” disaster, Obama garnishes his practical measures with the message that the accident reveals a fundamental national mistake in terms of the government’s failure to control “big business” and its recklessness toward the foundations of the nation’s prosperity. Americans on “Main Street” should understand and approve the measures for reforming “Wall Street” passed in the wake of the financial crisis as a fundamental correction of the carelessness of the government, committed to the common good, toward the excessive raking-in of money. And in the dispute over the right immigration policy, Obama does not shy away from accusing his opponents on the Right of dividing the nation and violating human rights in an entirely un-American way. Everything that Obama undertakes to restore the nation should find its highest justification in something like an ineluctable American identity, in which state power and people join together for the benefit of the nation.

On this front, Obama has been met with a new opposition. The “Tea Party” movement sees itself as the representative of a radically conservative antithesis to “liberal” America; and to them, the current president embodies everything that they, as good Americans, have not asked for. They are upright fans of free competition and loyal taxpayers whose conception of the relationship between success in competition and state intervention is diametrically opposed to the one propagated by Obama. For the Tea Party, success in competition proves a person right, practically and morally. Every “intervention” by the state into the “private affairs” of those who have managed to make something of themselves can therefore only be harmful to them, being only beneficial to those who have not made adequate efforts. So they regard state “intervention” to be all the more necessary for the sake of law and order and the property of those who have some. The rest should uphold the values of “freedom, family, and flag” — in Sarah Palin’s words — and lead a God-fearing life.

This ideal image of the independent, self-reliant bourgeois competitor is not new; what is new is that it has been translated into the program of an autonomous political organization[2] that claims to play a substantial role in defining the course of the nation’s politics. The Tea Party movement sees itself called upon to prevent the destruction of America by the actions of a quasi-Black and possibly non-American[3] leader. Their association lines up behind this fundamentalism and does everything to undermine the success of Obama’s politics. As a means to this end, the Tea Party has its members enter the Republican party and see to it by their votes that old representatives of the party are kicked out of office and replaced by their own. At the same time, these people have made clear that they do not want to be viewed as part of the Republican rank and file:

“More than 2,000 members of the Tea Party Patriots gathered here for a national conference had strong words on Saturday for Congressional Republicans and vowed to vote them out of office next year if they did not move aggressively to cut the budget… After playing a critical role in propelling the Republicans to a House majority in 2010 — but ending the careers of some establishment Republicans along the way — the Tea Party members here were clearly eager to mix things up again in 2012. ‘We’re not an appendage of anyone,’ Ms. Oljar said. ‘If someone is not a real fiscal conservative, they will be outed very quickly. There are politicians who have taken on the Tea Party mantle. That’s fine. But we care about the issues, and we’re watching them all.’” (New York Times, February 26, 2011)

They define themselves very self-confidently as the electorate of their party representatives, who should kindly make their radical standpoint on “big government” in Washington the party line. To these upright citizens, it is obvious that party politics has to come from the right morality, i.e., their morality. In this sense, they take to heart the message of their leaders that America needs to be rescued from its enemies, and they make it their task to ensure that gets done. In their profoundly righteous indignation over Obama’s anti-American policies and his person, they document how much they view a political U-turn to be an absolute necessity if America is to be rescued from its national crisis. In this spirit, they agree with their opponents; and in this way, both factions drive their conflicts boldly forward.

II. Obama’s economic and financial therapy for the nation’s ailing economic base

1. “Change” in the economy

Obama’s diagnosis upon taking office was that America had fallen behind in world market competition and therefore urgently needed a political change of direction in order to ensure the nation’s economic recovery. In the situation of the economy and of the society, the President saw a slew of indicators that the U.S. had slipped behind in every crucial sector of national business life.

  • Contrary to what was previously common in the U.S., Obama and Co. no longer consider the shrinking share of the American economy in productive capital investments worldwide as an unfortunate but ultimately harmless side effect of the capitalistic power of American companies that use the entire world as a sphere of investment, which would thus not seriously reduce the economic power of the nation. They now take that as a fundamental loss in national economic power — deindustrialization — which needs to be counteracted.
  • In the process, the administration has taken a new view of the ramshackle condition of its infrastructure, such as bridges, streets, and railroads. That is no longer regarded as being a more or less economically relevant defect which can be regulated locally and which the individual states have to cope with as much as their budgets and interests allow, but as a national problem and a serious obstacle to restoring America’s industrial landscape. The new administration wants to tackle this issue with a nationwide infrastructure program.
  • Earlier administrations had always occasionally criticized America’s excessive dependence on oil imports; for Obama, this dependency dictates the necessity of once again making the country a leader in the competition over global energy production, but especially energy technology. The new administration does not simply want to leave this to its multinational companies’ enthusiasm for investment, but has made the promotion of “green” technology a government priority.
  • Last but not least, Obama and Co. view the wretched state of the working class in the United States as a national disgrace; they no longer take unemployment, the poverty of the elderly, and unaffordable health care as a byproduct of successful growth, which individual Americans have to cope with on their own, but as a state of emergency that harms the effectiveness of the national economic base, for which the state is responsible. Particularly in the health care industry, Obama sees a fundamental need for reform in order to preserve the working masses’ ability to function.

The slogan “Jobs for America!” summarizes the promise of “change!” for which Obama was elected.

2. The recession — all the more reason for “economic stimulus”

Nothing has come of the promised modern and cutting-edge American “jobs.” The recession has thoroughly thwarted Obama’s ambitious reform program: state power sees itself thrown back to the task of making sure that its wonderful capitalism continues at all. The financial power of the state is faced with the challenge, not of fostering its capital location, but of preventing the complete collapse of the financial system — with all the potential consequences for the common good. The government is succeeding as far as the solvency of the banking sector is concerned, but when it comes to productive capital, the destruction continues; bankruptcies and collapses to an extent not seen in a long time require the employment of state credit, too. Where entire sections of the national economy, like General Motors, threaten to collapse, the state has nationalized companies as a last resort for rescuing them and organizing their continued existence. Also in the social sector, American state power sees itself compelled to deviate from its usual practices. Capital has been dealing with the recession by ridding itself of superfluous wage costs; this has had the effect of severely impoverishing workers who have been laid off, as well as the employed, and has moved the state to extend welfare benefits to the poor beyond the usual meager extent. The collapse of the mortgage and housing market not only compels the state to put up mountains of credit in its capacity as financial guarantor, but also necessitates government assistance in order to stem the flood of compulsory evictions through which the banks take advantage of their customers.

But the Obama administration is not content to halfway secure the continuance of the national economy by means of state credit. It gathers from the recession that its program of reform is all the more necessary in face of the massive collapse of national business activities. If the recession has such a massive impact on America’s economic base; if American capital is coping so badly with its repercussions; if new growth and a reduction in unemployment keep refusing to come about, then — according to the government’s standpoint — this proves just how much the U.S. is lagging behind in the competition of nations. Its “economic stimulus” is intended to remedy this defect. The measures aimed at financing and supporting capital are supposed to counteract the nationwide collapse of business activities in a way that restores the basis of America’s capitalism at the same time. Obama and Co. use capital’s need for government aid to promote the competitiveness of the national economy; to that end, the administration does not shy away from imposing conditions on capital in order to push their business activities in the politically desired direction. This is the thought behind the “biggest reform of government supervision of the financial industry ever.” The government is using its control of the reorganization of General Motors to make government financial assistance contingent on an environmentally friendly modernization of its product lines and the appropriate use of new technologies. Against all the complaints of insurance companies and the health care industry that they cannot bear any additional costs in the recession, Obama is as insistent on keeping his health care plan as he is on shifting national energy production toward renewable energy with support programs and new limits on carbon dioxide emissions.[4] The government’s “job creation” plans also correspond to this view:

“Obama … called Monday for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects… It calls for a quick infusion of $50 billion in government spending that White House officials said could spur job growth as early as next year … Central to the plan is the President’s call for an “infrastructure bank,” which would be run by the government but would pool tax dollars with private investment… But the notion of a government-run bank …is bound to prove contentious during an election year in which voters are furious over bank bailouts and over what many perceive as Mr. Obama pursuing a big government agenda.“ (New York Times, September 6, 2010)

The representatives of the nation, which is home to the world’s biggest and most powerful finance capital, are in all seriousness considering founding a national development bank to raise credit for the renewal of the nation’s infrastructure.[5] Such projects make apparent both how urgent these politicians regard the renewal of the nation’s economic base as an attractive offer to capital, and how little they trust “market forces” to bring about the preconditions for profitable business, i.e., business that is worthwhile for them. That even gives rise to revolutionary ideas such as founding a “development bank”; that may be a standard tool of economic policy in other capitalistic nations, but the U.S. hasn’t seen a reason to make use of it since the New Deal. It is no surprise that to many a good American, such projects appear completely suspicious, if not quite un-American.

3. The budgetary situation — save, but productively!

The President finds it necessary to “offset” the fifty billion dollars for his renewal projects by making cuts in other budget items, revealing the dilemma facing the government’s program: Obama’s ambition to pep up the country with additional state credit is being thwarted by the public debt already accumulated because of the recession. The administration in no way ignores this problematic situation: despite his will to renovate America, Obama shares the national consensus that the nation’s debt is not only too high but also shows that over the last decades the United States has — together with its inhabitants — lived “beyond its means.” The President has taken into account that his unavoidable growth-promoting renovation project will mean an additional burden on the national budget, and has declared his firm intention to bring both into line. He announced his plans in a keynote speech at George Washington University:

“We have to live within our means, reduce our deficit, and get back on a path that will allow us to pay down our debt. And we have to do it in a way that protects the recovery, and protects the investments we need to grow, create jobs, and win the future… I’m proposing a more balanced approach to achieve $4 trillion in deficit reduction over twelve years. … We will make the tough cuts necessary to achieve these savings, including in programs I care about, but I will not sacrifice the core investments we need to grow and create jobs. We’ll invest in medical research and clean energy technology. We’ll invest in new roads and airports and broadband access. We will invest in education and job training. We will do what we need to compete …The second step in our approach is to find additional savings in our defense budget…. We need to not only eliminate waste and improve efficiency and effectiveness, but conduct a fundamental review of America’s missions, capabilities, and our role in a changing world…The third step in our approach is to further reduce health care spending in our budget. … by reducing the cost of health care itself.… The fourth step in our approach is to reduce spending in the tax code. In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. ..And I refuse to renew them again…the tax code is also loaded up with spending on things like itemized deductions. And while I agree with the goals of many of these deductions, like homeownership or charitable giving, we cannot ignore the fact that they provide millionaires an average tax break of $75,000 while doing nothing for the typical middle-class family that doesn’t itemize.…That’s why I’m calling on Congress to reform our individual tax code…(this) reform should protect the middle class, promote economic growth …This is my approach to reduce the deficit by $4 trillion over the next twelve years.” (Remarks by the President on Fiscal Policy, George Washington University, Washington, D.C., April 13, 2011)

Because of the crisis in public finances, Obama sees himself compelled to reconcile his economic offensive with the aim of putting the public finances in order. To do that, there first need to be cuts in expenditures, especially when it comes to social spending. Even the military has to put up with the question of whether it really needs the vast amount of dollars that it swallows for the sake of national security. But it is not enough to merely make cuts; in fact, if the cuts are too deep, they can even damage the sources from which the state seeks to derive future revenues. This is why, second, expenditures need to be made more productive for American growth and competitiveness than they have been in the past. In this sense, expenditures for railroads, health care, etc., should not so much be viewed as a current burden to the state’s finances but rather as investments in the nation’s future, which should and shall pay off for the state and its revenue, too. Third, faced with current budget difficulties, the state has to look for new sources of financing in its crisis-ridden economy in order to finance such “advances.” The President has discovered an unused source of money for the state in the income of the more well-off, whom it ultimately doesn’t hurt to tax and which would help get the budget in good shape.

With this back and forth between budget cuts, expenditure increases, and reallocations of government funds, the federal government is looking to preserve as much as possible of its project for renewing America’s economy and society in the face of the crisis, or even to use that project as a way of overcoming the crisis. In explicit contradistinction to the timidity he has diagnosed in his opponents, Obama insists on the indispensability of restoring American capitalism if the United States wants to hold its own in the competition of nations:

“Go to China and you’ll see businesses opening research labs and solar facilities. South Korean children are outpacing our kids in math and science. Brazil is investing billions in new infrastructure and can run half their cars not on high-priced gasoline, but biofuels. And yet, we are presented with a vision [by the Republicans — author’s note] that says the United States of America — the greatest nation on Earth — can’t afford any of this. It’s a vision that says America can’t afford to keep the promise we’ve made to care for our seniors. …Worst of all, this is a vision that says even though America can’t afford to invest in education or clean energy; even though we can’t afford to care for seniors and poor children, we can somehow afford more than $1 trillion in new tax breaks for the wealthy. …The fact is, their vision is less about reducing the deficit than it is about changing the basic social compact in America.“ (ibid.)

III. The Republicans’ counterplans

1. The Republican response to “change”: down with “big government”!

For Obama’s adversaries, one thing is for certain: his projects are taking the nation down the wrong path — in terms of restoring the nation’s competitiveness, and especially as a way of overcoming the crisis. The Republicans fundamentally reject the idea of the state showing capital how to make a profit; in their view, the promotion of “free enterprise” without any ifs, ands, or buts is still the best method for fostering the nation’s capacities for growth. Even as far as the propertyless masses are concerned, America has, in their opinion, always fared best with the slogan of “freedom,” meaning that the state should not be overly generous but urge the poor to cope with their situation in a self-reliant manner.

In the Republicans’ view, the impact of the recession on financial capital proves they are right in opposing Obama’s program; and the state of government finances only confirms their diagnosis as to what has really gone wrong in America. If the state’s first priority is to use all its might to bring the national economy out of the recession and put it back on the path of growth, then, in their view, any measures and expenses that place additional burdens on capital, instead of unleashing it as a motor of growth, are harmful and even reprehensible. Likewise, the state’s deepening indebtedness confirms their judgment that any government social measure, however paltry, does nothing but unproductively indulge the masses and is therefore a waste of taxpayers’ money. Hence they oppose legislation increasing the oversight of “Wall Street” as well as the prolongation of unemployment benefits. When it comes to restoring public finances, they now plead for a radical reorganization of Medicare and Medicaid, if not for terminating them altogether. In particular, however, they rage against Obama’s plans to increase taxes on higher incomes. For the Republicans, the income of the more important economic individuals is private capital, over which free disposal is the national recipe for success. Their opposition to Obama’s line is thus summarized in a devastating general appraisal: if the administration curtails the profitable use of private income in the midst of the recession, dispossesses its legitimate owners in order to finance ever more state projects and gifts to “useless eaters” and, what is more, wants to economize on the nation’s security, then one thing is for certain: the President isn’t rescuing the nation but only plunging it deeper into recession.

Just like Obama, the Republicans do not merely seek an economic policy for managing the crisis. They, too, not only seek to manage the crisis but to use it as an opportunity for initiating a fundamental political U-turn. Whereas Obama wants to increase the state’s responsibility for the course of national capitalism and its oversight of it, the Republicans’ fight, just as fundamentally, is aimed at reducing “big government.” According to important sections of the party, the U.S. has, in fact, been on the wrong track ever since the “New Deal,” not only in the more narrow economic sense, but also in terms of the fundamental relationship between the centralized state power and the rights of free citizens.[6] As Obama has expressed so ornately, they call for “changing the basic social compact in America, that is, a redefinition of the rights and obligations with which the American state looks after its competitive society; and they actively push for the realization of what they have in mind.

2. The Republicans’ countermeasures in the individual states

In this spirit, Republican governors use their local political power to obstruct Obama’s projects:

”Seventeen states — all but two headed by Republicans — are suing to block Obama’s effort to regulate carbon emissions. GOP governors led the drive to resume offshore drilling after Obama suspended it following last year’s BP spill in the Gulf of Mexico…. the President did his part to heighten tensions by suing Arizona over its immigration law and conspicuously siding with public-employee unions in their struggle with GOP governors … over collective-bargaining rights. …Twenty-seven states…are suing to dismantle the [health care] law’s foundation: the mandate on individuals to purchase insurance… The majority of Republican governors are also resisting the law’s provisions requiring them to maintain state spending on Medicaid … This time, the governors are aligning much more consistently with their fellow Republicans in Congress in resistance to Obama’s priorities.… It creates a second line of defense for conservatives to contest Obama even after he wins battles in Congress…. American politics increasingly resembles a kind of total war in which each party mobilizes every conceivable asset at its disposal against the other.“ (National Journal, February 24, 2011)

This is how things happen in the land of the free when the representatives of government and opposition go so far as to define their disputes as cases in which the nation’s highest principles have been fundamentally violated. Then their controversies end up before the Supreme Court — with questions such as whether the highest principles of the nation really permit the federal government or individual states to do what they are doing; whether legislation complies with the supreme values of “protection of privacy” or “freedom of property”; or whether the right of the states to determine their budget freely has been violated.

The states, however, are doing more than using the law as leverage for undermining the policies of the federal government. Individual state governments — in accordance with the U.S. constitution — have considerable financial sovereignty at their disposal and are substantially responsible and answerable[7] for the economic and social management of their share of the national community; their decisions over expenditures and revenue ultimately determine what becomes of the central government’s projects. In the crisis, this political division of labor between federal and state government has its drawbacks:

The crisis has plunged the individual states into a catastrophic financial situation. Not least, the mortgage crisis has caused a radical drop in revenue from property taxes, with which they finance an important part of their budgets. They see themselves compelled to make drastic budget cuts, going so far as to threaten the orderly management of a number of cities:

“(In Hawaii), public schools across the state closed on 17 Fridays during the past school year to save money… Many transit systems have cut service…Even public safety has not been immune to the budget ax. In Colorado Springs, … the city switched off a third of its 24,512 streetlights to save money on electricity, while trimming its police force and auctioning off its police helicopters. Faced with the steepest and longest decline in tax collections on record, state, county and city governments have resorted to major life-changing cuts in core services like education, transportation and public safety that, not too long ago, would have been unthinkable.” (New York Times, August 6, 2010)

The budget cuts in the individual states effectively thwart the central government’s program of managing the crisis. The budgetary situation of the states hinders their ability to do anything with the stimulus money from the central government: they simply lack the means required for co-financing. Some state representatives can only see additional financial burdens with dubious local benefits in Obama’s projects, particularly since they are not permitted to redesignate federal funds for their own expenses:

“… Several candidates [for federal money] said they wanted to spend the stimulus rail money on roads and bridges, but it is unlikely they would be able to do so without changing the law… states that turn down rail money would probably have to return it to the federal government, which could then award it to states that want it.“ (New York Times, October 4, 2010)

But it is not only that the individual states are not able to do anything with the federal funds because of a lack of cofinancing. Some Republican governors do not want to implement the projects Obama has launched. And not only do they turn down the funds, they use their sovereignty over their local public finances to promote their political counterprogram for changing America in their sense.

3. The “case” of Wisconsin: The fight against “big government” takes shape

In Wisconsin, a public conflict has broken out between the followers and opponents of the Republican line, triggered by the policy of the new governor, Scott Walker, who has made a name for himself as an advocate of harsh budget restructuring. He has resolved to restore the public finances in a way that takes the dismantling of “big government” seriously. His main target is the income of public servants:

“Barack Obama won Wisconsin in 2008, but last November, Republicans swept into power in the state… Within days of becoming governor, Mr. Walker … began stirring things up. He rejected $810 million in federal money that the state was getting to build a train line between Madison and Milwaukee, saying the project would ultimately cost the state too much to operate. He decided to turn the state’s Department of Commerce into a “public-private hybrid,” in which hundreds of workers would need to reapply for their jobs. He and state lawmakers passed $117 million in tax breaks for businesses and others…then claimed an emergency that requires sacrifices from unions…. Last week, he announced that he wanted to require state workers to pay more for pensions and health care; to remove most collective bargaining rights, aside from wages, from discussion; and to require unions to hold annual membership votes.” (New York Times, February 19, 2011)

The man exemplarily demonstrates what a Republican has in mind when it comes to responsible state management of public finances. In the middle of the recession, he first of all has reduced the burden that the state’s need for money puts on the moneymaking of those who he sees as the economic pillars of the community. Then he has rolled up his sleeves to restore the state’s authority over its finances by freeing the budget to the greatest possible extent from payment obligations that in his opinion are mere expenses. This primarily concerns the wages and salaries of public employees, which he not only intends to reduce quantitatively. Instead, he wants his state, in its capacity as an employer, to regain the freedom to define the level of these wages. He consequently sees the ultimate reason for the state’s excessive personnel costs in the legally guaranteed right of the unions to collective bargaining in the public sector[8] — so he has set out to abolish that right. A new law revokes the right of public sector unions to negotiate on anything except wages, while at the same time limiting the scope for wage increases to the annual inflation rate, thus also withdrawing the material for the still permitted negotiations. This process is meant to undermine the unions’ claim to represent workers in general. They are obliged to renew their mandate to represent public sector employees each year through certification vote; what is more, the new law abolishes the automatic deduction of union dues by the employer. That is how Walker is putting into practice the connection between the renovation of the national budget and the renewal of the “social contract” in the U.S.

It is no wonder that the unions are outraged about the new law: with his attack on their authority to collectively bargain in the public sector, Walker has toppled the last mentionable bastion they have managed to preserve during the recession. He rejected their offer to exchange wage concessions by their members for the preservation of the union’s bargaining rights, instead seeing their willingness to compromise as confirming his position. After all, it worked! The governor’s attack on the legal status of the unions instigated a mass protest far beyond labor circles: for several weeks, up to 80,000 demonstrators gathered in Madison, occupied the Capitol and denounced Walker as an inhuman dictator, comparable to Mubarak or even Hitler…In this case, too, the protestors were nothing but good Americans, this time from the other party: these people are convinced that the undermining of the unions’ right to represent workers has no place in the humane and liberal America they love so much, and therefore cannot be allowed to pass. The Democratic Party did not need to be told twice: Obama and Co. claimed the protesters as the rank and file of the Democratic political line and did their best to live up to the good reputation they enjoy with these people. Obama’s campaign organization would later help organize and support the protests, after the Democratic opposition in the Wisconsin Senate took advantage of the turbulent mood to make a demonstration of their own. In order to sabotage the vote on the anti-union law, they boycotted the Senate session, thus undermining the legislative quorum required for budgetary laws — whereupon Walker detached the draft bill on unions from the budgetary law and passed it in the absence of the opposition. So the unions in Wisconsin have already been excluded from any participation in public finances. Walker’s party colleagues in other states have taken his victory in the fundamental question of unions’ rights as a confirmation of how right they are with their political line; the Democrats by contrast are devising legal and political levers to bring the law down all the same; the outcome is open.

4. The fight over the national budget

In the House of Representatives in Washington, the dispute between the government and the Republican majority has escalated into a real battle. The Republicans have used Congress’s decision-making power over the national budget to thwart Obama’s policy. They have countered his budget proposal for 2012 by proposing their own extensive budget cuts for the current financial year. The newly elected representatives of the “Tea Party” feel a particular obligation to demonstrate to their voters, but also to the established party leadership, that they are serious about a radical reduction of public finances — immediately. They have implemented their plan by granting only short term funding to the government and attaching demands for new budget cuts. In choosing the cuts to be made, they have proceeded according to their plan to bring down Obama’s reform program. They have demanded a spending freeze for the implementation of the healthcare reform agreed on last year, cuts in funding for all institutions involved in the implementation of the new financial oversight law, and a ban on EPA regulations that restrict the emission of environmentally hazardous gases. The second set of cuts concerns social spending of all kinds: cuts in food aid as well as funds for supporting and financing information centers for family planning at home and abroad. The latter’s activities have long been a thorn in the side of upright conservatives and advocates of “family values,” who see such programs as a way of merely promoting immorality and amorality among the lower classes, instead of a responsible way of life. Now they see a unique opportunity to put an end to this sort of government-financed depravity once and for all.

With that, a conflict over principles is inevitable. Obama initially refused to comply with his adversaries’ plans but could not avoid engaging with them and getting into a debate over cuts in the current budget, once Republicans resorted to extortion by refusing the government the authorization to finance its expenses until the end of the current budgetary year unless Obama agreed to their budget demands. Obama refused this package deal, thus threatening the appropriation of government funds and thereby a “government shutdown,” as had already happened under Clinton in 1995. Major parts of the government would have had to close their doors, government agencies would have shut down, payments would have ceased, employees laid off temporarily.[9] The Congressional opposition thus demonstrated its power to do real harm to the orderly course of government activity — and with that everybody who depends on it — unless the government agreed to its demands.

This time, those in charge reached a last-minute compromise and averted a “shut down.” Hence the fight went into the next round. Obama’s opponents went on record with their discontent about the agreed upon cuts and their desire for further cuts, making their agreement to the raising of the government’s debt ceiling contingent on the results of additional negotiations. This concerns the raising of the legally fixed limit on the national debt; raising this ceiling is necessary for the state to be able to fulfill its current financial obligations. The decision on this limit, which needs to be renewed periodically, is a procedure by which the state carries out its self-imposed obligation to sound financial management, weighing this aim against the continuance of its state affairs. The matter is usually a mere formality, but not this time:

“The Treasury will have reached its debt ceiling on May 16th; after July 8th, the U.S. will no longer be able to service its debts. Nobody can imagine the Republicans going so far, but these days surprises are always possible.” (Süddeutsche Zeitung, Munich, April 4, 2011)

IV. Worries and warnings about the catastrophic consequences of the political dispute help to intensify it

When the dispute over the budget escalated at the beginning of 2011 and the Republicans threatened to reject an increase of the debt ceiling, the head of the Federal Reserve felt compelled to take the unusual step of directly interfering in the political dispute. He warned the opposition not to abuse their congressional power and potentially cause a crisis of confidence in America’s credit:

“… Bernanke has warned congressional Republicans not to `play around with´ a coming vote to raise the government’s legal borrowing limit or use it as a bargaining chip for spending cuts … even the possibility of the United States not being able to pay its creditors could create panic in the debt markets… `I think this is very remote, but it’s not something you want to play around with — the United States would be forced into a position of defaulting on its debt… And the implications of that for our fiscal system, for our fiscal policy, for our economy, would be catastrophic.’” (New York Times, February 3, 2011)

Bernanke reminded the parties of how serious the matter is over which they are battling. After all, at issue is nothing less than how the American state administers the nation’s credit. Part of its correct management — particularly in a situation in which the American state needs such exorbitant amounts of credit — consists in politicians dealing responsibly with the credit power of the nation. Bernanke has accused the politicians in Washington of careless negligence and ultimately ignorance, given the fact that even the mighty U.S. has to justify its debt economy to those who use its credit instruments as assets and therefore have a right to demand that the issuer deal carefully with its creations. The ladies and gentlemen in Washington have to listen to the national money guardian’s admonishment that they have obviously forgotten what the creditworthiness of the nation, which they “play around” with as a bargaining chip, ultimately depends upon: trust in the state’s capacity to provide a reliable guarantee for the quality of their debts as assets. The politicians therefore need to subordinate their political controversies to that demand.

Bernanke regards the danger posed by the markets’ fundamental doubts about the solvency of the U.S. as still being “very remote”; the opposing parties also seemed unimpressed by his warnings in February. The following April, shortly after the “shutdown” was averted, an important rating agency got the idea of publicly considering downgrading of the quality of U.S. debt — in case the U.S. didn’t get a handle on its budget problems:

“On Monday, the ratings firm Standard & Poor’s lowered its outlook on the United States rating to negative. …While it had not been completely unexpected, the S&P decision shifted the nation’s deficit debate out of the political arena — at least for the day — and thrust it on Wall Street. The action spooked investors, sending the three main stock indexes down more than 1 percent. Treasury yields, or the interest rate that the country pays on its debt, spiked immediately after the announcement. … In its decision, the Standard & Poor’s ratings unit issued a strong warning to government leaders to agree on how to address the medium- and long-term budget challenges by 2013. ‘More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,’ said Nikola G. Swann, a credit analyst at Standard & Poor’s. The firm said that there was a one in three chance that it could lower its long-term rating on the United States in two years.” (New York Times, April 18, 2011)

The rating agency has concluded from the budget debates that America’s budget and borrowing policies cannot be relied upon in the near future. This has sown doubts about whether the debt instruments of the great power will in the future still enjoy the same unimpeachable trust they have enjoyed up until now — this alone has been enough to startle all the institutions and persons that have something to do with the global credit trade — whether because they are involved in it or because they are responsible for its functioning — and it provoked reactions and statements. The American government thus saw itself forced to put to rest any doubts about the creditworthiness of the U.S.:

“American Treasury Secretary Geithner said that the prospects for improvement in the national budget are better than ever. Anybody who takes a closer look will recognize that the Republicans and Democrats agree with the President that it is high time for reform…Geithner appeared Saturday morning on three American television networks in order to dispel worries over America’s creditworthiness.” (Frankfurter Allgemeine Zeitung, April 20, 2011)[10]

Japan and China, the biggest creditors of the U.S., also felt it necessary to issue statements:

“‘We still believe that American government bonds are an attractive investment for us,’ said finance minister Noda…The Chinese foreign ministry, by contrast, conveyed both the warning and the hope that the United States will take significant steps to protect the interests of investors.” (ibid.)

With the doubts that S&P puts on the record in its rating, the agency appears to be striking a nerve with politicians and financiers. They see the rating as confirming the judgment they have long held: namely, that America’s budget and debt policies are not really trustworthy anymore. Pundits agree that according to all the otherwise valid standards for rating credit, the verdict of S&P is long overdue:

“Standard & Poor’s decision to warn the United States that it might lose its triple-A debt rating is both deliciously absurd and genuinely earthshaking..… earthshaking because while the United States has never held less than a AAA rating, much less been put on threat of downgrade, it thoroughly deserves the warning.… Net external debt, a measure of U.S. dependence on foreign creditors, is now at 300 percent of current account receipts, among the highest for any sovereign nation.… It is only the U.S.’s exorbitant privilege as the main global reserve currency, that even allows it to have strayed this far without already being downgraded.” (James Saft, Reuters columnist, April 19, 2011)

It is precisely this “privilege” that the U.S. appears to be losing.

B. The U.S. has to be concerned about its money

The economic basis of the power of the United States has long since reached beyond the capitalistic achievements of its own country. With its credits and investments, with exquisite financial products and a lot of dollars, America has brought about a global financial business that opens up the entire world as a source of wealth for the nation. Through its successes in accumulation, this business has caused a critical devaluation of its dollar-denominated wealth, a case of global overaccumulation. The state saw itself compelled to stop the ruinous impact of this crisis by its own creation of money, and proved capable of doing so. This success, however, has a price. The marketing of the debts the state creates as a substitute for the worthless securities of the credit trade is meeting with reservations. The equation according to which U.S. credit functions as money capital worldwide, so essential for America and the world economy, is no longer valid in the unconditional sense required by the global financial business. Of course, the dollars themselves, with which the Fed has been “flooding the markets” to facilitate the financing of business and government debts, are still being used worldwide as means of business. But the preservation of their value is being put into question, not least by major rivals that earn a lot of money on America, ambitiously using their accumulated dollar stocks to build up their own financial power, one that is less dependent on American credit and credit money. In the meantime, America’s European allies have had some success — precarious, but notable — in their attempts to turn the euro into an alternative world money of equal rank. In the wake of the crisis, America’s crisis policy, the calculations of the financial sector, and the competitive efforts of other world economic powers all represent a threat to U.S. money and credit, and undermine the continued existence of its exceptional political-economic position.

With their fight over the budget, those in charge in America are dealing with this “state of the nation” in a way that is appropriate for a democracy and a market economy. The fact that their world economic power is dependent upon foreign calculations with American credit and credit money, and that this power is no longer beyond all doubt, appears to them as a challenge posed by rival states, an affair in the competitive struggle of nations, which America is bound to win just because it has always done so. What America’s politicians are fighting about — in a fittingly fundamental way, given the magnitude of the challenge — is how.

I. The U.S. economy is the major exception in global capitalism

According to all the standard criteria for the soundness and stability of a national economy — for sound borrowing and stable capital growth in a strong currency — the United States should have long ago been regarded as overindebted, especially since the great financial crisis.

  • The amount of credit the American state has amassed, and that it additionally requires each fiscal year, is not only enormous in absolute terms, but also in relation to the sum in which the official statistics adds up all the “goods and services” “generated” year after year. The wealth counted in money that a nation’s economy produces in a year, i.e., the entire, annual capital turnover in the country, whether ideologically scaled up or down in the “GDP” or not, also exists additionally as the sum the state owes its creditors and bond customers and confirms as functioning money capital by paying interest; along with these interest payments, several percentage points are added to the overall sum each year. The U.S. is not alone in this; this is also the case in other capitalistic countries; and the world of finance, which is responsible for judging the “debt sustainability” of a nation, modifies its concerns in view of various compensating factors. But that is not all:
  • The American state has generated the major part of its debt over the last few years in order to stop the impending threats to the system caused by the crisis of both the nation’s financial business and the global financial business that is run from the U.S. That may have thereby financed a necessary rescue maneuver, but it made no contribution to the future capitalistic growth needed to justify this creation of credit according to the capitalistic calculations of state and finance. Accusations by experts and the opposition that the government is throwing “taxpayer dollars” out the window to pay for the mortgage debts of the poor, for the greed of irresponsible speculators, for financing Wall Street’s “moral hazard,” i.e., for un-American machinations, convey the nation’s patriotic sentiments more than the political-economic reality. The fact is, however, that the state is maintaining the value of devalued credit instruments with loads of new credit. These debts are raised for mere expenses and cannot be claimed to have any capitalistically productive capacity. But that is still not all:
  • According to the standards and indicators that finance normally applies to the credit of nations, not only is the American state hopelessly overindebted in relation to other states, but so is the nation as a whole. The relevant balance-sheet figures show that the nation’s trade deficits have long since ceased to merely be the result of oil and raw material imports from countries that immediately spend their earned dollars in America and thereby stimulate the economy. On balance, leading export countries notoriously earn more on the U.S. market, and in competition with America on the world market, than firms from the U.S. realize abroad, thus withdrawing money from the United States and accumulating claims against it. According to the official patriotic assessment, this can largely be attributed to wrong exchange rates that allow firms, especially from China, to sell their wares at unbeatably low prices in America. But even this answer to the question of who is to blame reveals that the domestic production of goods is no longer competitive in many sectors; the government program to restore American industry makes no secret of it either, instead making a self-critical argument out of it; and incidentally, this situation is not least due to the success of globally active American businesses in establishing the highest standards of profitability throughout the world.

All in all, in just about every other case in which the financial world comes to such a finding, this would be cause for much more than alarm, especially when finance judges the deficits of a nation to be permanent and not merely episodic, as it has ample cause to do in the case of the U.S. Normally, finance responds to runaway national debt by demanding additional interest, initially in accordance with the simple “law of supply and demand.” If, as the Fed is doing quite openly, the central bank then “floods the markets with cheap money,” making it easier and cheaper for commercial banks to refinance their credit creation, then experienced financiers usually foresee inflationary effects and guard against the expected drop in value of their business items by charging even higher interest rates. And if, as is obvious in the case of the U.S., they then come to the conclusion that a state — out of calculation or necessity — knowingly accepts inflation as a way of alleviating an onerous debt burden, thereby reducing the value of the monetary unit, then money and credit traders usually supplement their business of creating credit and marketing state debts with hedging transactions. They thus anticipate the ruin of the money’s value and raise the price of credit, thereby aggravating indebtedness and accelerating the very effect they act to protect themselves against. Furthermore, notorious deficits in a country’s balances — especially on the scale to be found in America — usually lower the exchange rate, i.e., the comparative value of the currency, initially also in accordance with the relation (or discrepancy) between supply and demand on the currency markets. The money of a state whose permanent deficit is accompanied by a rising need for credit and the attendant impact on the value of its money is usually only accepted at worsening exchange rates. The credit instruments denominated in this money are only purchased at continually rising interest rates and declining market value and, in the end, no longer at all. In order to engage in international business at all, such a nation needs foreign exchange that its exporters fail to earn, so it has to borrow foreign currency against collateral of which, because of its deficits, it hardly has any to offer.

Just by recalling the ‘normal case’ of national overindebtedness, it becomes apparent that the United States with its notorious “double deficit” — in the national budget and in the balance of payments — is a special case. However high its external debt may be, America does not need to borrow foreign currency in order to remain solvent; it borrows worldwide in its own money. The whole world has dollars, and no interest in getting rid of them for another currency — which over the years has come to be taken for granted. This means that America’s trade deficit does not lead to an excess supply of U.S. currency, lowering its value and ruining it in the long run. After all, the entire world uses dollars as a means of payment for international transactions of all kinds, for purchasing and lending, for borrowing and investing. By no means are dollars used only in transactions with American businesses, but worldwide, without any relation to the American business world. This is why the outside business world has a use for all the dollars that it draws out of the country, and that are also constantly delivered in abundance by America’s domestic credit trade. The balance of payments is set right by the fact that this trade has always succeeded in marketing American debts all over the globe, not least those of the federal government. Wall Street’s financial products find customers all over the globe; and Treasuries traditionally are found among the investments preferred worldwide by money owners looking for maximum security, and especially by states whose central banks have to invest their foreign reserves in profitable but secure assets. On balance, America pays the outside world — for its imports as well as its capital exports — in debts that everybody favors because they are easy to liquidate, can be used as money capital for every business purpose, and are used as such worldwide. America’s balance-of-payments deficits and the increase of money capital in the world go hand in hand; they are two sides of the same business. And it is also on this basis that the American state manages and makes use of its debt: the Treasuries it produces are stuff it sells all over the world — to money capitalists who have to maintain substantial portfolios as well as to states that have to keep foreign reserves. The interest of the outside world in America’s debts — also and in particular those of its state power — and the use that it makes of them confirm and apply these financial titles as money capital; the outside world turns the U.S. dollar, not least a representation of these debts, into real world money by using it in accordingly large amounts as business means, i.e., by creating credit and tallying up its global business successes in dollars, and by once again letting the results of these successes do their capitalistic work.

So that is America’s exceptional position in world capitalism: on the basis of a national business life that is far larger than that of its rivals, the use of credit denominated in dollars, initially created and put into circulation as capital by America’s financial industry, and the use of its national credit token, the dollar, as the means of payment by lending and borrowing capitalists, have come to far exceed this basis. American and other financial capitalists do their global business — not exclusively, but predominately — with this kind of credit and this kind of credit money. The task a national economy has to perform in the standard capitalistic case — namely, the usage of nationally created credit, realized in national money as successfully accumulating capital — is a task that the entire world economy performs in the special American case, because and to the extent that global finance makes use of credit in U.S. dollars. With its worldwide financial business on the basis of the dollar, global finance lays the foundation for the financial power that American businesses and American state power exercise over the world, namely by buying, paying, investing, borrowing, etc. This financial power far exceeds the already generous limits to the capacity of any nation’s credit system. Global finance frees the American state and U.S. capital from their national basis completely; the former’s achievements in terms of accumulation make it the backbone of the wealth of the American world power.

That is why the permanently scrutinizing comparison that global finance makes of the value of America’s debts and money and that of other currencies and alternative national financial titles looks and turns out the way it does. Supply and demand for dollars and dollar credits on the markets do not simply originate from the course of the U.S. economy, nor does it reflect the latter’s national deficits and surpluses; rather it represents the accumulation needs in the global financial system. The comparison to which the U.S. dollar, too, is subjected has a particular premise in this case. When it comes to the dollar, global finance does not compare various nations’ proceeds, balances, and business prospects in terms of the money in which all these elements are summarized; instead, it sets the dollar-denominated material that the entire world uses to do business internationally, and in which it tallies up its capitalistic wealth, in relation to mere national monies and to the few alternatives that have conquered a share in the global financial trade. The assessment of the value of the dollar in other monies thus confirms the equation that captures the essence of America’s exceptional position in the political economy of modern imperialism: U.S. dollars officially and reliably represent the capitalistic wealth of the entire world, not merely of its national economy.

II. The identity between America’s national credit and the world’s capitalistic wealth has a price that has fallen due in the wake of the recent financial crisis

The global financial business, fueled generously by Wall Street’s financial products, has managed to bring about a remarkable overaccumulation of U.S. credit. Its critical devaluation has consequently had an impact on investors the world over, but the impact on American and foreign wealth has not been equal; rather, it has fallen on the source of the extraordinary financial power of the United States. All the important monetary powers whose banks take part in the global credit business have been affected; just as in the U.S., politicians in charge of monetary policy and currency custodians in the eurozone, in Great Britain, Switzerland and so on have been forced to ward off the threatening illiquidity of their commercial money- and credit-creators by buying up “toxic” securities through state intervention, as well as by having their central banks issue credit money to an extraordinary degree. But first and foremost, the crisis represents a challenge for the United States: the consequences of the financial collapse are the price it has to pay for the success of its efficient financial industry in globally marketing American debts of all sorts. In the interest of maintaining the nation’s business, it has to vouch — with government guarantees and loans — for U.S. credit remaining intact as money capital worldwide.

That is something America can accomplish without question. With additional debts and guarantees, along with purchases of securities by its central bank, the state has managed to create a substitute for those financial titles that have become worthless. On the one hand, of course, new government bonds and funds issued by the Fed represent nothing but annulled assets, the bursting of over-accumulation; on the other hand, they represent the sovereignty of the state, i.e., the force that assigns value to the newly created money, as is the case with all legal means of payment, and provides IOUs with built-in value expansion, thus turning them into money capital. And as soon as the stuff is put up for sale, the nation’s credit trade does the best of business with, and on the basis of, these debts. However, there is a price to be paid for the success of this show of strength on the part of monetary policy.

First of all, this consists in the merely technical financial necessity of adding the sums needed to service these additional debts to the budget — a burden that the advocates of the taxpayer wrongly regard as being placed on this well-behaved character. In fact, this means no more and no less than a further increase in compound interest on government debt. In exchange, however, there is a higher, more qualitative than quantitative price to pay. Though the financial markets, the economic authority in charge of marketing government IOUs and thus of acknowledging them as money capital, continue to purchase the new and increasing sovereign debts which the state took on in order to provide the markets with liquidity, and which it must continue to take on in order to stay liquid itself, they are no longer willing to assume that these debts are a solid capital investment. In fact, they can only be sold at all because the state, in the form of its central bank, is acting as a buyer on the market, sometimes accounting for the purchase of more than two-thirds of the newly issued government bonds. Private investors are hesitating to buy Treasuries, and some are even abandoning them altogether: “The world’s greatest pension fund, the Total Return Fund of the Allianz subsidiary Pimco, has divested itself of all its U.S. Treasuries.” (Süddeutsche Zeitung, Munich, March 11, 2001) Rating agencies warn that U.S. government bonds might lose their first-class ranking for the first time in history. It is not the debts themselves that they take to be so much the problem, but rather the political fight over increasing them, upon which, after all, their punctual servicing depends. This consideration, too, gets to the heart of the emerging difficulties in marketing U.S. Treasuries. ‘The markets’ no longer simply take it for granted that U.S. government debt represents money capital; rather they are assessing the trustworthiness of the issuer and asking whether what America’s highest authorities claim to be money capital really can be taken as such. The speculative trade is still far from handing down the verdict that would ‘normally’ be due — i.e., in the case of the ordinary state debt of an ordinary country — once a state started lending to itself by turning to its central bank. According to the standard criteria, this would be tantamount to an admission of the economic insupportability of the state’s credit, followed by the rapid decline of the money’s value. The U.S. government, by contrast, succeeds in maintaining a market for its fictitious capital. The intervention of its central bank, which in fact represents the admission that debts purchased by the markets cannot be sold, i.e., are worthless, has the effect of a denial. The official announcement, however, that “in the near future,” the Fed will “only” buy new government bonds to the extent that old IOUs fall due, has been met with concerns that the price of Treasuries would then drop, interest rates rise, the burdens of the budget increase, and so on. So that is how the American way of managing its debt still manages to function; and the dollars that the Fed has been throwing into circulation on such a massive scale, making them available to the banks almost free of charge, are still largely retaining their value. With all that, however, a qualitative transition has taken place: finance, which, with its worldwide business activities, represents the source, guarantor, and beneficiary of America’s financial power, is questioning whether the quality of the country’s escalating national debt is good enough to fully replace the wealth that it, the global credit trade, has ruined through over-accumulation. In a very real sense, finance is recalling the other side of the global success it has brought about: the scope and clout of American credit and the status of the U.S. dollar as the money of the world by far exceed what could ever be justified by the U.S. economy, despite all its size and competitive strength, and what could ever be attested by state power by means of its national budget. And finance is drawing some practical conclusions, exercising caution, which at any rate testifies to the loss of unconditional certainty about the international standing of American credit, built up over half a century. America’s financial power no longer plays in a league of its own.

III. And the competitors are no longer the same either,

which crucially contributes to the explosive nature of this transition. The United States has suffered some losses vis-à-vis Europe; and new rivals are making use of America’s efforts to rescue its own credit in a highly selfish manner that is not at all beneficial for the great world economic power.

  • The Europeans, America’s traditional and most important competing partners in the worldwide system of the market economy, have made a massive contribution to the over-accumulation of fictitious capital brought about, in the main, by American finance capital. Hence, the crisis of this kind of wealth has affected them almost as much as it has the U.S. Initial hopes that the crisis could be limited to its starting point, the loss in value of American home loans, and that the damage could be restricted entirely to the world’s leading economy, were quickly dashed by the chain reaction of devalued legal claims on foreign money and the progressive destruction of money capital held by European, especially German, banks. Although European banks benefited from America’s rescue of speculative dollar assets, Germany and its European partners could not avoid having to use loads of state credit to avert the collapse of their banking sector and payment transactions in general. They, too, compensated for the devaluation of overaccumulated assets by issuing an equally large volume of government securities with no economic substance. As far as the economic repercussions of this feat are concerned, that is, the rescued financial institutions’ critical assessment of the many government bonds, eurozone countries have somewhat different problems to solve than the United States has. Some members have indeed lost their credit — ironically, even without having been directly involved in the great crisis of globally traded finance capital. As a result, even more credit creation is needed — on the part of the very states that had to take on heavy debt in order to rescue their own credit systems, but that soon after were the first to count as first-class debtors. In Europe as well, the European Central Bank has been buying the IOUs of the most heavily affected partner states; but the market for the bonds of the more capable financial powers has remained intact, as has the eurozone’s common credit — for the moment at least. In comparison to the dollar, the euro has even risen considerably in value — at least temporarily. Despite all the contradictions of their common currency system, and despite their fight over the government debts of all those concerned, eurozone countries obviously have something to offer to the financial markets, namely, an alternative to Treasuries and U.S. credit money: the euro and the government bonds of the stronger members, denominated and traded in this money. This alternative has gained the appreciation of “the markets” and is in demand — as a means of foreign money capitalists for doing global business and, more importantly, as a reserve currency for important nations that do not belong to the traditional centers of the world economy. After all:
  • The rise of the People’s Republic of China as the world’s greatest exporter and second largest economic power on the globe has added a new category to the system of global capitalism. The BRIC countries — Brazil, Russia, India, China (and sometimes even the Republic of South Africa is included in the list and in the corresponding abbreviation as an “S”) — count as a special class of ‘emerging markets.’ China and, with it, other countries have worked their way up to a political-economic status that, for all their individual differences, unifies them: they are on the verge of altering the balance of power in world capitalism.

(1) China and other countries that are increasingly successful in global competition — no longer merely due to especially low wages, but also to capitalistically advanced technologies — are earning U.S. dollars, recognized and universally usable world money, in America and in the rest of the world at the expense of American companies. And the amount of dollars that they earn only exists, and can thus only be earned, because of the special guarantee provided by the world power; that money thus continues to be valid as world money even after the crisis. With its debts and its credit money, the American state enables these countries to accumulate an enormous amount of capital, finances their capitalistic advances and thus also their capacity to rival the established ‘industrial nations’ in ever more areas.

(2) By accumulating American world money — in the form of U.S. government bonds, claims on American and other foreign banks, and liquid instruments of all sorts — these three to five great ‘emerging markets’ are making their way through a crucial political-economic transition. They have attained a ‘threshold’ at which their international economic capacity, which they have obtained by earning foreign exchange through exports and by serving as a location for foreign capital, no longer rises and falls with their accumulated stocks of foreign exchange. They are acquiring the capability to guarantee their creditworthiness by means of their own economic power, in terms of equating the credit they create, make capitalistic use of and realize in their own credit money with wealth that is in fact capitalistically productive wealth.

(3) China and others are using the many U.S. dollars they earn as well as the money they create themselves, to a continually increasing degree and in a planned manner, solely in accordance with their own needs and calculations and for the purpose of building up and expanding capitalistic business relations — trade, credit, and investments — with each other and with other countries that can offer them markets and resources. And they are doing so to such an extent that they are altering the world market in more than a quantitative sense. An ever greater portion of the international expansion and accumulation of capital circumvents the hitherto dominating world economic powers. The commercial transactions among the ‘emerging markets,’ as well as between them and the old centers of capital accumulation, are reducing the latter’s importance, diminishing their share of the world market and altering the relative proportions. The tendency is unmistakable: for half a century, American capital and its home country always profited somehow when somewhere in the capitalistic world credit was created and money earned, and America’s right to participate in the proceeds of world business reached as far as the use of their dollars. But now, that equation is gradually crumbling.

(4) However, the BRICS countries are not challenging the prevailing world economic order in a hostile way. They take part in it while complying with its rules, calculating with America’s market and its financial power as a useful, and even indispensable source of their capitalistic growth. They carefully avoid removing their trust in the credit instruments and credit money of the United States. But unlike the two secondary centers of the world business established over the last half a century (Western Europe and Japan), they are pursuing their growth without any concern for a major ally, without the restrictions and self-restraint deriving from a strategic alliance with the world power — an alliance which after all has proved reliable as the basis for the reign of ‘the West’ over global capitalism and for effective arrangements concerning the valuation of state debt and credit money. In other words, they are acting with an autonomy ‘the West’ is unaccustomed to. What is more, China & Co. are critical in their use of America’s credit as a source and an instrument of their financial power. They take into account that finance capital, which uses America as a launching pad for using the world market and does so with U.S. credit and dollars, has removed its trust in its own products, and that meanwhile the only thing replacing the annulled wealth of worldwide finance capital is the political authority of America’s state power and central bank. So they demand, on the one hand, that the American state “take efforts” to secure its debts and its world money against losses in value over time and in comparison to other nations — which is approximately the same thing that finance capital demands of any normal capitalistic state, not least of the BRICS themselves, as a condition for the creditworthiness and the usage of its national currency: they demand the confirmation of its credit through a growth of the national economy that reduces the nation’s deficits. With this unreasonable demand, they have made some impression on the U.S. administration and America’s currency custodians, because, on the other hand the BRICS countries are pursuing the very thing that the U.S. administration is supposed to safeguard them against: the monetary politicians of these rising economic powers are not only publicly calling into question the intrinsic value of America’s government debts and the value of the U.S. dollar, but are also actively working towards developing alternatives. By restructuring their currency reserves, they are raising the demand for euros and Eurobonds, as well as the prices of gold and diverse raw materials to dizzying heights, fulfilling in this regard the latter’s higher capitalistic calling, which is to serve finance as a solid substitute for money. This undermines the equation of U.S. credit with the world’s money capital, of world money with the U.S. dollar — the equation that provides the foundation for the power of the American state to render the critical devaluation of finance-capitalistic wealth ineffective by nationalizing the losses and marketing its thereby inflated level of debts.

Conclusion: New steps in implementing the crisis through the states’ crisis policies

The U.S. administration finds it entirely necessary to do something radical to revive its national industrial power; because of the impact of the crisis, and in the face of the critiques voiced by its foreign creditors, at the same time it feels compelled to keep a close eye on the level of its debts and the value of its money. The administration’s fierce dispute with the opposition over how to achieve these two aims, a dispute involving invocations of all the nation’s highest values, makes clear that both aims — the restoration of the domestic economy and the reduction of the nation’s debts — are viewed as absolutely necessary. Self-critical domestic voices and know-it-alls from abroad agree on the diagnosis that America has “lived beyond its means,” “on credit,” and should immediately start producing what it consumes and only consuming what it produces. Such demands are completely acceptable in a democracy and market economy. Economic experts demand, undeterred by contradictions, that the monetary wealth of the nation must be increased through capital growth and austerity; meanwhile, the ruling representatives of the people define their task in accordance with the means of power at their disposal in this system: they save on the poor and foster the growth of capital with debts.

This diagnosis and these alternative remedies, however, miss the political-economic facts of the matter entirely.

In actual fact, in its relation to the rest of the world, America is still not a debtor that lives from foreign money. Its economic standing in the world still consists in the fact that it is a source and guaranteeing power of credit, which nations and capitalists throughout the world use to finance their growth, and of the credit money used for the global circulation of capitalistic wealth. That is what America lives on; that is the basis of its financial power and its ability to go into debt, i.e., the economic capacity of its state power. Now, in order to manage the financial crisis, the U.S. is pushing its exceptional position to the extreme and, in order to preserve it, is going into so much debt that the world of finance has raised doubts about its sustainability — i.e., about the certainty of a kind of credit that only functions if global finance has no doubts about its value. What is at stake is more than America could ever repair through the accumulation of capital in its own country: the exceptional position of the United States as an quasi-inexhaustible source of money capital in the world. If that is lost, then the U.S. will not be the only one to suffer. There is another side to the fact that its debts and its dollars function as the source and the material of the capitalistic wealth of the world only because — and only as long as — the world uses them as such: the capitalistic wealth at the disposal of the rest of the world, which it, for the time being and until further notice, uses to exploit mankind, only exists because — and only to the extent that, and only as long as — the global business world recognizes American financial products in general and Treasuries in particular as money capital. Now, America’s most important partners and rivals are determined to secure their capitalistic wealth and their financial autonomy, and to work toward no longer having to rely on America’s financial power. In their efforts to develop an alternative to the credit and credit money of the United States, they are undermining both their own capitalistic capacity and the financial power of the American world power; this is the sophisticated modern version of the old political-economical truth that in a crisis, the account balances between the global economic powers turn against all of them and spare none of them.

So this is the ‘state of the nation’ in America: the government’s absolutely necessary policies for managing the crisis have endangered its credit and that of the nation as a whole. And this is a current example of another political-economical principle: when the state copes with a crisis, it implements it. But what should and what could those responsible for the market economy and democracy do with such findings? From their perspective, the task and the solution are already clear: America has to assert its position in the world, against all challenges and all rivals; and America always accomplishes the goals it sets for itself. The concern that this might not be true this time around has turned the administration and the opposition against each other, turned their differing versions of the American path to success into an antagonism, concretized in conflicting remedies for the budget deficit; it has caused the parties’ political disputes to become very fundamental and likely to block the process of governing in general. If this blockade — and the head of the Fed fears the worst — were to become the political trigger for the destruction of the world power’s credit, economically overdue and only prevented by an act of state power, that would be a fitting irony of history.


[1] Obama’s speech immediately after the attack was accordingly praised by political commentators as an particularly intelligent move, positioning himself as a kind of father of the people, beyond all factions, thus scoring political points with the electorate.

[2] A faction of the Republicans once came up with a similar program with their “contract for America” back in 1995, but failed against the party majority.

[3] How far the fanaticism of eradicating “un-American elements” from politics has already come is shown by the fact that meanwhile, bills have been drafted in several individual states that would require future candidates for President to prove that they were actually born in the United States by making their birth certificate available. And the President himself has put his birth certificate online in order to show that the demagogic rumor of his non-American birth is unfounded.

[4] After a bill on the matter failed in congress, the American Environmental Protection Agency (EPA) has been using its own authority to pass similar regulatory requirements since the beginning of this year. And ever since, the Republicans have been up in arms about the administration’s high-handedness.

[5] For many in Obama’s party, the government’s program does not go far enough; they are calling instead for a comprehensive national development policy in the spirit of the New Deal:

“On Capitol Hill, Representatives James L. Oberstar, Democrat of Minnesota and chairman of the House Transportation and Infrastructure Committee, has been developing his own bill, as has Representative Rosa DeLauro, Democrat of Connecticut. Ms. DeLauro’s plan would create an infrastructure bank … which would make loans much like the World Bank, would finance projects with the potential to transform whole regions, or even the national economy, the way the interstate highway system and the first transcontinental railway once did. The outside investors would expect a competitive return on their money, so many of the completed projects would have to charge fees, taxes or tolls. …the bank would finance not just roads and rails, but also telecommunications, water, drainage, green energy and other large-scale works.“ (New York Times, September 6, 2010)

[6] The Republicans view the individual states as the stronghold of citizens’ liberty. That is why all their disputes with Obama quickly turn into constitutional debates over the distribution of power between the federal government and the individual states. There are even considerations, which are meanwhile apparently no longer taken as absurd, about whether one needs to find new ways of gaining more independence from “Washington” when it comes to determining the political course of one’s own home state. One such proposal is that every federal law involving spending should additionally have to be passed by the individual state Senates.

[7] Unlike Germany, the U.S. has not enshrined the purpose of “equivalent living conditions” in its constitution. Rather the “conditions of life” are decided by the capitalistic growth that takes place in individual states and how much of the proceeds end up in the state coffers. The individual states compete with the rights and liberties that they can offer to capital; on this front, too, the rich become richer and the poor poorer. Here, too, the crisis has reshuffled the deck. The “rich” state of California, for instance, currently finds itself in a state of bankruptcy.

[8] David Brooks, a New York Times columnist who shares Walker’s views, spells out the logic that directly leads to the wages of the employees as cause for the budget troubles:

“New Jersey can’t afford to build a tunnel, but benefit packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. … New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50. California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire… States across the nation will be paralyzed for the rest of our lives because they face unfunded pension obligations that amount to $2 trillion… Nationally, state and local workers earn on average $14 more per hour in wages and benefits than their private sector counterparts…. Even if cost-conscious leaders are elected, they find their hands tied by pension commitments and employee contracts.“ (New York Times, October 12, 2010)

It’s unbelievable how well off the state employees still are in view of the massive wage reduction in the private economy — so isn’t it obvious that there must be an end to this combination of injustice and unreasonableness? Thank God the state’s “hands” aren’t that “tied” after all, as Walker and his imitators in other states are currently demonstrating.

[9] In this case, it was the governments of individual states in particular who feared they would have to stop essential activities because of the shutdown in Washington, since due to their own budgetary situation they have no borrowing mechanism for temporarily replacing federal funds.

[10] The Republican members of congress apparently see the matter a bit differently:

“Reacting to the news that rating agency Standard & Poors is downgrading its outlook for the U.S. economy …, House Majority Leader Eric Cantor (R-VA) claimed vindication for the GOP. According to Cantor, the report strengthens the Republicans' argument for holding out on a debt limit increase unless they can get major cuts as part of the deal…’Serious reforms are needed to ensure America's fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,’ Cantor said … ‘As S&P made clear, getting spending and our deficit under control can no longer be put off for another day, which is why House Republicans will only move forward on the President's request to increase the debt limit if it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington.’” (Wall Street Journal, April 18, 2011)

© GegenStandpunkt 2011