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By Heike Barkawitz
Wall Street may be in the throes of agony, but business is booming at the Holy Apostles Soup Kitchen a bit farther north in the Manhattan neighbourhood of Chelsea.
And that's not particularly good news.
Just ask Ishmael, a young man who has been eating his meals at Holy Apostles for about three months now. "I come here in order to save money," he told IPS. "I do have a job, but still cannot afford to buy food every day."
Ishmael also lives in a homeless shelter because renting an apartment is beyond his means -- perhaps not surprising in a place that boasts the highest housing costs in the United States, with an average rent of 2,400 dollars per month, according to the real estate data firm Reis Client Services.
Across the city, New York's social services are troubled. Even as the weak economy drives more and more people to seek help in soup kitchens or shelters, advocates worry that the private donations they rely on will simultaneously begin to dry up.
Rev. Elizabeth Maxwell, interim executive director of Holy Apostles, is unsure how the church will cope with an inevitable surge in clientele in the months and years ahead.
"It's coming from both sides -- the demand is increasing, the need is increasing and at the same time, the resources are shrinking. Due to the financial crisis -- especially in a city like New York, where so much of the city's economy is tied to the fortunes of Wall Street -- city government is going to cut and state government has already cut."
Maxwell said the Holy Apostles soup has already seen a "massive increase in the last year".
"In July, we served more meals than in any month in our history -- an average of 1,353 meals each weekday -- and in August the average was higher than in any month in our history, and we're up 22 percent in the month of September from the previous September," she said.
The city's homeless shelter population has been mounting steadily for years, from 21,100 people per night in 1998 to 35,200 in April 2007, an increase of about 65 percent. The number of children has increased by 18 percent, to over 14,000.
Patrick Markee, a senior policy analyst at the Coalition for the Homeless (CFTH), told IPS that the number of homeless families in New York has now hit an "all-time record" of about 9,000. "Only this month, the number of families entering shelters increased again," he said, interpreting the situation as a "real sign of an economic downturn".
Surviving in New York City without a decent salary can be an almost impossible task. Many adults in shelters share Ishmael's predicament -- they have jobs, yet still cannot afford housing, CFTH says.
According to the Census Bureau's Housing Vacancy Survey, in 2005, one out of four New Yorkers spent half of their income on rent alone, leaving little left over for other necessities.
"Many people in New York have to choose between food and rent or between medical care and rent," Rev. Maxwell told IPS.
One out of five adults and one of four children in New York now live below the poverty line, which is 17,600 dollars per year for a family of three. This equals about two million people living in poverty, Markee told IPS.
Speaking to IPS, many homeless people expressed anger at the government. "This country is ass-backwards," exclaimed one man who gave his name as Robert. "The situation gets worse for the struggling individuals and only gets better for those who have money. This country is about to collapse and I'm pretty sure that there's going to be a revolt soon."
Edward, 55, became homeless when his father died and didn't leave a will. Two hospitalisations left him 3,600 dollars in debt. The federal government sends a cheque for about 150 dollars a month that he can use for food, but it's not nearly enough, he said.
Like Holy Apostles, whose budget is 2.7 million dollars, many of the city's estimated 1,200 non-profit soup kitchens and food pantries raise the vast majority of their funding from private individuals and foundations, with only a small percentage coming from the government.
"We're very concerned, because people's ability to give is going to be very impacted by the financial crisis," Rev. Maxwell told IPS.
"A lot of the foundations that we get money from certainly have a lot of their assets in stock market," added Mark Walter, Holy Apostles' development assistant. "So we don't know what's coming down the pike. New York State just cut its funding for hunger relief programmes by 16 percent and then a couple of months later, they announced that they would be decreasing it an additional six percent of the funds that have not already been spent."
The Coalition for the Homeless also raises 60 percent of its funding from private sources, Patrick Markee told IPS.
"We're definitely worried for contributions to go down with the financial crisis. Particularly after public holidays we get a lot of private donations. Now with the economy getting worse, these private donations might go down," he said, adding that the coalition would be highly dependent on donations due to an increased need.
However, the funding has already been reduced. "We're hoping for the best and planning for the worst," Markee concluded.
Throughout the country, homeless advocacy groups are reporting the most visible rise in homeless encampments in a generation. "The economy is in chaos, we're in an unofficial recession and Americans are worried, from the homeless to the middle class, about their future," Michael Stoops, acting executive director of the CFTH, said in a statement.
The New York City government may soon be forced to resort to the emergency measure taken by authorities in Reno, Nevada, where a tent city has been erected to house those who have tumbled through the widening economic cracks.
Saturday, October 11, 2008
Wall Street Bailout Won't Do Much to Help Ailing Economy
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By Mark Weisbrot
It is now clear the approval by Congress of President Bush’s $700 bailout package on Friday October 3rd has done nothing to ease the current financial crisis. Credit markets have worsened for several days after the bill passed the Congress. The stock market also plummeted to nearly ten-year lows.
By Mark Weisbrot
It is now clear the approval by Congress of President Bush’s $700 bailout package on Friday October 3rd has done nothing to ease the current financial crisis. Credit markets have worsened for several days after the bill passed the Congress. The stock market also plummeted to nearly ten-year lows.
So much for dire warnings from the Bush Administration that Congress was risking a Great Depression if it did not quickly fork over the dough. The bailout’s supporters said Congress had to do something to unfreeze the credit markets. It didn’t work.
There is a basic misunderstanding of the current financial crisis and economic recession that is widespread. Most people think that the current economic downturn - which will be officially designated a recession some time in the near future - is the result of the financial crisis. But this is not true. The current recession is mainly the result of a collapsing housing bubble. This bubble of more than $8 trillion dollars accumulated between 1996-2006, and it is only about 60 percent deflated so far. This means that even if all the problems in the financial system were miraculously solved tomorrow, the United States would still be facing a serious recession.
Also see below:
Dean Baker and Mark Weisbrot | Statement on the Need for Coordinated Stimulus •
Of course the financial crisis can make this worse, as financial institutions cut back on lending and short-term interest rates for commercial borrowing rise. And we are indeed facing a serious financial crisis. But the bailout package is a wasteful and inefficient way of dealing with the problem of banks holding bad debt, mostly related to mortgages gone sour in the housing bust. It enables the U.S. Treasury Department to buy up "troubled assets" - mostly mortgage-related securities - from financial institutions, at prices that will likely be much higher than they are worth.
Economists across the political spectrum saw this as a wasteful and inefficient way to fill holes in banks’ balance sheets. Ordinary citizens and taxpayers saw the bailout as an enormous rip-off, and flooded Congress with phone calls, defeating the bailout on its first vote.
Indeed, the most important ways that our government is currently holding the financial crisis in check do not involve overpaying banks for bad assets. The Federal Reserve and U.S. Treasury have intervened repeatedly to pour liquidity into the banking system. They have agreed to federally insure $3.4 trillion of money market mutual funds held by millions of Americans. This week the Fed created a new facility to buy commercial paper, the short-term debt issued by banks and corporations, where lending has been shrinking. The Federal takeover of Fannie Mae and Freddie Mac, and the nation’s largest insurer, were also necessary to preserve the stability of the financial system.
All this is just the beginning of cleaning up the mess that has resulted from a de-regulated and un-regulated financial system gone wild. The government will have to take over more insolvent financial institutions and provide capital to others. It will have to take steps to help homeowners, to minimize foreclosures and evictions. And it will need to provide the largest fiscal stimulus package since the Great Depression, to prevent this recession from dragging on for years. The worst part about the bailout is that some politicians will say we can’t afford the necessary stimulus because we just added $700 billion to the national debt.
Americans will have to fight for measures that protect the public interest, not the interests of those who made this mess. Treasury Secretary Henry Paulson made $163 million as CEO of Goldman Sachs in 2006. Now he and his former colleagues at Goldman are running the Wall Street bailout.
During the Asian financial crisis ten years ago, there was an expression for this kind of system: "crony capitalism."
Pentagon Wants $450 Billion Increase Over Next Five Years
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By Josh Rogin
Pentagon officials have prepared a new estimate for defense spending that is $450 billion more over the next five years than previously announced figures.
The new estimate, which the Pentagon plans to release shortly before President Bush leaves office, would serve as a marker for the new president and is meant to place pressure on him to either drastically increase the size of the defense budget or defend any reluctance to do so, according to several former senior budget officials who are close to the discussions.
Experts note that releasing such documents in the twilight of an administration is a well-worn tactic, and that incoming presidents often disregard such guidance in order to pursue their own priorities.
And with the nation’s economy caught up in a global financial meltdown, it remains unclear whether either Sen. John McCain , R-Ariz., Sen. Barack Obama , D-Ill., or a Democratic Congress would support such large increases for defense next year.
“This is a political document,” said one former senior budget official, who spoke on the condition of anonymity. “It sets up the new administration immediately to have to make a decision of how to deal with the perception that they are either cutting defense or adding to it.”
Dov Zakheim, the Pentagon’s top budget official from 2001 to 2004, who is not involved in the current discussions, agreed.
“The thinking behind it is pretty straightforward,” Zakheim said. “They are setting a baseline for a new administration that then will have to defend cutting it.”
The fiscal 2010 portion of the estimate includes a $57 billion increase, out of which $30 billion would go for a vaguely defined contingency fund and $14 billion would go for replacing or fixing existing equipment, called reset, and modernization, the former officials said.
They added that those items reflect the Pentagon’s attempt to anticipate the end of huge supplemental war allotments that have hidden the costs of resetting and modernizing the nation’s war-torn force. Both presidential candidates have pledged to scale back supplemental war spending.
The Pentagon comptroller’s office refused repeated requests for comment on the figures outlined by the former officials stating that it was premature to discuss future budgets because they were still being worked on.
Earlier Budgets Insufficient
The new budget numbers reflect the Defense Department’s acknowledgement that the coming bow wave of ever-rising procurement costs, combined with the nonstop growth of defense entitlement spending, will render its already record- high budgets grossly insufficient in the years ahead.
But the numbers also seem to condradict the National Defense Strategy released recently by Defense Secretary Robert M. Gates , which called for tough tradeoffs in spending in an environment of limited resources.
“We cannot do everything, or function equally well across the spectrum of conflict. Ultimately we must make choices,” Gates wrote.
The new estimate, which has not been publicly released, would raise the fiscal 2010 budget number announced by the administration this year from $527 billion to $584 billion, not counting operations costs for the ongoing wars.
Money to prosecute the ongoing wars is not included in the new estimate, meaning the military would still need significant supplemental appropriations in addition to the increased budget request.
Supplemental appropriations have been used to fund procurement and personnel costs that are predictable and therefore should be placed into the regular budget, said Admiral Michael Mullen, the chairman of the Joint Chiefs of Staff.
“We’re going to have to figure out how to get off supplementals,” Mullen told a group of Washington reporters Thursday. “My strategic approach is to start to implant those things that are in supplementals that we think we’ve got to have into the baseline budget. We need to start doing that. We’re working our way through the next budget now.”
While reset and modernization funds in the new estimate are relatively non-controversial, the $30 billion contingency fund could face stiff opposition on Capitol Hill. That money, if approved, would be available to rapidly deploy active duty forces overseas in the event of an unexpected crisis.
In 2001 and 2002, lawmakers rejected attempts by Pentagon leaders to secure a contingency fund, from which they could draw money without requesting additional permission from Congress.
“The Congress always saw this from their perspective as a slush fund,” said Zakheim, “Whereas the defense department has said it needed this kind of money because it could never project what exactly would be needed in the event of an emergency.”
Presidential Candidates Differ
The candidates differ on whether or not large increases in overall defense budgets are wise or even doable.
McCain has promised to freeze all discretionary spending except for national security, and is pushing for an additional 150,000 troops above current plans, to be paid for within the base budget.
Obama only supports the current planned increase of 92,000 Army and Marine Corps personnel.
Both candidates have called for a wholesale reform of the Pentagon’s acquisitions system in an effort to control procurement costs, which have ballooned in recent years due to mismanagement.
“The practical fact is that these programs can’t all go into production without a very significant increase in the resources for defense, and I don’t think in light of the current fiscal situation that’s going to be possible,” said former Air Force Secretary Whit Peters, who advises Obama.
Supplemental spending bills, which have funded most of the $859 billion appropriated for the Iraq and Afghanistan and global operations to counter terrorism since 2001, are set to be scaled back no matter which candidate wins in November.
“I see the future of supplementals as dramatically reduced to genuinely unanticipated needs, like fluctuations in the price of fuel, not programmatic costs or known spending needs,” said McCain in written responses to questions submitted by CQ. “It’s a bad way to do business, and I will bring it to an end.”
Peters agreed that large supplemental spending packages would end.
“The supplementals have confused things tremendously,” he said, adding that Obama realizes some of the items in the supplementals will have to be folded back into the base budget.
Reasons For Extra Funds Unclear
Exactly how the Pentagon’s new spending estimate will be communicated to Congress or the incoming administration remains unclear.
In April, the White House Office of Management and Budget sent out guidance to all federal agencies that there would be no full budget drill this fall and no formal fiscal 2010 budget submission.
All agencies were directed to project future budgets based on current costs, which OMB will then compile into a budget database. But since OMB won’t go through a formal scrubbing process for the submissions as it has done in previous years, it will be up to the next president to decide what to do with the numbers.
“The 2010 budget will be submitted by the next president, not the current president,” said OMB spokeswoman Corinne Hirsch. “This administration will certainly be sharing its priorities with the incoming administration in a variety of ways, but that will be outside the formal budget process.”
Hirsch said OMB had not received the defense department’s numbers yet, although an OMB memo had said they were due in September.
“What is clear is that these additional funds that the Pentagon wants to include in their budget and their five year plan are way beyond the fiscal guidance that OMB gave the department of defense earlier this year,” one former official explained.
Moreover, the new numbers are not aligned with any long-term strategic or budgetary rationale that might allow OMB or Congress to judge their wisdom or their impact on the nation’s worsening economic situation, the official said.
Pentagon Wants $450 Billion Increase Over Next Five Years
“The idea that the Pentagon Comptroller’s office wanted these additional funds has been fairly well known,” the former official said. “But there is little out there to give anybody the understanding of why.”
“The idea that the Pentagon Comptroller’s office wanted these additional funds has been fairly well known,” the former official said. “But there is little out there to give anybody the understanding of why.”
By Josh Rogin
Pentagon officials have prepared a new estimate for defense spending that is $450 billion more over the next five years than previously announced figures.
The new estimate, which the Pentagon plans to release shortly before President Bush leaves office, would serve as a marker for the new president and is meant to place pressure on him to either drastically increase the size of the defense budget or defend any reluctance to do so, according to several former senior budget officials who are close to the discussions.
Experts note that releasing such documents in the twilight of an administration is a well-worn tactic, and that incoming presidents often disregard such guidance in order to pursue their own priorities.
And with the nation’s economy caught up in a global financial meltdown, it remains unclear whether either Sen. John McCain , R-Ariz., Sen. Barack Obama , D-Ill., or a Democratic Congress would support such large increases for defense next year.
“This is a political document,” said one former senior budget official, who spoke on the condition of anonymity. “It sets up the new administration immediately to have to make a decision of how to deal with the perception that they are either cutting defense or adding to it.”
Dov Zakheim, the Pentagon’s top budget official from 2001 to 2004, who is not involved in the current discussions, agreed.
“The thinking behind it is pretty straightforward,” Zakheim said. “They are setting a baseline for a new administration that then will have to defend cutting it.”
The fiscal 2010 portion of the estimate includes a $57 billion increase, out of which $30 billion would go for a vaguely defined contingency fund and $14 billion would go for replacing or fixing existing equipment, called reset, and modernization, the former officials said.
They added that those items reflect the Pentagon’s attempt to anticipate the end of huge supplemental war allotments that have hidden the costs of resetting and modernizing the nation’s war-torn force. Both presidential candidates have pledged to scale back supplemental war spending.
The Pentagon comptroller’s office refused repeated requests for comment on the figures outlined by the former officials stating that it was premature to discuss future budgets because they were still being worked on.
Earlier Budgets Insufficient
The new budget numbers reflect the Defense Department’s acknowledgement that the coming bow wave of ever-rising procurement costs, combined with the nonstop growth of defense entitlement spending, will render its already record- high budgets grossly insufficient in the years ahead.
But the numbers also seem to condradict the National Defense Strategy released recently by Defense Secretary Robert M. Gates , which called for tough tradeoffs in spending in an environment of limited resources.
“We cannot do everything, or function equally well across the spectrum of conflict. Ultimately we must make choices,” Gates wrote.
The new estimate, which has not been publicly released, would raise the fiscal 2010 budget number announced by the administration this year from $527 billion to $584 billion, not counting operations costs for the ongoing wars.
Money to prosecute the ongoing wars is not included in the new estimate, meaning the military would still need significant supplemental appropriations in addition to the increased budget request.
Supplemental appropriations have been used to fund procurement and personnel costs that are predictable and therefore should be placed into the regular budget, said Admiral Michael Mullen, the chairman of the Joint Chiefs of Staff.
“We’re going to have to figure out how to get off supplementals,” Mullen told a group of Washington reporters Thursday. “My strategic approach is to start to implant those things that are in supplementals that we think we’ve got to have into the baseline budget. We need to start doing that. We’re working our way through the next budget now.”
While reset and modernization funds in the new estimate are relatively non-controversial, the $30 billion contingency fund could face stiff opposition on Capitol Hill. That money, if approved, would be available to rapidly deploy active duty forces overseas in the event of an unexpected crisis.
In 2001 and 2002, lawmakers rejected attempts by Pentagon leaders to secure a contingency fund, from which they could draw money without requesting additional permission from Congress.
“The Congress always saw this from their perspective as a slush fund,” said Zakheim, “Whereas the defense department has said it needed this kind of money because it could never project what exactly would be needed in the event of an emergency.”
Presidential Candidates Differ
The candidates differ on whether or not large increases in overall defense budgets are wise or even doable.
McCain has promised to freeze all discretionary spending except for national security, and is pushing for an additional 150,000 troops above current plans, to be paid for within the base budget.
Obama only supports the current planned increase of 92,000 Army and Marine Corps personnel.
Both candidates have called for a wholesale reform of the Pentagon’s acquisitions system in an effort to control procurement costs, which have ballooned in recent years due to mismanagement.
“The practical fact is that these programs can’t all go into production without a very significant increase in the resources for defense, and I don’t think in light of the current fiscal situation that’s going to be possible,” said former Air Force Secretary Whit Peters, who advises Obama.
Supplemental spending bills, which have funded most of the $859 billion appropriated for the Iraq and Afghanistan and global operations to counter terrorism since 2001, are set to be scaled back no matter which candidate wins in November.
“I see the future of supplementals as dramatically reduced to genuinely unanticipated needs, like fluctuations in the price of fuel, not programmatic costs or known spending needs,” said McCain in written responses to questions submitted by CQ. “It’s a bad way to do business, and I will bring it to an end.”
Peters agreed that large supplemental spending packages would end.
“The supplementals have confused things tremendously,” he said, adding that Obama realizes some of the items in the supplementals will have to be folded back into the base budget.
Reasons For Extra Funds Unclear
Exactly how the Pentagon’s new spending estimate will be communicated to Congress or the incoming administration remains unclear.
In April, the White House Office of Management and Budget sent out guidance to all federal agencies that there would be no full budget drill this fall and no formal fiscal 2010 budget submission.
All agencies were directed to project future budgets based on current costs, which OMB will then compile into a budget database. But since OMB won’t go through a formal scrubbing process for the submissions as it has done in previous years, it will be up to the next president to decide what to do with the numbers.
“The 2010 budget will be submitted by the next president, not the current president,” said OMB spokeswoman Corinne Hirsch. “This administration will certainly be sharing its priorities with the incoming administration in a variety of ways, but that will be outside the formal budget process.”
Hirsch said OMB had not received the defense department’s numbers yet, although an OMB memo had said they were due in September.
“What is clear is that these additional funds that the Pentagon wants to include in their budget and their five year plan are way beyond the fiscal guidance that OMB gave the department of defense earlier this year,” one former official explained.
Moreover, the new numbers are not aligned with any long-term strategic or budgetary rationale that might allow OMB or Congress to judge their wisdom or their impact on the nation’s worsening economic situation, the official said.
Pentagon Wants $450 Billion Increase Over Next Five Years
“The idea that the Pentagon Comptroller’s office wanted these additional funds has been fairly well known,” the former official said. “But there is little out there to give anybody the understanding of why.”
“The idea that the Pentagon Comptroller’s office wanted these additional funds has been fairly well known,” the former official said. “But there is little out there to give anybody the understanding of why.”
Recession? Depression? How Deep, How Far and What Can Be Done?
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By Joshua Holland
By Joshua Holland
As the financial crisis gains steam, moving from overextended American households to global banking giants, fear of a major crash is spreading. Talk of "Another Great Depression" has entered the mainstream discourse, 1 out of 6 homeowners are "under water" -- owing more to the banks than their houses are worth -- and $2 trillion of retirement wealth has evaporated over the course of a few short months. The markets have not been "calmed" by the government’s heavy interventions; the Dow Jones Industrial Average touched a five-year low this week, and is now 40 percent below its peak of one year ago.
The question on most people’s minds is just how far and deep the fallout from the crisis will go. Are we looking at the kind of recessions we’ve seen -- and survived -- in the early 1980s, early 1990s and at the beginning of this century, or are we staring into an abyss that will be far more painful, one that will profoundly transform our lifestyles?
There’s no definitive answer. We’re in uncharted waters, and anyone who says they know what will transpire in the next few years is selling snake oil. But some deep thinkers who have a solid command of the structures of the global economy can help us understand the best- and worst-case scenarios, the way the crisis is changing some of the economic establishment’s most cherished and long-standing assumptions and what role government -- the American government and those overseas -- might play in minimizing the damage created by Wall Street’s excesses.
I contacted a number of leading experts this week -- all highly respected in their field -- to get their reads on the possible impacts of the financial sector’s meltdown, the likelihood of the recent bailout having the desired effect and where we might go from here.
There was quite a bit of consensus on several points. First, all agreed that we’re in the early stages of a deep recession. Second, most believed that it was in no way inevitable that the crisis would develop into a full-blown 1930s-style depression, and some were skeptical that such an event is even possible in today’s economy. Third, all agreed that the length and depth of the crisis would hinge on the actions taken by governments in the coming months. Finally, there was something approaching a consensus that the economic and political establishment has been deeply shaken by the events of recent months, and that the banking mess might lead to a very different approach to governing the "free market."
The Worst-Case Scenario
In a nutshell, the lack of transparency in the system -- the fact that nobody knows precisely who’s holding what liabilities on their books -- has the potential to lead to a global loss of confidence among investors and institutions, and what would effectively be the modern-day equivalent of a bank run on the myriad institutions that hold (or guarantee) "toxic" debt-backed securities.
That prospect has already led to a near-freeze in the flow of loans that individuals and businesses require, and if the credit system doesn’t shake loose it will make the economic contraction that’s already begun longer and more severe and lead to further financial losses.
That might create a vicious cycle in the "real" economy, as jobs are lost, people lose their homes, local governments’ revenues -- in the United States, based largely on property taxes -- are cut and their work forces slashed.
As Max Wolff, an economist at the New School, wrote me via e-mail, "we’re dependent on our banks. Thus, their pain is ours. Millions will be fired. Retirements will be decimated. Opportunity will vanish, (and) consumption will fall. Everyone is already deeply influenced. This will become more obvious and more painfully evident with each passing day. When it rains on the top of the hill, those who live on the bottom of the hill drown." He added, "there’s now a major flight from all risk assets" which will "cause massive pain and dislocation in the developing world." Wolff predicted that "large sections of the consumption economy" will vanish, which will "slam into the leading exporters’ markets and undermine much of the recent surge in commodity prices."
"We have now baked a severe and largely global recession into the cake," Wolff said. "The losses are already way too large to swallow. ... The numbers about failures from car dealerships, stores and many small businesses are alarming and will get worse." He added: "The epicenter of the crisis is already shifting out of America and finance."
That point was echoed by Walden Bello, a giant in the global justice movement and founder of the Third World Network, a group of NGOs focusing on development and poverty relief. Bello offered that "given the globalization of national economies over the last two decades, the downturn is going to be a synchronic one, and there is going to be no decoupling of one region from another." The crisis in the United States will continue to expand worldwide, at just the moment when international cooperation is most necessary. "For instance," Bello said, "China’s main market is the United States, and China purchases many of its industrial inputs and raw materials from Japan, Korea and Southeast Asia. So Japan and Southeast Asia cannot rely on Chinese demand to make up for a fall in U.S. demand. China, East Asia and the U.S. are tied together like prisoners on a chain gang."
Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts, thinks there’s "a good chance this crisis will become a general crisis, pushing unemployment up to the 10 percent level, as we experienced in 1982-83. This would mean a severe slowdown for everyone," regardless of whether they’re in the financial markets or struggling to keep up with a mortgage. "A severe employment crisis would hit lower-income people the worst -- that is, people who have little savings and rent, rather than own, their homes," he wrote me via e-mail. Pollin also believes, "the odds are closer to the worst- rather than the best-case scenario, mainly because I think we are already too far gone for this to be a mild downturn, no matter how successful" the government’s bailout of Wall Street might be.
Is a Major Crash Inevtitable?
"I won’t go so far as to draw parallels with the Great Depression," James Galbraith, a senior scholar with Bard’s Levy Economics Institute, told me by phone. "I don’t think that’s appropriate."
In the best-case scenario, Galbraith said, "the government has the power and should use it, first of all to secure the liquidity of the banking system and the payment system, and then to resolve the underlying housing problem. These things should be done, can be done and if they are, the whole experience would be relatively mild. I mean, it’ll be severe by the standards of the past 20 years, but it can be contained and resolved in the next two to three years." He predicted that "if the system is kept liquid," the crisis may be short in duration. "What will happen is that the financial sector will shrink, it will disintermediate, but it will not collapse."
When I interviewed Dean Baker, co-director of the Center for Economic and Policy Research, two years ago, he was one of a very few voices warning of the dangers the housing bubble posed to the larger economy (at the time, he had been discussing it for a couple of years). This week, Baker said that the best-case scenario for the underlying housing market would be for prices to "quickly fall by 10 to 15 percent, returning to their long-term trend levels." That would allow the real estate market to begin to clear "a vast overhang of vacant properties" and unfreeze the credit markets.
In the bigger picture, Baker argued that the recession, while painful, might be mitigated by "large injections of government stimulus ($300 billion to $400 billion) combined with a substantial fall in the value of the dollar." A broader stimulus package -- cash injected into the economy to help keep goods and services moving -- "can sustain demand in 2009, while the fall in the dollar can begin to boost net exports in the second half of 2009 and 2010." Baker added, "even in this case, unemployment is almost certain to rise above 7 percent by early 2009, but hopefully will not get too much higher."
Although Pollin is not optimistic about the prospects of a quick recovery, he told me that in his view the best-case scenario "at this point would be a mild recession that lasts roughly a year. This would be similar to the recession that occurred after that last financial crisis, the 2001 stock market crash. In that case, unemployment rose to only about 6 percent, where we are now. Financial markets would stabilize over the next six months."
A Positive Outcome Will Require Good Governance
All of the experts I surveyed agreed that the modified "Paulson Plan" passed by Congress won’t work, but many also thought a large injection of cash into the banking system was a necessary first step. The crucial factor in our economic prospects for the coming years is what will follow next.
Robin Hahnel, an economist at American University, told me that "while it’s not necessary for the U.S. financial crisis to become a world financial crisis, and for the U.S. recession to become a depression of the magnitude and duration of the Great Depression of the 1930s, if the short-term, medium-term and longer-term responses continue to be as incompetent as the short-term response in the U.S. has been so far, this worst-case scenario could happen." Hahnel noted that "for the most part, governments in Europe have gone about their bailouts in a competent way -- building up equity in stricken financial institutions by buying shares, making loans to banks in exchange for banks making the loans they have refused to make so far, and making credible government guarantees to depositors."
Pollin agreed. "I do think the bailout will contribute to stabilizing global financial markets, relative to a situation where the U.S. government did absolutely nothing," he said, noting that it was inaction that resulted in the demise of Lehman Brothers -- the decision "to allow the free market to work as its supposed to" -- and that "led to the total panic that has since gripped markets."
But, he added, "that doesn’t mean that this was the right bailout strategy. It wasn’t. Indeed, it was close to being the worst possible strategy ... because it did nothing to assist homeowners who face foreclosures; it contributed to the sense of panic by emphasizing this huge sum -- $700 billion -- coming out of the Treasury, when in fact, the Fed could have managed the crisis without any tax dollars being committed." He added that the plan "didn’t offer any measures to regulate the markets and thereby create a sense of stability moving forward."
Pollin laid out steps that he believed must follow the government’s interventions thus far if we hope to stave off a far deeper crisis, including: a new system of financial regulations; increasing the cash reserves required of institutions that deal in the speculative economy; restructuring people’s mortgages; and a significant economic stimulus package designed to "create jobs and get people a new stream of income."
Baker emphasized that "paying too much for banks’ bad assets is a very inefficient way to address their main problem -- they’re under-capitalized" (meaning they don’t have enough cash on hand to cover their potential liabilities and also make new loans). In calling for a major stimulus package for the "nuts and bolts" economy, Baker noted that it’s "far more efficient to directly inject capital."
Galbraith told me that the "Paulson Plan" was an "act of desperation from an overwhelmed Treasury Department" and that to the extent it might "do anything at all" it would do so "both inefficiently and slowly." He was adamant that it had to be considered as only a first step, and that other measures must follow in short order.
Galbraith said it’s "absolutely essential" that the government do more to protect homeowners. "If nothing is done, the fact that there is excess inventory of 4 million homes in foreclosure and many more to come" will be a drag on the housing and credit markets "for a long time."
But that’s just the first of what he called "three necessary steps" for stabilizing the "real economy." The second is dealing with the inevitable fiscal crisis that will face states and localities, which "will be cutting expenditures as their property taxes implode." Galbraith urged the federal government to bail out struggling local governments with revenue-sharing plans and infrastructure investment, "on the condition that they maintain their level of spending," meet "their public sector needs" and avoid "mass layoffs of their work force." Finally, Galbraith said, the elderly and near-elderly who have seen their retirement accounts take a heavy hit are going to need help -- through increased Social Security payments if need be.
If those steps aren’t effective, Galbraith suggests that more dramatic measures be taken, including a temporary suspension of the payroll tax, which would give every working person (making under $97K per year) an effective 7.65 percent raise to make ends meet, while giving businesses a tax break on their payrolls.
Those measures would greatly expand a budget deficit that has already become bloated during the Bush era. But, as Pollin pointed out, "The fiscal deficit in 1983 was 6 percent of GDP -- that was under Reagan -- and that pulled the economy out of crisis then. Right now, the fiscal deficit is in the range of 3 percent of GDP. Increasing the deficit to, say 5 to 6 percent of GDP now would inject more than $300 to $400 billion in new spending into the economy -- to go for state and local spending on schools and health care, investments in energy efficiency and renewable energy, raising unemployment insurance benefits and food stamps."
Reason to Be Hopeful, as a Failed System’s Flaws Are Exposed to the Light of Day
It was during an earlier economic crisis that Richard Nixon famously said, "we’re all Keynesians now." According to those I contacted, that’s more true today than at any time in recent history; there’s broad agreement in Washington that more government action will be required.
When I asked Galbraith about the prospect of running up large deficits, he responded that today "no serious person" in the economic establishment is a deficit hawk, adding that "it’s striking how quickly consensus is moving" in Washington toward the idea that a major bailout of the "nuts and bolts" economy is needed. (Deficit spending to kick-start the economy during a downturn, as opposed to financing tax cuts for the wealthiest or paying for wars of choice, is a tried-and-true policy tool.)
Despite the general consensus among the experts I surveyed that we are almost certainly headed into very rough waters, there was cause for optimism as well, in that most agreed that aggressive and coordinated actions by government could contain the damage. More importantly, the bright spot in this crisis may be (stress on the word may) the blow it deals to the center-right, anti-regulatory paradigm that has guided economic policymakers both at home and in many of the world’s capitals over the past three decades.
Of that paradigm, Bello said, "goodbye to all that," adding, "We should not underestimate the sea change that is occurring. Neoliberalism and free-market fundamentalism have been severely discredited, as has globalization." He predicted that "capitalism itself will come under severe questioning, and many will think that regulating or re-regulating it is not enough. I think you will find the same fundamental questioning happening throughout the world." He added, "Radical economics and Keynesian economics will regain respectability, and neoclassical or neoliberal (trickle-down) economics will be delegitimized."
Pollin wrote that he has hope that "the commitment to financial deregulation by mainstream economists and politicians -- Democrats as well as Republicans -- is now dead." He added: "It is time to recognize that unregulated financial markets always have, and always will, cause financial crises. There are no historical exceptions to this observation at all. This point has to be grasped."
According to Baker, the degree to which that point sinks in is an open question. "In principle," he said, "the Wall Street mentality that has dominated the political thinking of both parties should be on the defensive. These guys had it all their own way, and it led to a colossal disaster." But, he added, "in this country, failure doesn’t count against you. It will be necessary for progressives to demand an end to Wall Street-driven policy. If there is successful organizing on this front, then it is possible that the next administration will take a very different course. But the Wall Street boys have to be pushed away -- they will not surrender power voluntarily."
Hahnel offered a word of caution, noting that "80 years ago people thought (unregulated) free market finance was dead. If the funeral had a name, it was Glass Steagall (the New Deal-era legislation that made banks choose between issuing mortgages and securities). In 1999 Phil Graham, Robert Rubin and Bill Clinton killed Glass Steagall, signaling the return and triumph of free market finance. Hopefully this crisis will kill free market finance once and for all. ’Never again’ is the appropriate response."
He added what was perhaps the most salient point: "I hope this lesson will be the beginning of a larger lesson: The economics of competition and greed does not serve us well."
As share market plunges, political crisis in Thailand deepens
Go to Original
By John Roberts
Violent clashes this week in Bangkok between police and anti-government demonstrators point to a growing desperation in Thailand’s ruling circles to end the months-long stand-off between the People Power Party (PPP)-led ruling coalition and the Peoples Alliance for Democracy (PAD).
PAD demonstrators, who have been occupying the grounds of Government House since late August, took to the streets on Tuesday to demand that Prime Minister Somchai Wongasawat resign and parliament be dissolved. Last month, the security forces refused to enforce a state of emergency declared by Somchai’s predecessor, Samak Sundarevej. This week, police and soldiers turned out in force.
Riot police moved in at dawn on Tuesday to break-up a blockade of the Thai parliament building by some 5,000 PAD supporters, who declared they would prevent Somchai delivering his first policy speech since being installed on September 17. Somchai replaced Samak, who had led the ruling parties to victory in last December’s election but was forced to resign on September 12.
One woman was killed and 423 people injured when police used tear gas and stun grenades to disperse the crowd. A number of police were injured in running battles with helmeted demonstrators armed with shields, iron bars, slings and firecrackers. Thai authorities allege that two officers were wounded by gunshots. A reporter claimed to have seen at least three demonstrators carrying firearms. Another man was killed when a car bomb exploded near parliament.
Somchai’s speech, delivered against a backdrop of tear-gas filled streets, appealed for political reconciliation so the government could concentrate on the rapidly deteriorating economic situation. The political instability has aggravated lack of confidence in the Thai economy, under conditions where global financial storms are prompting investors to liquidate assets and seek safe havens for their capital. Trading on the stock exchange was suspended for an hour yesterday as shares plunged 10 percent over the day. Market capitalisation has plunged by 41 percent this year to 4 trillion baht ($117 billion).
Despite the Somchai’s appeal for reconciliation, the opposition Democrat Party boycotted the session. Outside parliament house, police took no action to prevent PAD demonstrators from regrouping and again surrounding the parliament. After his address, Somchai was forced to climb over the fence into a neighbouring property owned by the Thai royal family to escape the mob. A police helicopter then flew him to the military headquarters. It was reportedly late afternoon before police could clear the way for hundreds of other trapped parliamentarians to leave the area.
Later in the day, PAD leaders repudiated the call for “reconciliation” and demanded that the prime minister dissolve the lower house of the parliament by sunset or face “decisive action”. Protest leader Pipop Thongchai told reporters on Wednesday: “We will continue to fight until Somchai resigns. He has lost credibility to run the country, he has to take responsibility for the dead and injured.”
The army placed soldiers armed with batons on the streets of Bangkok on Wednesday and no further clashes have been reported. But the political crisis continues unabated.
Chavalit Yongchaiyudh, an ex-general, resigned as deputy prime minister on Tuesday afternoon, saying that he took responsibility for the violent confrontation. Chavalit, who had functioned as the government’s chief negotiator with PAD, told the Bangkok Post yesterday that the dissolution of parliament would not end the political turmoil.
Chavalit proposed another solution: “The problem can be solved by three institutions: the monarchy, which remains politically neutral, the military which appears to be not interested in intervening, and the government, which stays above the problem. So I see [the answer in] a putsch. After the army steps in, power should be immediately returned to the people and an interim government formed, in which every party takes place.”
There is no guarantee, however, that even an army coup followed by a unity government would end the political crisis. Moreover, a second military coup in little more than two years would only compound the country’s economic woes. Army chief General Anupong Paochinda warned on Thursday: “It [a coup] would not be a way to solve the problem, but it would create another problem instead. The consequences could ruin the country.”
Economic dispute
Behind the ongoing confrontation is a bitter factional dispute within the Thai ruling elite. PAD is led by media tycoon Sondhi Limthongkul and Chamlong Srimuang, a former general and Bangkok governor. It rests on support from sections of the urban middle class, particularly in the capital, and is largely financed by Sondhi and sections of Thai business that oppose the economic restructuring policies of the PPP-led government.
The PAD functions to some extent as a proxy for the traditional Thai ruling elite centred around King Bhumibol Adulyadej, the military and state bureaucracy and the judiciary. The conflict goes back to 2001 when Thaksin Shinawatra became prime minister and his Thai Rak Thai (TRT) party formed government. Thaksin, a billionaire businessman, had promised to reverse the IMF-sponsored austerity measures imposed by the previous Democrat-led government following the 1997-1998 Asian financial crisis, which savaged Thai businesses.
Once in office, however, Thaksin proved unable to protect less competitive sections of Thai business, including large layers of small and medium companies, and began further opening up the economy in a bid to attract much-needed foreign investment. At the same time, he used state power to benefit his own big business backers, undermining previous nepotistic arrangements that had benefitted the state bureaucracy and the military. Through handouts to rural areas, the TRT secured support in the rural north and north-east of the country.
PAD was formed in 2005 and attracted significant backing in Bangkok by opposing Thaksin’s corruption and autocratic methods, including a vicious campaign of extra-judicial murder against alleged drug dealers and a military crackdown against Muslim separatists in southern Thailand. Thaksin’s sale of his family share in the telecommunications conglomerate Shin Corp to the investment arm of the Singapore government for a tax-free profit of $US1.9 billion provoked mass protests that created a constitutional crisis and eventually led to an army coup in September 2006.
The junta produced economic turmoil, however, when it attempted to reverse Thaksin’s economic restructuring by imposing controls on the inflow of foreign capital. The regime pushed through a new constitution last year, which gave an amnesty to the coup leaders, as well as a security law designed to entrench the army’s power to intervene politically. Nevertheless, despite the banning of the TRT, and the prohibition of 111 of its leaders from standing for office, the TRT’s successor, the PPP, won 233 of the 480 parliamentary seats in elections in December 2007 and formed a coalition government with five smaller parties.
PAD restarted its protests this year when Prime Minister Samak Sundarevej threatened to amend the constitution. Despite its name, PAD’s right-wing, anti-democratic orientation has become increasingly evident in its call for a new constitution that would have 70 percent of the parliament appointed rather than elected. Expressing the contempt of the traditional elites, PAD leaders have declared that the rural majority that supports the PPP is too uneducated to vote.
Samak imposed a state of emergency on September 4 following clashes between pro- and anti-government protestors but the military declared that it would not act to end the PAD occupation of Government House or execute arrest warrants for nine PAD leaders on treason and other charges. Five days later, the Constitutional Court disqualified Samak from office on the basis that he had received a small retainer from his long-running TV cooking show. He resigned on September 12 and was replaced by Somchai—Thaksin’s brother-in-law.
PAD called for the blockade of parliament following the arrest of two of the charged PAD leaders last weekend. Chamlong Srimuang openly courted arrest by going to vote in elections for the Bangkok governor. On Thursday, the Appeals Court threw out treason charges against the nine PAD leaders. The two already under detention were almost immediately released on bail but face lesser charges of inciting unrest and illegal assembly. On Friday, the seven others voluntarily turned themselves into the police and were immediately bailed out.
There is no immediate end in sight to the political crisis. PAD is calling for protests next week against the police for using excessive force and has given no sign that it intends to vacate Government House. Yesterday, the Constitutional Court received a petition from the public prosecutors to disband the PPP over alleged electoral malpractice. If upheld, the petition could lead to the collapse of the government. Each day of turmoil on global and domestic financial markets adds to the pressure on the ruling elites for an end to the political turmoil but their deep-going factional disputes show no signs of abating.
By John Roberts
Violent clashes this week in Bangkok between police and anti-government demonstrators point to a growing desperation in Thailand’s ruling circles to end the months-long stand-off between the People Power Party (PPP)-led ruling coalition and the Peoples Alliance for Democracy (PAD).
PAD demonstrators, who have been occupying the grounds of Government House since late August, took to the streets on Tuesday to demand that Prime Minister Somchai Wongasawat resign and parliament be dissolved. Last month, the security forces refused to enforce a state of emergency declared by Somchai’s predecessor, Samak Sundarevej. This week, police and soldiers turned out in force.
Riot police moved in at dawn on Tuesday to break-up a blockade of the Thai parliament building by some 5,000 PAD supporters, who declared they would prevent Somchai delivering his first policy speech since being installed on September 17. Somchai replaced Samak, who had led the ruling parties to victory in last December’s election but was forced to resign on September 12.
One woman was killed and 423 people injured when police used tear gas and stun grenades to disperse the crowd. A number of police were injured in running battles with helmeted demonstrators armed with shields, iron bars, slings and firecrackers. Thai authorities allege that two officers were wounded by gunshots. A reporter claimed to have seen at least three demonstrators carrying firearms. Another man was killed when a car bomb exploded near parliament.
Somchai’s speech, delivered against a backdrop of tear-gas filled streets, appealed for political reconciliation so the government could concentrate on the rapidly deteriorating economic situation. The political instability has aggravated lack of confidence in the Thai economy, under conditions where global financial storms are prompting investors to liquidate assets and seek safe havens for their capital. Trading on the stock exchange was suspended for an hour yesterday as shares plunged 10 percent over the day. Market capitalisation has plunged by 41 percent this year to 4 trillion baht ($117 billion).
Despite the Somchai’s appeal for reconciliation, the opposition Democrat Party boycotted the session. Outside parliament house, police took no action to prevent PAD demonstrators from regrouping and again surrounding the parliament. After his address, Somchai was forced to climb over the fence into a neighbouring property owned by the Thai royal family to escape the mob. A police helicopter then flew him to the military headquarters. It was reportedly late afternoon before police could clear the way for hundreds of other trapped parliamentarians to leave the area.
Later in the day, PAD leaders repudiated the call for “reconciliation” and demanded that the prime minister dissolve the lower house of the parliament by sunset or face “decisive action”. Protest leader Pipop Thongchai told reporters on Wednesday: “We will continue to fight until Somchai resigns. He has lost credibility to run the country, he has to take responsibility for the dead and injured.”
The army placed soldiers armed with batons on the streets of Bangkok on Wednesday and no further clashes have been reported. But the political crisis continues unabated.
Chavalit Yongchaiyudh, an ex-general, resigned as deputy prime minister on Tuesday afternoon, saying that he took responsibility for the violent confrontation. Chavalit, who had functioned as the government’s chief negotiator with PAD, told the Bangkok Post yesterday that the dissolution of parliament would not end the political turmoil.
Chavalit proposed another solution: “The problem can be solved by three institutions: the monarchy, which remains politically neutral, the military which appears to be not interested in intervening, and the government, which stays above the problem. So I see [the answer in] a putsch. After the army steps in, power should be immediately returned to the people and an interim government formed, in which every party takes place.”
There is no guarantee, however, that even an army coup followed by a unity government would end the political crisis. Moreover, a second military coup in little more than two years would only compound the country’s economic woes. Army chief General Anupong Paochinda warned on Thursday: “It [a coup] would not be a way to solve the problem, but it would create another problem instead. The consequences could ruin the country.”
Economic dispute
Behind the ongoing confrontation is a bitter factional dispute within the Thai ruling elite. PAD is led by media tycoon Sondhi Limthongkul and Chamlong Srimuang, a former general and Bangkok governor. It rests on support from sections of the urban middle class, particularly in the capital, and is largely financed by Sondhi and sections of Thai business that oppose the economic restructuring policies of the PPP-led government.
The PAD functions to some extent as a proxy for the traditional Thai ruling elite centred around King Bhumibol Adulyadej, the military and state bureaucracy and the judiciary. The conflict goes back to 2001 when Thaksin Shinawatra became prime minister and his Thai Rak Thai (TRT) party formed government. Thaksin, a billionaire businessman, had promised to reverse the IMF-sponsored austerity measures imposed by the previous Democrat-led government following the 1997-1998 Asian financial crisis, which savaged Thai businesses.
Once in office, however, Thaksin proved unable to protect less competitive sections of Thai business, including large layers of small and medium companies, and began further opening up the economy in a bid to attract much-needed foreign investment. At the same time, he used state power to benefit his own big business backers, undermining previous nepotistic arrangements that had benefitted the state bureaucracy and the military. Through handouts to rural areas, the TRT secured support in the rural north and north-east of the country.
PAD was formed in 2005 and attracted significant backing in Bangkok by opposing Thaksin’s corruption and autocratic methods, including a vicious campaign of extra-judicial murder against alleged drug dealers and a military crackdown against Muslim separatists in southern Thailand. Thaksin’s sale of his family share in the telecommunications conglomerate Shin Corp to the investment arm of the Singapore government for a tax-free profit of $US1.9 billion provoked mass protests that created a constitutional crisis and eventually led to an army coup in September 2006.
The junta produced economic turmoil, however, when it attempted to reverse Thaksin’s economic restructuring by imposing controls on the inflow of foreign capital. The regime pushed through a new constitution last year, which gave an amnesty to the coup leaders, as well as a security law designed to entrench the army’s power to intervene politically. Nevertheless, despite the banning of the TRT, and the prohibition of 111 of its leaders from standing for office, the TRT’s successor, the PPP, won 233 of the 480 parliamentary seats in elections in December 2007 and formed a coalition government with five smaller parties.
PAD restarted its protests this year when Prime Minister Samak Sundarevej threatened to amend the constitution. Despite its name, PAD’s right-wing, anti-democratic orientation has become increasingly evident in its call for a new constitution that would have 70 percent of the parliament appointed rather than elected. Expressing the contempt of the traditional elites, PAD leaders have declared that the rural majority that supports the PPP is too uneducated to vote.
Samak imposed a state of emergency on September 4 following clashes between pro- and anti-government protestors but the military declared that it would not act to end the PAD occupation of Government House or execute arrest warrants for nine PAD leaders on treason and other charges. Five days later, the Constitutional Court disqualified Samak from office on the basis that he had received a small retainer from his long-running TV cooking show. He resigned on September 12 and was replaced by Somchai—Thaksin’s brother-in-law.
PAD called for the blockade of parliament following the arrest of two of the charged PAD leaders last weekend. Chamlong Srimuang openly courted arrest by going to vote in elections for the Bangkok governor. On Thursday, the Appeals Court threw out treason charges against the nine PAD leaders. The two already under detention were almost immediately released on bail but face lesser charges of inciting unrest and illegal assembly. On Friday, the seven others voluntarily turned themselves into the police and were immediately bailed out.
There is no immediate end in sight to the political crisis. PAD is calling for protests next week against the police for using excessive force and has given no sign that it intends to vacate Government House. Yesterday, the Constitutional Court received a petition from the public prosecutors to disband the PPP over alleged electoral malpractice. If upheld, the petition could lead to the collapse of the government. Each day of turmoil on global and domestic financial markets adds to the pressure on the ruling elites for an end to the political turmoil but their deep-going factional disputes show no signs of abating.
US intelligence, military deliver dire estimates of Afghanistan war
Go to Original
By Bill Van Auken
Seven years after the Bush administration launched “Operation Enduring Freedom” with the relentless bombing of Afghanistan, US intelligence agencies have concluded that the situation in the devastated country is on “a downward spiral,” and that prospects are poor for stabilizing the US-backed government and militarily defeating the growing armed resistance.
These are the conclusions drawn by a classified draft National Intelligence Estimate (NIE) that is in the final stages of preparation, according to US officials cited Wednesday in the New York Times.
According to the Times account, the report, which represents the consensus view of 16 separate US intelligence agencies, concludes that “the breakdown in central authority in Afghanistan has been accelerated by rampant corruption within the government of President Hamid Karzai and by an increase in violence by militants who have launched increasingly sophisticated attacks from havens in Pakistan.”
The report, which essentially warns that Washington is in danger of losing its war in Afghanistan, is not to be released in final form until after the US November elections.
While the US and its NATO allies have beefed up their occupation forces by some 20,000 troops over the last 18 months, the same period has seen a 50 percent increase in the number of armed attacks carried out by Afghan resistance fighters, whose ranks have been swelled by civilians seeking revenge for the deaths of relatives killed in stepped-up American air strikes and house-to-house raids.
On Tuesday, villagers in the southern province of Helmand reported that a US air strike claimed the lives of 40 civilians. In one demolished house, a couple and their eight children perished. The villagers reported that there were no Taliban fighters in the area when the bombs struck.
“There are confirmed reports of civilian casualties; however, it is unknown at this time how many,” a terse statement from the US-led occupation forces read.
The Pentagon found itself compelled to acknowledge on Wednesday that it indeed slaughtered dozens of civilians—most of them children—in an August 22 air strike on the village of Azizabad in Afghanistan’s western Herat province. The US military, which initially denied that any civilians had been killed, now admits to killing 33 unarmed men, women and children along with 22 “anti-coalition militants.” Afghan officials have continued to insist that 90 civilians—the majority of them women and children—died in the attack.
Hostility to the US puppet regime headed by Karzai has grown as the country’s economy has continued to deteriorate. Most recent figures put the national unemployment rate at 40 percent, and it is estimated that nearly half the population are unable to get enough food to meet minimal nutritional requirements.
According to US estimates, government forces control less than a third of the country, and many believe that to be an overestimate. Meanwhile, the Taliban and other forces opposing the US-led occupation have established control over increasingly large swaths of the country, installing their own mayors, courts and police forces.
At the same time, official corruption is rampant. As the NIE confirms, the heroin trade accounts for fully half of the country’s gross domestic product.
NATO officials announced this week that they had reached an agreement with the Afghan regime to use the foreign occupation forces to suppress the drug trade, which according to Pentagon estimates earns $60 million a year for the Taliban. Germany, Spain and other NATO countries have opposed such a move, believing that it will only stir up further popular opposition to the occupation.
The problem is compounded by the fact that government officials are probably making considerably more from narcotics trafficking. Last week, the New York Times published an article citing multiple official sources linking the Afghan president’s brother, Ahmed Wali Karzai, to heroin trafficking.
The paper cited American narcotics investigators who reported that “senior officials at the DEA [Drug Enforcement Administration] and the office of the Director of National Intelligence complained to them that the White House favored a hands-off approach toward Ahmed Wali Karzai because of the political delicacy of the matter.”
The dismal assessment drafted by the US intelligence agency found confirmation from senior military commanders this week.
Admiral Michael Mullens, the chairman of the Joint Chiefs of Staff, told Pentagon reporters Thursday that the situation in Afghanistan has been headed in “the wrong direction” for the last two years.
“The trends across the board are not going in the right direction,” Mullen said. “It will be tougher next year unless we get at all these challenges.”
Also on Thursday, the top US military commander in Afghanistan, General David McKiernan, told the French news agency AFP that “ultimately the solution here in this country will be a political solution, not a military one.”
The intelligence estimate from Washington and the statements from the US commanders echo recent assessments provided by a British military commander and the British ambassador in Afghanistan.
Brigadier Mark Carleton-Smith, the outgoing commander of British forces in Afghanistan, told the press last weekend, “We’re not going to win this war,” and that the best that could be hoped for was “reducing it to a manageable level of insurgency that’s not a strategic threat.”
Meanwhile, the French publication Le Canard enchaîné quoted a memo recording a discussion between the British ambassador to Afghanistan, Sir Sherard Cowper-Coles, and a French official last month in which Cowper-Coles insisted that the US-NATO military presence in the country “is part of the problem, not the solution.”
According to the document, the British ambassador described a corrupt and bankrupt Afghan regime that survived only thanks to the foreign occupation forces. The only way out of the crisis, he affirmed, was by replacing Karzai’s regime with an “acceptable dictator.”
British officials have apparently concluded that the US-initiated war in Afghanistan is unwinnable, and American military commanders, their forces stretched to the breaking point by the deployment of 152,000 troops in the occupation of Iraq together with the 33,000 in Afghanistan itself, appear largely in agreement.
There is no indication, however, that Washington is about to concede defeat in this seven-year-old war. Justified as a retaliation for the September 11, 2001, terrorist attacks, the war is part of a drive to establish US hegemony over the oil-rich regions of Central Asia that were opened up in the wake of the Soviet Union’s dissolution. This remains a key strategic objective of the American ruling elite.
According to a report in the Washington Post Thursday, the Bush administration has responded to the NIE by ordering a major reassessment of US strategy and tactics in Afghanistan, an initiative that may well lead to a substantial escalation of the US intervention there.
According to the Post, given the upcoming election and the subsequent change in administrations, “senior officials have expressed worry that the situation in Afghanistan and Pakistan is so tenuous that it may fall apart while a new set of US policymakers settles in.”
Under consideration is a significant increase in the number of troops as well as stepped-up intervention into western Pakistan, where already, as the Post points out, “Military Special Operations forces and operatives [are] now conducting regular secret incursions.”
The Post notes that an escalation of the dirty colonial war being waged by American forces in Afghanistan would enjoy bipartisan support.
“Presidential candidates Barack Obama and John McCain are unlikely to question a major new US commitment; both have called for an increase in US troops,” the Post writes. “And unlike Iraq, where lawmakers have argued for years over funding and troop levels, there is bipartisan backing for doing more, and doing it quickly, in Afghanistan.”
In short, the November election will provide no means for the American people to express their overwhelming hostility to the ongoing wars in Afghanistan and Iraq. Instead, it appears increasingly likely that an escalation prepared by the Bush administration on the eve of the vote will be continued by the next administration, no matter whether Obama or McCain is victorious at the polls.
By Bill Van Auken
Seven years after the Bush administration launched “Operation Enduring Freedom” with the relentless bombing of Afghanistan, US intelligence agencies have concluded that the situation in the devastated country is on “a downward spiral,” and that prospects are poor for stabilizing the US-backed government and militarily defeating the growing armed resistance.
These are the conclusions drawn by a classified draft National Intelligence Estimate (NIE) that is in the final stages of preparation, according to US officials cited Wednesday in the New York Times.
According to the Times account, the report, which represents the consensus view of 16 separate US intelligence agencies, concludes that “the breakdown in central authority in Afghanistan has been accelerated by rampant corruption within the government of President Hamid Karzai and by an increase in violence by militants who have launched increasingly sophisticated attacks from havens in Pakistan.”
The report, which essentially warns that Washington is in danger of losing its war in Afghanistan, is not to be released in final form until after the US November elections.
While the US and its NATO allies have beefed up their occupation forces by some 20,000 troops over the last 18 months, the same period has seen a 50 percent increase in the number of armed attacks carried out by Afghan resistance fighters, whose ranks have been swelled by civilians seeking revenge for the deaths of relatives killed in stepped-up American air strikes and house-to-house raids.
On Tuesday, villagers in the southern province of Helmand reported that a US air strike claimed the lives of 40 civilians. In one demolished house, a couple and their eight children perished. The villagers reported that there were no Taliban fighters in the area when the bombs struck.
“There are confirmed reports of civilian casualties; however, it is unknown at this time how many,” a terse statement from the US-led occupation forces read.
The Pentagon found itself compelled to acknowledge on Wednesday that it indeed slaughtered dozens of civilians—most of them children—in an August 22 air strike on the village of Azizabad in Afghanistan’s western Herat province. The US military, which initially denied that any civilians had been killed, now admits to killing 33 unarmed men, women and children along with 22 “anti-coalition militants.” Afghan officials have continued to insist that 90 civilians—the majority of them women and children—died in the attack.
Hostility to the US puppet regime headed by Karzai has grown as the country’s economy has continued to deteriorate. Most recent figures put the national unemployment rate at 40 percent, and it is estimated that nearly half the population are unable to get enough food to meet minimal nutritional requirements.
According to US estimates, government forces control less than a third of the country, and many believe that to be an overestimate. Meanwhile, the Taliban and other forces opposing the US-led occupation have established control over increasingly large swaths of the country, installing their own mayors, courts and police forces.
At the same time, official corruption is rampant. As the NIE confirms, the heroin trade accounts for fully half of the country’s gross domestic product.
NATO officials announced this week that they had reached an agreement with the Afghan regime to use the foreign occupation forces to suppress the drug trade, which according to Pentagon estimates earns $60 million a year for the Taliban. Germany, Spain and other NATO countries have opposed such a move, believing that it will only stir up further popular opposition to the occupation.
The problem is compounded by the fact that government officials are probably making considerably more from narcotics trafficking. Last week, the New York Times published an article citing multiple official sources linking the Afghan president’s brother, Ahmed Wali Karzai, to heroin trafficking.
The paper cited American narcotics investigators who reported that “senior officials at the DEA [Drug Enforcement Administration] and the office of the Director of National Intelligence complained to them that the White House favored a hands-off approach toward Ahmed Wali Karzai because of the political delicacy of the matter.”
The dismal assessment drafted by the US intelligence agency found confirmation from senior military commanders this week.
Admiral Michael Mullens, the chairman of the Joint Chiefs of Staff, told Pentagon reporters Thursday that the situation in Afghanistan has been headed in “the wrong direction” for the last two years.
“The trends across the board are not going in the right direction,” Mullen said. “It will be tougher next year unless we get at all these challenges.”
Also on Thursday, the top US military commander in Afghanistan, General David McKiernan, told the French news agency AFP that “ultimately the solution here in this country will be a political solution, not a military one.”
The intelligence estimate from Washington and the statements from the US commanders echo recent assessments provided by a British military commander and the British ambassador in Afghanistan.
Brigadier Mark Carleton-Smith, the outgoing commander of British forces in Afghanistan, told the press last weekend, “We’re not going to win this war,” and that the best that could be hoped for was “reducing it to a manageable level of insurgency that’s not a strategic threat.”
Meanwhile, the French publication Le Canard enchaîné quoted a memo recording a discussion between the British ambassador to Afghanistan, Sir Sherard Cowper-Coles, and a French official last month in which Cowper-Coles insisted that the US-NATO military presence in the country “is part of the problem, not the solution.”
According to the document, the British ambassador described a corrupt and bankrupt Afghan regime that survived only thanks to the foreign occupation forces. The only way out of the crisis, he affirmed, was by replacing Karzai’s regime with an “acceptable dictator.”
British officials have apparently concluded that the US-initiated war in Afghanistan is unwinnable, and American military commanders, their forces stretched to the breaking point by the deployment of 152,000 troops in the occupation of Iraq together with the 33,000 in Afghanistan itself, appear largely in agreement.
There is no indication, however, that Washington is about to concede defeat in this seven-year-old war. Justified as a retaliation for the September 11, 2001, terrorist attacks, the war is part of a drive to establish US hegemony over the oil-rich regions of Central Asia that were opened up in the wake of the Soviet Union’s dissolution. This remains a key strategic objective of the American ruling elite.
According to a report in the Washington Post Thursday, the Bush administration has responded to the NIE by ordering a major reassessment of US strategy and tactics in Afghanistan, an initiative that may well lead to a substantial escalation of the US intervention there.
According to the Post, given the upcoming election and the subsequent change in administrations, “senior officials have expressed worry that the situation in Afghanistan and Pakistan is so tenuous that it may fall apart while a new set of US policymakers settles in.”
Under consideration is a significant increase in the number of troops as well as stepped-up intervention into western Pakistan, where already, as the Post points out, “Military Special Operations forces and operatives [are] now conducting regular secret incursions.”
The Post notes that an escalation of the dirty colonial war being waged by American forces in Afghanistan would enjoy bipartisan support.
“Presidential candidates Barack Obama and John McCain are unlikely to question a major new US commitment; both have called for an increase in US troops,” the Post writes. “And unlike Iraq, where lawmakers have argued for years over funding and troop levels, there is bipartisan backing for doing more, and doing it quickly, in Afghanistan.”
In short, the November election will provide no means for the American people to express their overwhelming hostility to the ongoing wars in Afghanistan and Iraq. Instead, it appears increasingly likely that an escalation prepared by the Bush administration on the eve of the vote will be continued by the next administration, no matter whether Obama or McCain is victorious at the polls.
Worst week for global markets since 1929
Go to Original
By Barry Grey
World stock markets plummeted Friday, ending a week that saw the biggest collapse in share values since 1929. The looming threat of a world depression provided the backdrop for a meeting of finance ministers from the G7 industrialized countries, who gathered in Washington for emergency talks with US Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke.
After a day of panic selling on markets from Asia to Europe and Latin America, and wild swings on the US stock market, the G7 issued a statement that pledged to place the resources of their respective countries at the disposal of the most powerful banks, but failed to outline any specific coordinated actions to stem the slide to economic disaster.
Paulson issued a statement and held a press conference following the meeting to announce that the US government would use the virtually unlimited authority granted it under the $700 billion Wall Street bailout passed one week before by the Democratic Congress to begin directly buying stock in banks and financial firms, an expansion of the government transfer of taxpayer funds to the most powerful sections of the financial aristocracy.
Major stock exchanges in Asia and Europe registered losses on Friday even greater than the 7.3 percent drop in Wall Street’s Dow Jones Industrial Average on Thursday. Japan’s Nikkei index fell 9.6 percent to its lowest level in five years. Since the start of the week, it has lost 24 percent of its value. Toyota shares dropped by 6.2 percent and a major Japanese insurance firm filed for bankruptcy.
Hong Kong’s Hang Seng Index plunged 7.2 percent. Australia’s S&P/ASX 200 index fell 8.3 percent and the broader All Ordinaries was down 8.2 percent. The Shanghai Composite Index declined 3.6 percent, leaving it 12.8 percent lower than it was a week earlier. The Indonesian stock exchange, which closed earlier in the week because of panic selling, remained suspended.
In Europe, the pan-European Dow Jones Stoxx 600 index fell 7.5 percent, which ranks among the worst one-day performances on record for the index.
London’s FTSE finished Friday down 8.9 percent. Since its last peak in June 2007, it has declined 43 percent. Friday marked the British index’s fifth consecutive losing day, during which it lost 20 percent of its value.
France’s CAC-40 index fell 6.8 percent and Germany’s DAX 30 plunged 7 percent. Trading in Italy, Russia and Austria was halted. The last of Iceland’s major banks collapsed and was taken over by the government, and all stock trading remained suspended.
Markets across Latin American were lower. The Mexican central bank was forced to auction off $6.4 billion in foreign reserves to prop up the peso.
The MSCI World Index—a measure of international share prices—was down 19 percent for the week, its worst performance since records began in 1970.
An indication that the financial crisis is now plunging the world economy into a major recession is the fact that, alongside bank stocks, shares in oil, metal and other basic resource firms fell sharply.
“What we are witnessing is mass selling on a global scale due to a combination of sheer panic and fear, combined with complete uncertainty over the future of the world’s major economies,” said Martin Slaney, head of derivatives at GFT.
In the US, most stocks ended lower after the wildest intra-day swing in history. For the first time in its 112-year existence, the Dow Jones Industrial Average gyrated in a range of more than 1,000 points.
The Dow fell 696 points in the first 15 minutes, falling below the 8,000 mark. Later in the day it was up by more than 320 points, but closed with a loss of 128 points, or 1.5 percent, ending at 8,451.
That marked the eighth straight losing session for the index, which gave up more than 1,870 points, or 18.2 percent, in the course of the week. The weekly loss outstripped the week that ended July 22, 1933, in the depths of the Great Depression, which registered a 17 percent drop—at a time when there were six trading days in a week.
Since its record high a year ago, the Dow has lost 40.3 percent, wiping out $8.4 trillion in stock values.
The Standard & Poor’s 500 Index sank by 10.7 points, falling below the 900 mark to 899. The S&P 500 is down 42.5 percent from its 2007 peak. The Nasdaq Composite Index finished the day with a slight gain of 4.4 points, but was down 15 percent for the week.
It was the worst week ever for Wall Street, with both the Dow and the S&P 500 recording their biggest weekly losses in point as well as percentage terms.
Most financial stocks rose, in the expectation that the G7 and Paulson would announce new bailout measures. However, Morgan Stanley, which is widely seen as the next likely bank failure, fell 22 percent, and Goldman Sachs lost 12 percent.
Ford Motor Company stock fell another 4.33 percent and ExxonMobil ended down 8.29 percent.
The Toronto stock exchange fell 535 points.
“There is a downward spiral of fear,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.
The seize-up of credit markets showed no signs of lifting. Banks are hoarding their cash and refusing to lend to other banks, or charging usurious interest rates, because they have no confidence in the other banks’ solvency.
The three-month Libor rate, a key lending benchmark for inter-bank loans of US dollars, climbed to 4.82 percent, the highest in nearly ten months. The flight of capital to what is deemed the safe haven of US government debt deepened, resulting in a decline in the yields on one-month and three-month Treasury bills to nearly zero.
Hedge funds, whose previous outsized profits have turned to losses, are contributing to the panic sell-off of stocks. Many of these firms are facing redemption demands from clients as well as demands from their bank creditors for more collateral and larger margins on their borrowings, and are dumping stocks to raise cash.
Amid the market turmoil, the reality of the decay of American capitalism was summed up by the fact that General Motors felt compelled to announce that it was not contemplating filing for bankruptcy. After decades of plant closures, wage cuts and attacks on the benefits and pensions of auto workers, justified by the claim that they were necessary to restore the biggest US auto maker to profitability and enhance its competitive position, this one-time icon of American capitalism is teetering on the edge of collapse.
GM’s announcement underscores the new stage that has been reached in the economic crisis, which has moved far beyond the situation that existed even three weeks ago, when the Bush administration announced its bailout plan for the banks and insisted it was the only way to avert a market meltdown and severe recession. That supposed panacea—designed to cover the losses of the biggest banks and facilitate a further consolidation of financial power in their hands—has done nothing to stem the crisis. Nor could it, since it did not address the underlying rot in the industrial base of American capitalism.
Now, the crisis is rapidly engulfing the broader economy, heralding a wave of plant closures and cutbacks in every branch of economic life.
The Wall Street Journal reported Friday that the consensus of economists it surveyed was that the US gross domestic product would contract in the third and fourth quarters of this year, as well as in the first quarter of 2009. “This is the first time that survey forecasts for those periods have turned negative,” the newspaper wrote. “If those predictions bear out, it would mark the first time US GDP has contracted for three consecutive quarters in more than half a century.”
President Bush made another White House appearance Friday morning in a futile attempt to revive confidence in the financial markets. Aside from making clear that his administration had decided to begin buying equity stakes in order to inject more capital into US banks, he had nothing to add to his previous remarks on the crisis.
He declared that the “federal government has a comprehensive strategy” to resolve the crisis, without explaining the abject failure of his previous “strategy”—the $700 billion bailout package—to stem the financial panic.
Bush has come to symbolize the disarray not only in the financial markets, but also at the highest levels of government. Even as he spoke the Dow began falling, and was down more than 300 points minutes after he finished speaking.
Summing up the prevailing attitude toward Bush and other political leaders, Howard Silverblatt, senior index analyst at Standard & Poor’s, said, “People are scared. Nobody believes what is coming out of the mouths of politicians or chief executives.”
There is mounting evidence that more costly measures to prop up the banks are under consideration, including a government guarantee for hundreds of billions in bank debt and inter-bank loans and government insurance for all bank deposits.
All of the proposals to deal with the worst economic crisis since the Great Depression, whether from the Bush administration and the Democrats and Republicans in the US, or the governments of Europe and Asia, have one thing in common: They all proceed from the need to maintain and defend the interests of the financial aristocracy.
None of the measures address the social tsunami that is about to engulf the working class.
As for the multi-millionaires and billionaires who monopolize the economy and dominate the US government, they will remain as ruthlessly preoccupied with their personal enrichment as ever. As the New York Times reported on Friday, a sticking point in the government plan to purchase stock from the banks with taxpayer money is the existence of token provisions in the bailout bill imposing certain limitations on the pay of top executives. The Times wrote: “It is not clear, administration officials said, that the largest American banks would agree to this, particularly given the restrictions on executive pay.”
The events of Friday, culminating two weeks of mounting financial crisis and a flurry of measures by governments to prop up their banking systems at public expense, confront the working people of the world with the prospect of rapidly rising unemployment, poverty and social misery. They raise urgently the need for a coordinated international socialist strategy to defend the interests of the world’s people against the financial elites who are responsible for the unfolding catastrophe and are seeking to impose the burden of the crisis on the working class.
By Barry Grey
World stock markets plummeted Friday, ending a week that saw the biggest collapse in share values since 1929. The looming threat of a world depression provided the backdrop for a meeting of finance ministers from the G7 industrialized countries, who gathered in Washington for emergency talks with US Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke.
After a day of panic selling on markets from Asia to Europe and Latin America, and wild swings on the US stock market, the G7 issued a statement that pledged to place the resources of their respective countries at the disposal of the most powerful banks, but failed to outline any specific coordinated actions to stem the slide to economic disaster.
Paulson issued a statement and held a press conference following the meeting to announce that the US government would use the virtually unlimited authority granted it under the $700 billion Wall Street bailout passed one week before by the Democratic Congress to begin directly buying stock in banks and financial firms, an expansion of the government transfer of taxpayer funds to the most powerful sections of the financial aristocracy.
Major stock exchanges in Asia and Europe registered losses on Friday even greater than the 7.3 percent drop in Wall Street’s Dow Jones Industrial Average on Thursday. Japan’s Nikkei index fell 9.6 percent to its lowest level in five years. Since the start of the week, it has lost 24 percent of its value. Toyota shares dropped by 6.2 percent and a major Japanese insurance firm filed for bankruptcy.
Hong Kong’s Hang Seng Index plunged 7.2 percent. Australia’s S&P/ASX 200 index fell 8.3 percent and the broader All Ordinaries was down 8.2 percent. The Shanghai Composite Index declined 3.6 percent, leaving it 12.8 percent lower than it was a week earlier. The Indonesian stock exchange, which closed earlier in the week because of panic selling, remained suspended.
In Europe, the pan-European Dow Jones Stoxx 600 index fell 7.5 percent, which ranks among the worst one-day performances on record for the index.
London’s FTSE finished Friday down 8.9 percent. Since its last peak in June 2007, it has declined 43 percent. Friday marked the British index’s fifth consecutive losing day, during which it lost 20 percent of its value.
France’s CAC-40 index fell 6.8 percent and Germany’s DAX 30 plunged 7 percent. Trading in Italy, Russia and Austria was halted. The last of Iceland’s major banks collapsed and was taken over by the government, and all stock trading remained suspended.
Markets across Latin American were lower. The Mexican central bank was forced to auction off $6.4 billion in foreign reserves to prop up the peso.
The MSCI World Index—a measure of international share prices—was down 19 percent for the week, its worst performance since records began in 1970.
An indication that the financial crisis is now plunging the world economy into a major recession is the fact that, alongside bank stocks, shares in oil, metal and other basic resource firms fell sharply.
“What we are witnessing is mass selling on a global scale due to a combination of sheer panic and fear, combined with complete uncertainty over the future of the world’s major economies,” said Martin Slaney, head of derivatives at GFT.
In the US, most stocks ended lower after the wildest intra-day swing in history. For the first time in its 112-year existence, the Dow Jones Industrial Average gyrated in a range of more than 1,000 points.
The Dow fell 696 points in the first 15 minutes, falling below the 8,000 mark. Later in the day it was up by more than 320 points, but closed with a loss of 128 points, or 1.5 percent, ending at 8,451.
That marked the eighth straight losing session for the index, which gave up more than 1,870 points, or 18.2 percent, in the course of the week. The weekly loss outstripped the week that ended July 22, 1933, in the depths of the Great Depression, which registered a 17 percent drop—at a time when there were six trading days in a week.
Since its record high a year ago, the Dow has lost 40.3 percent, wiping out $8.4 trillion in stock values.
The Standard & Poor’s 500 Index sank by 10.7 points, falling below the 900 mark to 899. The S&P 500 is down 42.5 percent from its 2007 peak. The Nasdaq Composite Index finished the day with a slight gain of 4.4 points, but was down 15 percent for the week.
It was the worst week ever for Wall Street, with both the Dow and the S&P 500 recording their biggest weekly losses in point as well as percentage terms.
Most financial stocks rose, in the expectation that the G7 and Paulson would announce new bailout measures. However, Morgan Stanley, which is widely seen as the next likely bank failure, fell 22 percent, and Goldman Sachs lost 12 percent.
Ford Motor Company stock fell another 4.33 percent and ExxonMobil ended down 8.29 percent.
The Toronto stock exchange fell 535 points.
“There is a downward spiral of fear,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.
The seize-up of credit markets showed no signs of lifting. Banks are hoarding their cash and refusing to lend to other banks, or charging usurious interest rates, because they have no confidence in the other banks’ solvency.
The three-month Libor rate, a key lending benchmark for inter-bank loans of US dollars, climbed to 4.82 percent, the highest in nearly ten months. The flight of capital to what is deemed the safe haven of US government debt deepened, resulting in a decline in the yields on one-month and three-month Treasury bills to nearly zero.
Hedge funds, whose previous outsized profits have turned to losses, are contributing to the panic sell-off of stocks. Many of these firms are facing redemption demands from clients as well as demands from their bank creditors for more collateral and larger margins on their borrowings, and are dumping stocks to raise cash.
Amid the market turmoil, the reality of the decay of American capitalism was summed up by the fact that General Motors felt compelled to announce that it was not contemplating filing for bankruptcy. After decades of plant closures, wage cuts and attacks on the benefits and pensions of auto workers, justified by the claim that they were necessary to restore the biggest US auto maker to profitability and enhance its competitive position, this one-time icon of American capitalism is teetering on the edge of collapse.
GM’s announcement underscores the new stage that has been reached in the economic crisis, which has moved far beyond the situation that existed even three weeks ago, when the Bush administration announced its bailout plan for the banks and insisted it was the only way to avert a market meltdown and severe recession. That supposed panacea—designed to cover the losses of the biggest banks and facilitate a further consolidation of financial power in their hands—has done nothing to stem the crisis. Nor could it, since it did not address the underlying rot in the industrial base of American capitalism.
Now, the crisis is rapidly engulfing the broader economy, heralding a wave of plant closures and cutbacks in every branch of economic life.
The Wall Street Journal reported Friday that the consensus of economists it surveyed was that the US gross domestic product would contract in the third and fourth quarters of this year, as well as in the first quarter of 2009. “This is the first time that survey forecasts for those periods have turned negative,” the newspaper wrote. “If those predictions bear out, it would mark the first time US GDP has contracted for three consecutive quarters in more than half a century.”
President Bush made another White House appearance Friday morning in a futile attempt to revive confidence in the financial markets. Aside from making clear that his administration had decided to begin buying equity stakes in order to inject more capital into US banks, he had nothing to add to his previous remarks on the crisis.
He declared that the “federal government has a comprehensive strategy” to resolve the crisis, without explaining the abject failure of his previous “strategy”—the $700 billion bailout package—to stem the financial panic.
Bush has come to symbolize the disarray not only in the financial markets, but also at the highest levels of government. Even as he spoke the Dow began falling, and was down more than 300 points minutes after he finished speaking.
Summing up the prevailing attitude toward Bush and other political leaders, Howard Silverblatt, senior index analyst at Standard & Poor’s, said, “People are scared. Nobody believes what is coming out of the mouths of politicians or chief executives.”
There is mounting evidence that more costly measures to prop up the banks are under consideration, including a government guarantee for hundreds of billions in bank debt and inter-bank loans and government insurance for all bank deposits.
All of the proposals to deal with the worst economic crisis since the Great Depression, whether from the Bush administration and the Democrats and Republicans in the US, or the governments of Europe and Asia, have one thing in common: They all proceed from the need to maintain and defend the interests of the financial aristocracy.
None of the measures address the social tsunami that is about to engulf the working class.
As for the multi-millionaires and billionaires who monopolize the economy and dominate the US government, they will remain as ruthlessly preoccupied with their personal enrichment as ever. As the New York Times reported on Friday, a sticking point in the government plan to purchase stock from the banks with taxpayer money is the existence of token provisions in the bailout bill imposing certain limitations on the pay of top executives. The Times wrote: “It is not clear, administration officials said, that the largest American banks would agree to this, particularly given the restrictions on executive pay.”
The events of Friday, culminating two weeks of mounting financial crisis and a flurry of measures by governments to prop up their banking systems at public expense, confront the working people of the world with the prospect of rapidly rising unemployment, poverty and social misery. They raise urgently the need for a coordinated international socialist strategy to defend the interests of the world’s people against the financial elites who are responsible for the unfolding catastrophe and are seeking to impose the burden of the crisis on the working class.
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