This whole debt thing

[thefinalmarch]

Considering I have absolutely no clue about the situation at hand...


What exactly caused this current debt crisis?/How the fuck did the US manage to accumulate so much debt?
What are the likely results of the US defaulting? How fucked is the working class? How severe and widespread would the effects be?
Are some of the claims which I've heard of (e.g. that the US will lose its sovereignty as a result of this crisis) entirely fantastical?
Lastly, what is our general perspective on this? Short of a working class revolution, what steps could be taken to avert any crisis, or what steps could be have been taken to prevent this in the first place?

[Thirsty Crow]

Just to answer the second question, consider how fucked will the workers be when the US will not default and the debt ceiling will be raised: that will happen in exchange for hundreds of billions of cuts in state budget, and guess which areas will come under the axe first?

[thefinalmarch]

Just to answer the second question, consider how fucked will the workers be when the US will not default and the debt ceiling will be raised: that will happen in exchange for hundreds of billions of cuts in state budget, and guess which areas will come under the axe first?
Well yeah, I understand that the working class is screwed anyway as a result of capitalist policy, but I'm primarily interested at the moment in the particular effects on the working class of the US defaulting. Though you still have a very valid point.

[Thirsty Crow]

Well yeah, I understand that the working class is screwed anyway as a result of capitalist policy, but I'm primarily interested at the moment in the particular effects on the working class of the US defaulting. Though you still have a very valid point.
I'm far from an expert, but the "common" wisdom of social commentators is that the American credit rating will fall and that fewer investments or lucrative opportunities why accidentally create jobs will be up for grabs. In other words, that scenario wouldn't come off as the best option for the capitalist class.
As I've said, there are people on this board who are able to go more in depth than me on this particular subject. But I'd like to add something: it seems to me that the whole debt ceiling drama is artificially created ,while the concrete state policy, regardless of superficial differences and endless bickering among the two bourgeois political camps, is clearly directed towards slashing of the social services and a rise in the rate of exploitation. Here the drama functions as a useful tool.

[Delenda Carthago]

Considering I have absolutely no clue about the situation at hand...


What exactly caused this current debt crisis?/How the fuck did the US manage to accumulate so much debt?
What are the likely results of the US defaulting? How fucked is the working class? How severe and widespread would the effects be?
Are some of the claims which I've heard of (e.g. that the US will lose its sovereignty as a result of this crisis) entirely fantastical?
Lastly, what is our general perspective on this? Short of a working class revolution, what steps could be taken to avert any crisis, or what steps could be have been taken to prevent this in the first place?


1. Despite all the media misleading, its not a debt crisis. Its a accumulation crisis, caused by the incapability of the market to move after the debt bubble blew up. But the debt is not the cause of the crisis, its something that came through later. It just masked the problem for a while.
Read
http://www.iccr.gr/site/en/issue1.html


2.Not an actual option. As for the working class, its us that we are called to pay the crisis, by attacking our direct or indirect wages. The "social state" that is. Or whats left of it.

3. If we take as a fact that it would default, yeah. But 99% of what would the outcome of it would be is bs. For example, the media say(or said until last month) that if we dont take another loan the State wouldnt be able to pay the wages and pensions. While on that blackmail, the State cuted down wages and pensions in half. The most fucked up thing is that the money from the loans are going straight to paying older loans and have NOTHING to do with public sector wages.

4. Yeah...

[Jimmie Higgins]

Gubberment: "Oh nooooo! Your eyes will bleed and locusts will eat all the crops unless we give hundreds of billions to the banks!"

Later...

Gubberment: "Oh nooooo! Your eyes will bleed and locusts will eat all the crops unless we cut hundreds of billions from social services we didn't want to give anyone anyway!"

Yeah the "drama" IMO is to get everyone convinced that there is no alternative and that we MUST have austerity on the one hand, while the two parties jockey to make sure they can blame the other side when the economy still sucks in several months and they "have to" make more cuts.

[Tommy4ever]

1. Almost every government in the Western world is extremely indebted. The US is not the worst (look to Europe to see the countries with the worst level of government debt - Japan also has serious problems, but they are slightly different).

Defecit spending has been a great way for governments to maintain their popularity with social programs (more the case in Europe than America) and low taxes. America has also spent big in grand military adventures as in Afghanistan and Iraq, whilst it also spends as much as the rest of the world combined on a military that really doesn't have much use.

In the past this really hasn't mattered. So long as credit is cheap and flows easily a government can realistically borrow without any fear - especially when it doesn't have to think in the long term (just over the next 4-8 years).

The crisis has come from the fact that since the banking crisis credit has been squeezed and it has become much more difficult to borrow whilst lenders are much more careful and nervous about lending money at cheap prices. There is also a great degree of public focus on government debt. Stimulus packages and bailouts were almost entirely funding with borrowed money and were very costly. Also, during times of economic difficulty (as we have experienced since 2008) something called ''automatic stabilisers'' come into force. This basically means that social spending increases and income through taxation decreases without any changes in policy taking place - the idea being that this helps to dampen any difficulties. IN the end that also contributes significantly to government debt. In American politics there also seems to be a major fetish for low taxes and great faith in the bankrupt 'trickle down theory' (if the rich have lots of money, that's good for everyone! durrrrrrrrrrr) which has made it very difficult to raise taxes, especially on the wealthy.

So, its normal for governments to have huge amounts of debt when things are good. But since the crisis it has become more difficult to have a large amount of debt whilst at the same time the economic troubles have forced governments to spend big.

2. The US won't default. I can tell you this now. There will always be someone willing to lend money to the US government (pretty much the safest loan in the entire world), so if worst comes to worst the government can always borrow more money to keep their loan payments going. Obviously not a very sound strategy, but it is always going to work.

If, in some horror alternate reality the US government does default. Then look at what happened in Argentina after it defaulted, and what's going on in Greece right now. To sum up - its not the end of the world, but shit will hit the fan, there will be serious social strife and your country will be fucked up. Since its America, we all know that the working class will face 99% of the resulting shafting whilst millions continue to whimper about trickle down theory.

3. The US won't lose its soveriegnty. TBH I don't really know what this means? If it means that the US government will have to take into account the demands of its creditors and capital in all its policies .... too late.

4. Things really got insane around the early 2000s. At this time ultra low interest rates in the US, large amounts of moeny flowing out from China and the Middle East, a general market exuberence and the idea to lend money to people who could never pay it back (that one's called corruption ;)) combined to create a speculative bubble of epic proportions. Around 2008 shit went crazy as it became apparent that banks had lent out extraordinary amounts of money into the US housing market, to people who could never afford to pay and were defaulting. The problem was that this debt had been traded around the entire world's banking system and no one knew how much of these 'toxic assets' they held and who had them.

The end result was a freeze on credit which in turn caused the recession.

If we believe Karl Marx, then crises like these are an inevitable part of capitalism, yes each economic crisis has a specific cause but they are all inherently caused by the system itself. Again, taking a Marxist view, as the Western economies continue their decline (real incomes have been stagnant for 3 decades, for the poorest they have fallen) economic crises are likely to become more frequent, struggling against declining profit margins the capitalist class is likely going to try to squeeze all the wealth it can from the working class and shall attempt to destroy the last remnants of the labour movement in order to complete the work begun by Thatcher and Reagan in totally weakening labour in front of capital. Things are likely to get much worse for the working class as a whole.

Within the framework of the capitalist system, its not obvious what can be done to solve the current debt crisis. There is no question that neo-liberals have been licking their lips at the possibilities of the crisis as they move to gut the public sector and weaken the labour movements. From a left perspective, higher taxes (especially on the wealthy) and a more regulated market might not be enough. But the world is in no way ready for any serious western class struggle to overthrow the whole system (even in Greece it is an unlikely dream). What we must do is resist the gutting of the public sector and attacks on the working class.

[S.Artesian]

Considering I have absolutely no clue about the situation at hand...


What exactly caused this current debt crisis?/How the fuck did the US manage to accumulate so much debt?

At the close of the Clinton years, the budget deficit has been pretty much erased, revenues exceeded expenditures, the 30 year Treasury bond was being retired, and if the "economic trend" had continued, all US debt could have been retired within 5-10 years.

Of course, the trend can't continue. Overproduction, a decline in the rate of return on investment in industry and manufacturing produced the 2001-2003 recession. The recovery from that recession was the weakest on record, and what recovery there was was based on depreciation of the dollar, giving the US a trade advantage vis-a-vis Europe and Japan; war spending; tax reductions for the wealthy; and the sustained increase in the price of oil-- that crystal meth of speculative capitalism. All of this drove revenues in proportion to expenditures way down.

At the same time, the expansion of US corporate revenues in their foreign operations [nobody really knows how much cash US corporations hold overseas. S&P estimates it, I think, at half a trillion, but since most of the revenues for corporations like Coca Cola, Intel, Microsoft, Apple etc. comes from foreign operations, my guess is that the amount is probably close to the $1.9 trillion in cash and cash assets held domestically] required central banks in other countries [particularly China, Japan, UK] to find a market big enough, and liquid enough to park those dollars as reserve currency for the deposits US corporations would receive in local currency from the commercial banking system.

Only one market in the world was big enough, stable enough, liquid enough to absorb those massive inflows of cash-- the US Treasury market.

What are the likely results of the US defaulting? How fucked is the working class? How severe and widespread would the effects be?

US defaulting: first result? panic. A panic that would make the panic after Lehman Bros collapsed look like a blissed out yoga meditation session.

Next result after panic? Who knows. Who would pay the price? Who always pays? Workers and the poor. Does that mean we "support" raising the debt ceiling? Absolutely not. See previous comment about who always pays.
Are some of the claims which I've heard of (e.g. that the US will lose its sovereignty as a result of this crisis) entirely fantastical?

Yes.
Lastly, what is our general perspective on this? Short of a working class revolution, what steps could be taken to avert any crisis, or what steps could be have been taken to prevent this in the first place?

1.Same as our position on TARP; the AiG bailout; the auto bailout. Opposed.

As Marx said, "Not a farthing for this government." No to raising the debt ceiling; no to servicing the debt; immediate withdrawal of US military forces from all countries outside the United States; etc etc etc.