The US fiscal year begins on October 1, but due to the hard confrontation between Republicans and Democrats, which has been going on for years, the Congress has not passed any of the appropriation laws 12, which constitute the US federal budget. Note that over the past 30 years, the US Congress has taken the budget on time only four times: in 1977, 1989, 1995 and 1997. Usually, at the end of September, a temporary resolution is adopted, which extends the financing of federal departments for several weeks, until the budget is adopted. But this time it did not happen.
At the edge of the abyss
Characteristically, this is not the first political clinch in Washington. Similarly, events developed during the second presidential term of Clinton in 1996. At that time, as in our days, it was about the failure of the Republicans of medical reform (the education reform, started by Hillary Clinton, the Republicans managed to slow down a little earlier). Then the situation was repeated two years in a row, in 2011 and 2012. Thus, the main target of the Republicans is a full-scale health care reform, which became a stumbling block during B. Obama's first term.
As you know, the cause of the crisis was an ultimatum to the congress, which expressed its readiness to raise the limit of US public debt only in exchange for postponing the implementation of health care reform and reducing social spending. Subsequent events resembled the development of paralysis of American state institutions.
The tax authorities have suspended the execution of financial documents, and the US Treasury has sent on leave all employees directly involved in issuing new banknotes. It was announced the cessation of funding for state projects in the field of science and education, reduced units involved in the registration and inspection of vehicles.
But at the same time, the government managed to achieve the continuation of the work of the service, on which the security of the country depends, as well as air traffic controllers, prison staff, border guards and customs services. The State Department remained the only US government agency whose employees continued to work, despite budgetary confrontation. This is due to the fact that some of the budget allocations of the State Department are not designed for a year, like in other departments, but for two, some funds are not limited to terms at all.
By mid-October, the parties managed to achieve a temporary compromise: Obama managed to sign a bill on the resumption of the government’s work and raising the national debt ceiling. This allowed 800 thousand civil servants to return to work from forced unpaid leave, in which they were from October 1. The budgetary confrontation between the government and the Republicans ended after the evening of 16 in October, both houses of Congress - the Senate, and then the Republicans-controlled House of Representatives - approved a bill providing for the resumption of government funding until 15 in January of the next year and allowing borrowing to continue until February 7 in 2014. But the country continues to live without a budget for the 2014 fiscal year, which began on October 1. Budget parameters will be the subject of separate difficult negotiations that the Obama administration will have to conduct with the Republicans in Congress. At the same time, the Republicans did not manage to force Barack Obama to renounce the main element of his program - health care reform.
Republicans in Congress, as it were, recognized their defeat in a positional war with the White House that lasted for more than two weeks. But what happened cannot be viewed as a victory for the Democrats. On the contrary, the Republicans clearly demonstrated that they are capable of making the budget crisis almost permanent, and Barack Obama received only a temporary respite.
In this regard, the question arises: how could this happen in the most developed economy of the world, on whose currency the stable functioning of world finances depends? The global economy, as noted by the Bloomberg agency, faced a real threat of a collapse due to the problem of American public debt. A default in the USA would be a world catastrophe. The refusal of the United States to fulfill its financial obligations, according to analysts of the agency, would have stopped payments in the amount of 5 trillion. dollars, would collapse the US currency and plunge the global economy into depression. In the event of a default on US debt, China and Japan would have suffered the most. These countries hold on their balance sheets US government bonds for 1 trillion. 300 billion and 1 trillion 100 billion dollars respectively. It is curious that the last time the States defaulted in 1790, when debt payments were delayed by 11 years.
The causes of the recent crisis, as well as the previous one, should be sought in the peculiarities of the political system and the internal political evolution of American society in recent decades.
What could happen and what will happen in the future
Photo source: dw.deAs noted above, the October compromise was of a short-term nature, and the threat of default and the problems arising from this fact are not completely eliminated, but only postponed. We can assume with greater or lesser probability what will happen to the United States in the context of all the difficulties and contradictions that have accumulated over many years and even decades, and the problem of budgetary crisis is sometimes not directly related.
Thus, the Pentagon’s budget will continue (in the planned and reduced form), and the military programs as a whole will certainly continue. At the same time, military contingents of the army deployed in Afghanistan, Kosovo, the Horn of Africa and South Korea will be properly equipped and will receive the necessary combat training. But in the coming years, the rest of the armed forces will experience significant difficulties in training and equipping personnel with modern weapons. In this regard, the ability of the troops to provide solutions to their tasks will be increasingly reduced, and they will increasingly deteriorate.
International programs, which are a powerful foreign policy tool of the United States, which were planned earlier and the funds for which have already been allocated, will continue to work (for example, the Fulbright Program, USAID, etc.).
In the international arena, the State Department will find it harder to uphold US interests abroad, “promote democracy” and open up new markets for the American economy. For example, USAID spending on assistance to Nigeria in the fight against corruption, solving the situation in the field of human rights in Myanmar, to support the construction of state institutions in Kyrgyzstan and Georgia will be reduced. The budget for conflict stabilization will be frozen ($ 60 million per year). In the case of a sequester, the State Department is threatened with losses in 2,6 billion dollars. Other consequences of the crisis include the fact that the planned large-scale reform of the intelligence services, especially the CIA, should stall.
Sure enough, we should expect a reduction in military-technical assistance from the United States to a number of states that are not critical to US security (including some CIS and Central Asian republics). The withdrawal of US troops from Afghanistan and other hot spots will accelerate. And, as they say, every cloud has a silver lining - the probability of an attack on Syria (and, possibly, Iran) is sharply reduced. And most likely, it was these circumstances that pushed Obama to accept Putin’s proposal to break the deadlock in Syria. It is possible that a compromise with the Republicans would be a way out for B. Obama in September: agreeing with the hawks on the attacks on Syria (and Iran) in exchange for their support for congressional voting. But this, thank God, did not happen.
In the medium term, the Pentagon will have to reduce the army by more than 100 thousand people. Such losses in personnel will lead to the fact that the troops will be unable to solve the tasks facing them in wartime. As you know, plans to reduce the number of troops from 570 thousand people already needed for operations in wartime to 490 thousand have already been developed in the next few years. The National Guard will be reduced from 358,2 thousand to 350 thousand. Reserve troops will be reduced on 1 thousand people. And the number of civilian army employees will be reduced by 23 thousand people.
But at the same time, most likely, a large-scale migration reform will be buried, which President Barack Obama is seeking, but which the Republicans have invariably blocked until now. For Republicans, the proposed amnesty for illegal immigrants by Obama is tantamount to a death sentence in a political sense. First of all, because the legalization of a huge number of migrants in Arizona and Texas can lead to their transformation from “red” (traditionally voting for republicans) states into “blue” (democratic) states. More than 11 million migrants illegally residing in the United States would be able to obtain US citizenship. The struggle for Latin American sympathy will once again escalate to 2014, when mid-term congressional elections will be held in the United States.
Obama, who received minority support in the elections, including, offers a radical solution to the issue. In particular, the president insists on the right to obtain US citizenship by illegal immigrants who are already in the country without prior conditions. He also promises to take measures to conserve labor, useful for the American economy, and to prevent the separation of families. The bill received at the beginning of the year strong support in the Senate, which would have forced the Republican-controlled House of Representatives to compromise.
It is safe to assume that the B. Obama administration will be forced to abandon the implementation of strict tax reforms and restrictions on the circulation of arms. Here we turn to the domestic political and domestic economic consequences of the crisis. In the foreseeable future, the United States is planning only an increase in the government debt burden, since, in addition to the recorded calculated debt, there are, and this is not advertised by politicians, there are still hidden obligations under social programs.
We can witness the complete collapse of B. Obama’s 2008 and 2012 election programs. It seems that investment in education, development of transport infrastructure, clean energy and expansion of production will sharply decline. Small, narrowly specialized educational programs will be closed, which did not bring the expected results and should not receive government funding. Measures against climate change will slow down: the creation of new government agencies involved in the fight against pollution, the tightening of environmental standards, the formulation of new international initiatives and the prohibition of new projects for the extraction and transportation of oil and gas.
And finally, President Obama’s real estate market program, aimed at helping ordinary Americans, through which, in fact, won the election, can be curtailed. And the final touch: the mass degradation of American cities will continue. Today, 12 American cities have declared themselves bankrupt and have ceased to serve their social obligations; 346 cities and 113 municipal districts of the country are in a pre-default state. According to (softened) forecasts, the level of poverty in problem cities will increase from 15 to 40 percent. It is easy to predict that, despite the government’s efforts to return industrial enterprises to the United States, the migration of industrial enterprises to Asia will continue and intensify, with all the ensuing consequences for the socio-economic situation in the States themselves.
Who is guilty...
The Gospel says: "A house divided against itself cannot stand." This revelation can rightly be attributed both to the Republican Party itself, and in general to the opposition of Republicans and Democrats in the national political arena. Investigating the reasons for the permanent crisis on the Capitol, it is striking that in the Republican Party in recent years, moderate, centrist forces have lost control of the situation: the initiative in the elephant party now belongs to extremists from the so-called Tea Party Movement (previously also called neoconservative). For these people, even the moderate centrist Obama is a “communist”.
It was under pressure from the activists of this radical movement that the congressmen included in the bill on urgent budget measures on October 1 - December 15 a paragraph about the postponement of the implementation of the main conquest of Barack Obama - the health program.
In this form, the document becomes unacceptable for the democratic senate, and in any case is voted by the president.
Photo source: gawker.com Where did the notorious “tea-pots” come from, which everyone started talking about during the last crisis? The origins of the movement must be sought in the last decades of the American storiesin the socio-economic changes that transformed American society.
Since the time of Ronald Reagan and his "Reaganomics" (reduction of state intervention in the economy, tax cuts), the radical wing gradually began to strengthen within the party. For a long time, it was an unorganized minority, but after the onset of the global financial crisis, this minority self-organized into the Movement, or the Tea Party: in fact, into a faction within the Republican Party in the form of an extreme right wing. It arose as a protest against the authorities' reaction to the 2008 crisis of the year and the natural counterbalance to those electorate groups that unexpectedly rallied around B. Obama and his programs in 2008 and led him to victory.
The tea party movement in a populist manner opposed subsidies to large corporations, allowing the latter to emerge from the crisis. With the advent of the Obama administration, "tea" sentiment among Republicans only intensified, since the new president began to pursue, in their opinion, a socialist policy. The climax of discontent (on the verge of hatred) was pushing Obama by hook or by crook through the congress of his reform of the health insurance system. As a result, the most active part of the republican voters was sharply radicalized, which led to the election of "tea-drinkers" to the congress.
The current chamber of tea-drinkers has a maximum of 30 – 40 people from 234 Republican congressmen, but their ideology has become the leitmotif of the Republican Party, which declared a crusade against the socialist Obama and his bills. The climax of this crusade was the current budget crisis. His "tea drinkers" planned throughout the year.
But the Democratic Party also has its own conservatives and radicals. Observers note that both sides put political confrontation above common sense. As the oldest Republican congressman J. Dingell noted, “with such a parliament it would be impossible to accept even the ten commandments or“ Our Father ”. Another example: Republicans offered to adopt a budget in exchange for the fact that implementation of health care reform would be postponed for a year, but the Democrats refused. Then the Republicans tried to put to the vote a kind of mini-laws on the partial restoration of funding for individual industries. But for the adoption of such laws, instead of the budget, two thirds of the votes are needed, and the majority of Democrats again refuse to vote for funding only those programs that Republicans like.
In fact, Democrats go for broke. According to the provisions of the 2010 Law on Patient Protection and Affordable Health Care, from October 1 on 2013, Americans would be eligible to purchase health insurance policies through government subsidies. It is obvious that after this reform would become irreversible, and no politician would decide to take away the already issued medical insurance. Therefore, the Republicans went to the most severe confrontation.
But the causes of the crisis should also be sought in the flaws of American political culture. The parameters of the American political system in modern conditions contribute to the fact that the political process increasingly overshadows the process of government. In theory, elections are only a procedure that determines who will rule the state. Today, in the United States, the election victory has become an end in itself for politicians. Therefore, many Republicans prefer to remain silent, fearing to incur the wrath of the tea party activists, who can express themselves in the next election in the appearance of an ultra-right candidate for the primaries in their district.
What does the whole picture look like? For a person brought up in the traditions of European political culture, which has always clearly separated right and left, the American system looks somewhat strange. We have to admit that, as President, Obama was not as decisive and progressive as he seemed during the election campaign of the 2008 of the year, delivering radical slogans. However, on the American ideological scale, the president continues to be "left."
Let's see what the "Lefts" still offer today. The main part of their program consists of measures against climate change: the creation of new state bodies to combat pollution of the environment, the tightening of environmental standards, the formulation of new international initiatives and the prohibition of new projects for the extraction and transportation of oil and gas. Their program installations also include easing criminal law, restricting arms trafficking, immigration reform, ensuring maximum access to abortion, and respect for American voting rights. But the president is especially actively urged to limit the omnipotence of the special services.
Therefore, the Republicans, and especially their “tea” wing, clearly captured the secret meaning of this program: if the United States legalizes millions of undocumented immigrants, then the power in the country will be transferred to the Democratic Party for decades. But even without tea-drinkers, many of these requirements could only be met in an imaginary, ideal world, although in theory Obama could accept some reasonable suggestions (limiting military spending, immigration reform, tightening arms trafficking, spending on upgrading infrastructure). However, in practice, the president’s capabilities in the realities of American politics are seriously limited primarily by the need to get congressional support.
But the Tea Party Movement is not lonely. There is also, in close symbiosis with the movement, the right-wing organization Club for Growth (Club for Growth), which did everything to put the negotiations on the US budget for the 2014 fiscal year on the verge of collapse. The club for economic growth was founded three decades ago by a group of New York-based financiers who raise money in support of ultra-conservative candidates for free trade, against all types of government regulation of the economy. Since 2006, they have spent more than 55 million dollars on campaigns of various legislators. It was this ultra-conservative structure that contributed to the election of roughly 50 right-wing congressmen who formed the backbone of the tea faction in the chamber.
They ultimately require Barack Obama to cancel the allocations for the implementation of the 2010 Law of the Year “On Protection of Patients and Affordable Health Care”, which is considered to be almost the main (and even the only) achievement of his presidency. That is, we have a part of that notorious “backstage”, which, according to many, controls America and the world from behind the scenes of the official political process.
As a result, part of the republican plan worked - Obama was forced to sign a decree on the suspension of the government. However, it soon became clear that, in the words of one political analyst, the Republicans "took the wrong hostage."
The result of such a radical position of the "tea wing" was the rapid decline in the popularity of the entire Republican Party. Radical policies could cost Republicans a losing congressional election in 2014. If the party does not take any steps to clean up its ranks, then its defeat and the presidential election 2016, almost predetermined.
Opinion polls show that 70 percent of respondents believe that the Republican Party acts on their own interests, not the interests of the country. About 60 percent of Americans are in favor of accelerating the current composition of the congress. Unlike the "tea-drinkers" who have nothing to lose, a number of moderate Republicans (especially in the northeastern states) risk losing congressional elections in 2014. Those have their own "tea" electorate (to which about 40 percent of Republican voters identify themselves), which supports them. The problem is that the voice of the moderate sounds is not too loud yet. Of all two hundred moderate Republicans of the House of Representatives, only about two dozen publicly oppose the “tea” adventure.
Thus, it is possible that the Republicans will even lose the majority in the House of Representatives. The party is steadily losing popularity among Americans. If now, according to one of the polls, the share of Democratic voters is 38 percent of the total electorate, and Republicans 31, then among young people born in 1980, Democrats are already 41, and Republicans only 21 percent. Republicans are positioning themselves as a retrograde force opposing all that the youth is fighting for, and this is the legalization of marijuana, same-sex marriage, and contraception (by the way, check yourself on these points, maybe you are also from dummies).
Surveys conducted by the Gallup service show that the number of persistent opponents of the "tea party" is 20 percent more than the number of its strong supporters. Thus, support from the “tea party” can help candidates during the republican primaries, which start as early as December, but in general elections it can be a rather negative factor.
The perspective for Republicans is as follows: they should have lost the elections to the chamber in 2012, but only frauds with the borders of the polling stations saved them. If even these frauds will save the party in congressional elections in 2014, then in the presidential election in 2016, the party led by the Tea Movement may well expect a shameful defeat. In order to prevent such a development of events, the sensible and active core of the party should use the remaining time to reorganize its ranks, distancing itself from the political practices and ideological slogans of the radicals and try to intercept the oscillating part of the electorate. But it will be extremely difficult to do this. But here is an example from recent history: the instantaneous restructuring of the Democratic Party and the implementation of the political project “Barack Obama” in 2008.
... and what to do
The fact is that the problems of the second term of the presidency of Barack Obama - fiscal, arms, climate and immigration - are not separated from each other. Their decision or remaining unresolved shows the real state of the American economy and politics. At the same time, as a tactical move, Barack Obama is trying to overcome disagreements with the help of discourses on American exclusivity and on this foundation look for a compromise with the Republicans.
Photo source: libertynews.com In the political field, a compromise that moderate Republicans would probably agree to is achievable if the Senate rejects the postponement of the Law on Accessible Medical Care (or, as they call it, Obamacare), approving the second document concerning the abolition tax, not found unanimous support among Democrats.
But the compromise does not eliminate the main problem, which is that America has for many years allowed itself to operate with a budget with a large deficit due to foreign investments covering this deficit. If Congress refuses to increase the already astronomical debt, America will no longer be able to pay a significant portion of its debts to creditors. This development will entail a grandiose panic in the global financial markets with completely unpredictable consequences for the whole world. If the country survives a sequestration, which can be called a paralysis of the government (as you know, it has already happened 17 times during the existence of the United States), then a default is much more dangerous and will be a paralysis of the national and world economy.
In the financial and economic field, the output could be a reduction in budget expenditures of 1,2 trillion. dollars (despite the fact that the expenditure side of the US budget for the 2013 fiscal year should be 3,8 trillion). The White House believes that in the future, when such a situation recurs, the catastrophic scenario can be avoided by closing the financing of secondary programs and increasing revenues. To do this, Obama intends to conduct an audit of budget expenditures, he will insist on raising taxes for wealthy Americans and abolishing benefits for large corporations, with which the rightists in both parties disagree.
But reserves for savings exist. The geopolitical (or “great-power, imperialist” ambitions of America) would prevent them from launching. In 2012, the budget application of the State Department and the Agency for International Development amounted to 51,6 billion dollars, while the Pentagon spent about 115 billion dollars just for the war in Afghanistan that same year. That is, the United States must radically reduce military spending. But this will not happen, and in this both Democrats and Republicans are united.
At the same time, today, the military contingents of America operate in the territories of more than 150 countries. The number of troops on the battlefields outside of America exceeds 168 thousand people. Nevertheless, the administration of President B. Obama has foreseen a reduction in the budget of the Ministry of Defense by 259 billion and by 487 billion within a decade over the next five years. The whole question is who will come to power in the elections in 2016 year?
There are other reserves, and they are directly related to the root cause of the crisis - medical reform. In the United States, the highest cost of bureaucratic costs in the health care system and the highest rates of payment for the services of medical specialists in the provision of medical services to the population are recorded. The solution would be to reduce these costs, but this is almost impossible to do. The rising cost of medical services will continue to lead to an increase in the US budget deficit and, accordingly, thereby undermine the foundations of the entire state economy. It is necessary to eliminate excess medical services that dominate the American system in many uncoordinated areas of health care.
In the banking and financial sector, zero interest rate in 0,25 percent and keeping it until the end of 2015 can be used as tactical measures. The Fed can also buy government bonds and mortgages in 85 billion dollars a month in the market, pumping liquidity into the financial system. But at the same time, it is necessary to adopt a law that gives the state new powers to tighten financial reporting standards in order to prevent fraud and conflict of interest situations on the part of financiers, as was the case in the 2000s and, in fact, led to the 2008 crisis of the year.
According to experts, over the past fifty years, six economic cycles have been recorded in the USA, each of which contained five conditional stages: 1) slowdown; 2) drop; 3) rebound; 4) stabilization; 5) overclocking. Statistical analysis shows that, on average, each stage accounted for about 20 percent of the cycle time and about 20 months. The US economy needs to implement the fifth stage - overclocking. If F. Bernanke’s plan (to predetermine market behavior by guaranteeing a low interest rate in the context of money supply growth) overclocking the US economy does not work, that is, until the end of 2015, neither inflation nor unemployment will reach target levels, we can expect long-term deflation which, at least until the end of the current decade, the growth rates of GDP, prices and employment will remain low.
To reduce unemployment, of course, the economy must grow. But is unemployment in the United States reduced in reality? It should be borne in mind that recently the decrease in unemployment by more than a third is connected not with hiring, but with a change in the structure of the population: its part that does not join the concept of “labor force” grows faster. The two main reasons for reducing labor force, which do not officially affect the unemployment rate, are the accelerated retirement of baby boomers born in 1950 – 60-s, and continuing education and / or full retraining through second education (24 – 50 years) . In both cases, this is structural unemployment, which is not officially taken into account.
Consumer prices react vividly to the dynamics of government spending, which began to decline markedly in the current year in order to limit the growth of public debt, which exceeded 50 thousand dollars per person (8 percent per year). Solving the problem of public debt in conditions of slow economic growth is possible either by accelerating inflation (this is not the Fed’s success yet), or by raising taxes (the process has just begun), or by reducing government spending (primarily military). Unwinding of the monetary spiral, undoubtedly, will give a positive, but short-term effect. In general, without real structural and fundamental economic reforms, the United States will continue the deflationary path in the coming years, for which bursts of super-monetarism are not only an obstacle, but also a long-term strategy.
In addition, the problem of real estate market regulation is acute. The necessary measures include the following: an increase in the down payment, stricter requirements for the borrower's credit history and the stability of his income, confirmation of ownership of other assets, an explanation of the availability of new credit cards and savings in bank accounts and the introduction of more stringent requirements and restrictions on the housing being purchased.
* * *
Photo source: biography.com Thus, the B. Obama administration faces difficult decisions. The current American political elite will have to go to unpopular measures to reduce social standards. But Americans are so accustomed to a comfortable life with large benefits and pensions that they cannot even accept this idea. On the way to heavy, but real measures, the Republicans, conservatives, and rightists of all stripes stand to death.
Among the obstacles to the strengthening of B. Obama’s reform activities, it is possible to note the continued rejection by the majority of Americans of the state in no other role than “necessary evil”; mistrust of the middle class to the president as a representative of a multi-ethnic conglomerate, most of whom use the achievements of the American economy, but whose contribution to it cannot be significant; the powerful resistance of the wealthy elite and the continued dominance of money in everything connected with the general political and cultural discourse; debugged system of privileges for those who fell into the ruling elite.
The only way out of the situation could be the usual “technical” resolution, which does not contain any political initiatives that could be supported by moderate Republicans and Democrats, which, in fact, happened. However, a small, but strongly determined group of right-wing radicals has no incentive to compromise. They ended up in Congress precisely against the backdrop of the revitalization of right-wing groups. Therefore, with absolute certainty, it can be expected that the crisis in January-February of 2014 will repeat and, perhaps, in even more dramatic forms.
In terms of political alignment in the establishment, the budget crisis showed the desire of President’s opponents in Congress to prove that Barack Obama cannot effectively manage the country and that the Republicans will not give him any more serious reform steps until the end of his term. Many observers and representatives of the Democratic Party in Congress have no doubt that already at the beginning of next year, right-wing Republicans will resume the struggle for the abolition of health care reform, initiated by the US president once on the wave of Obamamania.