They Aren't Hiding Their Intentions

From an article by Barry Grey at the World Socialist Web Site:

Testifying Wednesday [June 3rd] before the Budget Committee of the House of Representatives, Federal Reserve Board Chairman Ben Bernanke demanded that Congress and the Obama administration map out a program of austerity measures to bring down record budget deficits. Bernanke made clear that the heart of this program should be sharp cuts in social spending, including basic entitlement programs such as Social Security and Medicare.

“Maintaining the confidence of the financial markets,” Bernanke said in prepared remarks to the committee, “requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

The phrase “confidence of the financial markets” is a euphemism for the interests of Wall Street and major international banks and investors. In demanding the preparation of austerity measures to be imposed on the American people, Bernanke was speaking in behalf of the financial elite whose massive taxpayer subsidies have been the major cause of the explosive growth over the past year of the federal deficit and the US national debt.

It is all going according to plan.

Hat tip to rjones at All Over the Board.

Storm Warning?

A substantially underfunded Creigh Deeds, a state senator, upsets former Democratic National Committee chair Terry McAuliffe to win the Democratic nomination for governor in Virginia:

Nearly 320,000 people voted in the race, only 6 percent of the state's 5 million registered voters but more than officials predicted. Deeds piled up surprisingly large margins across the state, including in the Washington suburbs of northern Virginia that his opponents call home.

Deeds raised only about $3.7 million, far less than his rivals. McAuliffe, who dominated fundraising, received nearly twice Deeds' total. Deeds' staff was so sparse he often drove himself to campaign events, and he had to lay off field staffers at one point so he could afford to run television ads in the final two weeks of the campaign.

McAuliffe and Moran had criticized Deeds for legislative votes supporting Virginia's broad pro-gun laws, actions popular in rural areas that don't play well in cities and affluent suburbs.

McAuliffe's political connections from his days as chief fundraiser for Clinton and chairman of the DNC helped him dominate press coverage and amass a hefty amount of cash in his first bid for elective office.

And yet, he lost, and lost badly. As long time readers of this blog know, I don't think much of the electoral process. But, in this instance, it may be telling us something important.

Money and establishment connections, heretofore an essential requirement for political success, may now be a negative in the current sour social climate. A generational turnover of elected officials, similar to what transpired in the immediate post-Watergate period in 1974, may be in the offing. The inability of those newly elected officials to cope with the political consequences of defeat in Vietnam and economic distress at home set the stage for Reaganism. If this electoral storm gains strength and makes landfall, will the beneficiaries do better this time? Or, will they merely channel the discontent of an impoverished working class towards suitably defenseless targets while an even more remorseless neoliberalism takes hold?

The Beginning of the End (Part 4)

From The German Revolution: 1917-1923, a rich, profound, tragic history written by Pierre Broue:

It seems that from November 1921, the magnates of German industry decided that the general situation must deteriorate before it could improve; runaway inflation to wipe out Germany's debt, bring the state to its knees before them, exhaust the working people, and leave the great capitalists alone as masters of the situation. The mark fell steadily throughout 1922, and its fall became precipitous when the Ruhr was occupied.

From an article in the Financial Times by Ambrose Evans-Pritchard:

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.

The reporter's reference to Confucian culture as a reason for Chnese objections is quite humorous. I'm not aware of people from any culture that appreciates having the value of its assets diminished through deliberate government policy.

With that said, I'm still a deflationist, for the reasons presented by Mike Whitney yesterday:

The economy is in the grip of deflation. Commercial banks are stockpiling excess reserves (more than $850 billion in less than a year) to prepare for future downgrades, write-offs, defaults and foreclosures. That's deflation. Consumers are cutting back on discretionary spending; driving, eating out, shopping, vacations, hotels, air travel. More deflation. Businesses are laying off employees, slashing inventory, abandoning plans for expansion or reinvestment. More deflation. Banks are trimming credit lines, calling in loans and raising standards for mortgages, credit cards and commercial real estate. Still more deflation. Bernanke has opened the liquidity valves to full-blast, but consumers are backing off; they're too mired in debt to borrow, so the money sits idle in bank vaults while the economy continues to slump.

It is important to note that the Chinese concerns and Whitney's deflationary perspective are not contradictory. It is possible for economies around the world to continue to contract, even as the US deliberately orchestrates a decline in the value of the dollar. In this, Americans would experience the worst of all possible worlds, domestic deflation and continued job losses even as the cost of imported goods increased dramatically.

In such a situation, American capitalists could achieve many of the goals described by Broue in the context of German capital in 1923. Whereas the German capitalists hoped to inflate their way out of reparations, the American ones would likewise seek to inflate their way out of its foreign debt through currency devaluation. Whereas German capitalists wanted to destroy the autonomy of the working class, American ones want to eliminate what little remains of the social protections of the Great Society and the New Deal. In each instance, they have decided that the general situation must deteriorate before it could improve.

Could it get as bad here as Germany as 1923? Doubtful. But when finance capital plays these sorts of games, the door is opened to all sorts of unpredictable consequences. Indeed, the phrase the law of unintended consequences now hints at ominous, heretofore inconceivable possibilities.