Are We Heading Towards a New Global Financial Crisis?

global-economic-crisis

Next to nothing has been done about countries that can’t repay their debts.

Greek ministers are spending this weekend, almost five grinding years since Athens was first bailed out, wrangling over the details of the spending cuts and economic reforms they have drawn up to appease their creditors.

As the recriminations fly between Europe’s capitals, campaigners are warning that the global community has failed to learn the lessons of the Greek debt crisis – or even of Argentina’s default in 2001, the consequences of which are still being contested furiously in courts on both sides of the Atlantic.

As Janet Yellen’s Federal Reserve prepares to raise interest rates, boosting the value of the dollar, while the plunging price of crude puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.

Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”

Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. But next to nothing has been done about the question of what to do about countries that can’t repay their debts, or how to stop them getting into trouble in the first place.

Developing countries are using the UN to demand a change in the way sovereign defaults are dealt with. Led by Bolivian ambassador to the UN Sacha Sergio Llorenti, they are calling for a bankruptcy process akin to the Chapter 11 procedure for companies to be applied to governments.

Unctad, the UN’s Geneva-based trade and investment arm, has been working for several years to draw up a “roadmap” for sovereign debt resolution. It recommends a series of principles, including a moratorium on repayments while a solution is negotiated; the imposition of currency controls to prevent capital fleeing the troubled country; and continued lending by the IMF to prevent the kind of existential financial threat that roils world markets and causes severe economic hardship.

If a new set of rules could be established, Unctad believes, “they should help prevent financial meltdown in countries facing difficulties servicing their external obligations, which often results in a loss of market confidence, currency collapse and drastic interest rates hikes, inflicting serious damage on public and private balance sheets and leading to large losses in output and employment and a sharp increase in poverty”.

It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.

However, when these proposals were put to the UN general assembly last September, a number of developed countries, including the UK and the US, voted against it, claiming the UN was the wrong forum to discuss the proposal, which is anathema to powerful financial institutions.

Pettifor shares some of the UK and US’s scepticism. “The problem for me is that the UN has no leverage here,” she says. “It can make these moralistic pronouncements but ultimately it’s the IMF and the governments that make the decisions.”

Nevertheless, Llorenti has been touring the world’s capitals making the case for change, and hopes to bring the issue back for fresh discussions next month.

And while the debate rages, developing countries have been taking advantage of rock-bottom interest rates and the cheap money created by quantitative easing to stack up billions in new debt.

Using recently released World Bank data, the Jubilee Debt Campaign calculates that in 2013 alone – the latest period for which figures are available – borrowing by developing countries was up 40% to $17.3bn.

Brazil’s economy is likely to be seriously tested as the greenback rises; Turkey, Malaysia and Chile have large dollar-denominated debts and sliding currencies; and a string of African countries face sharp rises in debt repayments. Ghana and Zambia have already had to turn to the IMF to ask for help. It’s as if, as Pettifor warns, “absolutely nothing has changed since the crisis”.

 

http://www.alternet.org/economy/are-we-heading-towards-new-global-financial-crisis?akid=12956.265072.Qcqy-y&rd=1&src=newsletter1034088&t=13

Middle East engulfed by war

Twelve years after Iraq invasion

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31 March 2015

With the launching of the US-backed military intervention in Yemen, virtually the entire Middle East is engulfed by military conflict, a state of affairs that has no precedent, with the possible exception of the two world wars fought in the 20th century.

Washington’s pursuit of policies from one conflict to the next that are seemingly at odds with one another has provoked mounting expressions of concern from major US think tanks and editorial boards—not to mention nominal allies in Europe—over “strategic incoherence.”

To describe as glaring the contradictions that riddle US foreign policy in the Middle East does not do them justice.

In Yemen, the Obama administration has announced its full backing, with the provision of logistical assistance, arms (including cluster bombs) and targeting intelligence, to an intervention spearheaded by Saudi Arabia, the other Sunni oil monarchies and the Egyptian regime of Gen. Abdel Fattah al-Sisi.

This coalition of dictatorships and crowned tyrants is waging a war against the most impoverished country in the Arab world. Their aim in bombing cities and killing civilians is to contain the influence of Iran, which has provided support to the Zaydi Shiite Houthi rebels who overthrew President Abd Rabbuh Mansour Hadi, a puppet installed by Washington and Riyadh.

In Iraq, US warplanes have been bombing Tikrit, the hometown of the ousted and murdered Iraqi president, Saddam Hussein, which is now controlled by the Islamic State of Iraq and Syria (ISIS). This operation is providing air support to a besieging force comprised overwhelmingly of Shiite militias operating with Iranian support and advisors.

While the Pentagon had conditioned the air strikes on the withdrawal of these militias, some of which had resisted the eight-year US occupation of Iraq, it is widely acknowledged that this was strictly for the sake of appearances. The Shiite forces remain the principal fighting force on the ground.

Meanwhile, across the border in Syria, Washington is pursuing a policy seemingly at odds with itself, on the one hand pledging to arm and train militias seeking to overthrow the government of President Bashar al-Assad, whose closest ally is Iran, and, on the other, carrying out air strikes against both ISIS and the Al Qaeda-affiliated al-Nusra Front, which together are the principal armed opponents of the Assad regime.

At the same time, negotiations led by US Secretary of State John Kerry in Switzerland are going down to the wire in a bid to secure an agreement with Iran that would curtail its nuclear program in exchange for the lifting (or partial lifting) of punishing economic sanctions imposed by Washington and its European allies. Failure to achieve such a deal could spell a turn toward more direct US military aggression against Iran. Success could well prove to be a tactical preparation for the same thing.

It is now 12 years since the Bush administration launched its war against Iraq. At the time, it claimed that its war of aggression was being waged to eliminate “weapons of mass destruction” and the threat posed by ties between the government of Saddam Hussein and Al Qaeda. Both claims were lies. There were neither weapons nor any connections, outside of mutual hostility, between the secular regime in Baghdad and the Islamist group.

At the same time, Bush portrayed the US intervention as a liberating mission that would bring “democracy” to Iraq and beyond. “The establishment of a free Iraq in the heart of the Middle East will be a watershed event in the global democratic revolution,” he proclaimed in the early stages of the US military occupation.

That the US invasion was a “watershed event” no one can deny. It ushered in a period of wholesale carnage that claimed over 1 million Iraqi lives, destroyed the country’s economic and social infrastructure, and provoked bitter sectarian struggles between Shiites, Sunnis and Kurds as part of a deliberate policy of divide and rule.

For Iraq, the war was a catastrophe. For the US, it proved to be a debacle. Costing the lives of 4,500 American soldiers, injuring tens of thousands more, and consuming trillions of dollars in military expenditures, it succeeded only in creating the social and political conditions for ISIS (an offshoot of Al Qaeda) to overrun more than one third of the country—a country that had had no serious Islamist presence prior to the 2003 invasion.

The war in Iraq profoundly destabilized the entire region, a process that was accelerated by Washington’s launching of proxy wars in both Libya and Syria, backing Islamist militias linked to Al Qaeda in an effort to bring down the secular regimes of Gaddafi and Assad and replace them with American puppets. These efforts likewise turned into bloody debacles, costing hundreds of thousands of lives and ravaging both societies.

There is nothing left of the pretexts used by the Bush administration to justify war 12 years ago. The Obama administration cannot credibly claim that its aggressive operations in the Middle East—linked as they are to Islamists and other sectarian militias, as well as to autocrats and military dictators—are part of a global “war on terrorism” or a crusade for democracy.

The White House makes little or no attempt to explain these operations to the American people, much less win their support for them. In the case of Washington’s backing for the war in Yemen, the sum total of its explanation consists of a “readout” of a phone conversation between Obama and King Salman bin Abdulaziz al-Saud, in which the US president affirmed his “strong friendship” with the despotic monarchy, his “support” for its intervention, and his “commitment to Saudi Arabia’s security.”

Behind the reckless, ad hoc and seemingly disconnected policies pursued by US imperialism in the Middle East, there remains one constant: the aggressive pursuit of US hegemony over the Middle East and its vast energy reserves.

The strategy elaborated from the dissolution of the Soviet Union in 1991 onward, that Washington could freely employ its unrivaled military power to pursue its global interests, has only become more entrenched as American capitalism’s relative economic weight and influence have continued to decline.

The result of this policy can be seen in the involvement of virtually every country of the Middle East in one or another war and the palpable threat that these conflicts will coalesce into a region-wide conflagration that could, in turn, provoke World War III.

Bill Van Auken

 

http://www.wsws.org/en/articles/2015/03/31/pers-m31.html

Monster bubbles: the delayed crisis of capitalism resurfaces

By Jerome Roos On March 30, 2015

Post image for Monster bubbles: the delayed crisis of capitalism resurfaces
Seven years since the bursting of a US housing bubble led to financial meltdown, investors and policymakers are already well on their way to the next.
If there’s one lesson from the history of financial manias, panics and crashes, it’s that bankers never solve their own crises: they merely move them around, eternally passing the hot potato of impending catastrophe on to others and systematically displacing the burden of adjustment onto the weaker members of society. As a result, the way in which a particular crisis is “resolved” inevitably ends up laying the seeds for the next one. This time has been no different.
In recent months, amidst growing enthusiasm about an incipient global recovery, some investors and regulators have been starting to express their concerns over the inflation of a set of large asset bubbles spread across the world economy. Whether it’s skyrocketing property prices in London, a record-breaking bull market on Wall Street, or investors falling over themselves to lend to heavily indebted European governments and flailing energy and tech start-ups in the United States, one thing is clear: we find ourselves in the middle of yet another major speculative frenzy.This observation may seem odd to some. Aren’t we supposed to still be in the final stages of the last crisis? Why would anyone want to gamble with their capital if profitable investment opportunities are still so few and far between? Well, that’s precisely the problem: asset prices have now completely decoupled from their underlying fundamentals. In recent years, the crisis of casino capitalism has been successfully delayed through the central bank-led inflation of a new set of monster bubbles in property, stocks and bonds. While the rest of us linger in “secular stagnation,” the speculators are having a field day.

In other words: the root causes of the 2008 financial crisis were never truly resolved — policymakers simply moved around some of the symptoms (and not even all of them!). Governments bailed out insolvent banks with taxpayer money, heavily indebting themselves in the process, while central banks turned on the printing presses to pump trillions of dollars into the financial system. The result, in simple terms, has been the accumulation of a vast excess of money in the financial sector and an acute shortage of it everywhere else.

What we are dealing with, then, is a classical example of what David Harvey refers to as the capital surplus absorption problem: an excess of idle money capital lies side by side with an excess of labor power — and somehow the system can’t combine the two to bring about productive outcomes. As one banker toldthe Financial Times, “what’s really driving all this activity is the availability of capital rather than the underlying fundamentals. It just comes down to people needing to deploy capital.”

Investors have dealt with this problem in the same way that they always have: by scouring the surface of the Earth in a frantic quest for the highest possible yields. As long as demand remains low and growth stagnant, yields in so-called “productive” investments will not be very attractive for the average gambler. And so investors have been turning to the same kind of speculative high-risk/high-return bets that caused the 2008 financial meltdown to begin with.

The results have been stark. Just three years after Greece concluded the largest sovereign debt restructuring in the history of capitalism, global bond markets are back on fire. In a UK survey, almost four in five fund managers for major bond-trading firms expressed a concern that bonds are currently “more overvalued than ever before and that government bonds are the most overvalued asset class of all.” John Plender of the Financial Times accuses the ECB of directly stoking this bond bubble through quantitative easing:

Government bond markets are supposed to be sedate places, devoid of the thrills and spills that characterise equities. Not any more. Since central banks started enlarging their balance sheets sovereign bonds have become exciting to the point where investors have bought more than $2tn of them on negative yields, mainly in Europe. Even in the Depression of the 1930s interest rates never fell below zero. Is this that rare thing — a bond market bubble?

It’s not just government debt that’s booming. Last year alone, US companies issued an astonishing $1.43 billion in corporate bonds; 27 percent more than they sold at the peak of the last bubble in 2007. In fact, a reasonable argument could be made that the supposed US recovery of the past years has been based entirely on an energy bubble — which has already burst due to the oil price collapse — and an even larger tech bubble. Billionaire investor Mark Cubanrecently warned that the latter is “worse than the tech bubble of 2000” and is now on the verge of bursting as well.

When this over-excited US corporate bond market collapses, it will inevitably take the stock exchange down with it. Stock valuations have been rising steadily ever since they bottomed out, in March 2009, following the last crash. The S&P 500 has shot up an astonishing 200% since then, while the Nasdaq recently breached 5,000 points for the first time since the collapse of the Dotcom bubble. The fact that this six year bull market has coincided with the deepest economic downturn since the Great Depression should suffice to give pause for thought.

Finally, with memories of the subprime mortgage crisis still fresh, investors are already expressing fears over the build-up of a new housing bubble. The Wall Street Journal points out that UK property prices are now a third above their pre-crisis peak, while property in Australia, Canada, Sweden and Norway is also massively overvalued. Cities like New York, San Francisco, Miami, London, Berlin, Paris and Amsterdam are all experiencing rising real estate prices without any real accompanying improvement in the underlying fundamentals. Even property prices in Spain and Ireland now appear to be rising again.

The conclusion is clear: plus ça change, plus c’est la même chose. All this time, policymakers have tinkered around the edges with half-hearted measures, but none of the structural problems have ever been addressed. Instead, governments bailed out the gamblers as central banks inflated a set of new bubbles to cushion their fall, cover the debris, and delay the final moment of reckoning. Still, down in the real world, blowing bubbles can only take you so far. Nearly seven years since the last financial meltdown, investors and policymakers are already well on their way to the next.

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine. Follow him on Twitter at @JeromeRoos. This article was written for TeleSUR English.

 

http://roarmag.org/2015/03/asset-bubbles-speculation-crisis/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+roarmag+%28ROAR+Magazine%29

The social and political context of the Germanwings disaster

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By Peter Schwarz
28 March 2015

The crash of Germanwings Flight 9525 in France, which sent 150 people to their deaths, was, according to investigators, the result of the deliberate actions of the co-pilot, Andreas Lubitz.

Following an evaluation of evidence from the voice recorder, specialists from the French Civil Aviation Authority (BEA) and the Marseille public prosecutor, Brice Robin, have come to the conclusion that after the pilot left the cockpit, the 27-year-old co-pilot manually reset the Airbus A320’s autopilot to take the plane from 38,000 feet to 96 feet, the lowest possible setting. Lubitz then refused to allow the pilot back into the cockpit and quietly remained at the controls until the plane crashed into the side of a mountain.

Investigators say this could not have been an accident. From the quiet breathing of the co-pilot, who can be heard on the recording, they conclude that he was fully conscious until the impact.

No sooner had this highly troubling analysis been made known than the media, assorted politicians and the Lufthansa management sought to present the disaster as an incomprehensible event without deeper social significance.

The crash was a tragic fluke that the best security procedures and psychological safeguards could not have prevented, said Lufthansa CEO Carsten Spohr. In his “worst nightmare” he could “not have imagined that such a thing could happen one day.”

On the web site of the Frankfurter Allgemeine Zeitung, editor Mathias Müller von Blumencron wrote, “This accident has to be explained, as that is the only way we can come to terms with it.” But he sought the explanation exclusively in the individual psyche of the culprit, declaring: “At the heart of the explanation is one person, more precisely, his head, his possibly misguided brain… It is the psyche of Andreas Lubitz that caused the incomprehensible. On the basis of the present state of things, the solution can be found only in the person of the co-pilot.”

Really?

Of course, one has to establish what motives, personal issues or psychological problems drove Lubitz to do this terrible deed. But the psychological background alone cannot explain a disaster of this magnitude. Lubitz acted within a particular social environment. To understand his actions, one must understand not only his individual malady, but also the society in which he lived.

What immense social pressures are required to drive a young man—described by all of his acquaintances as unobtrusive, quiet, pleasant and easy to deal with—to murder 149 people? Why had no one seen the warning signs of the coming disaster?

To probe these questions inevitably necessitates going beyond the “possibly misguided brain” of the culprit and considering a social context that is characterized by increasing occupational stress, economic insecurity, public anxiety, social tensions, state violence and militarism.

The Düsseldorf Public Prosecutor’s Office raided Lubitz’s apartments in Montabaur and in Düsseldorf but found neither a letter of confession nor evidence of a political or religious motive. But they discovered evidence of possible mental distress. They found a torn doctor’s note recommending time off from work, including the day of the crash, and concluded that “the deceased had concealed his illness from his employer and professional colleagues.”

Why did Lubitz go to work despite having a sick note? Did he fear losing his job, which was apparently his dream job? He had joined the local glider club as a 15-year-old and was trained by Lufthansa as a pilot after leaving high school in Bremen. However, he interrupted his training for six months due, according to unconfirmed reports, to depression.

Was Lubitz unable to cope with the increasing work pressure, which is constantly growing, especially at Lufthansa and its low-cost subsidiary Eurowings? This issue has been the source of a year-long industrial dispute by pilots.

Work-related stress and associated mental disorders have increased tremendously, not only in the aviation industry, but throughout society. According to a study by the World Health Organization, 5 percent of the German population of working age, or 3.1 million people, suffer from a major depressive illness. The number of days of sick leave due to mental illness has increased in recent years—18-fold, according to health insurance companies. In 2012 alone it increased by 10 percent.

Lubitz must have felt himself under enormous pressure to commit such a monstrous act. Even experienced psychologists cannot recall a similarly extreme case.

While there is the phenomenon of extended suicide, where a suicide victim kills others in addition to himself, the other victims are usually relatives or people with whom the perpetrator has a personal relationship. Lubitz’s actions can only partially be compared to killing sprees such as the Columbine High School massacre in America or the bloodletting at Erfurt Gutenberg Gymnasium in Germany.

In such events, the victims usually come from the perpetrator’s social milieu and are targeted because of some perceived offence. In the Germanwings disaster, however, 149 people whom Lubitz in all probability did not know were randomly sent to their deaths simply because they happened to be aboard the airplane.

One would expect that even a mentally ill and depressed person would have inhibitions against committing such a massacre. That these were apparently not present should be seen against the backdrop of a general devaluing of human life.

Andreas Lubitz was 11 years old when the Bundeswehr went into Yugoslavia in the first foreign operation of the post-World War II German military. Thereafter, he lived through one war after another in which American and German troops killed thousands and officials publicly boasted of the number of alleged terrorists “taken out.”

In the Mediterranean, thousands of refugees drown each year while the European Union erects new barriers to prevent them from reaching the continent. The austerity cuts demanded by the German government push millions into poverty in Greece and drive unknown numbers of people to suicide.

The explanation for the Germanwings disaster cannot be found simply in the mind and psyche of Andreas Lubitz. Rather, one must place his sickness within its real context—that of a dysfunctional and diseased social order.

At the same time, the wave of sympathy, human solidarity and eagerness to help with which the population reacted in the crash area, throughout France and in the home countries of the victims brought something different to light—a deep yearning for a truly humane society.

The politicians who commemorate the victims will not fulfil this need. They return from the memorial ceremonies to pursue their policies of welfare cuts, labour market “reforms,” ever expanding police powers at home and increasingly bloody wars abroad.

 

http://www.wsws.org/en/articles/2015/03/28/wing-m28.html

US layoffs mount amid signs of economic slowdown

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By Andre Damon

28 March 2015

US corporations announced thousands of layoffs this week amid a series of plant closures, mergers and consolidations and signs of declining economic growth.

On Wednesday, US Steel announced 2,080 layoffs at its Granite City Works in Illinois. The Pittsburgh-based steelmaker plans to lay off over 4,500 employees nationwide, including over 1,800 workers in Alabama. Job cuts are also planned in Minnesota and Texas.

The same day, steelmaker Worthington Industries of Columbus, Ohio announced plans to lay off 555 employees nationwide. Of these, 310 are to lose their jobs as a result of the closure of a plant in Florence, South Carolina.

On Thursday, Ohio-based Republic Steel announced 200 layoffs at its Lorain, Ohio plant.

The steel companies said the layoffs were a response to a fall in demand stemming from the drop in oil prices and appreciation of the dollar, which have led to a reduction in international orders.

Also on Wednesday, HJ Heinz announced plans to buy Kraft Foods Group in a $36.6 billion deal that, according to one analyst, could lead to 5,000 job cuts, affecting nearly one quarter of Kraft’s North American work force.

The fate of tens of thousands of RadioShack workers and their families hung in the balance Friday as lenders and hedge funds wrangled at auction over the remains of the bankrupt consumer electronics chain, which presently employs 27,000 people at more than 4,000 locations nationwide.

Salus Capital Partners said Friday that it had outbid its nearest competitor, hedge fund Standard General, offering $271 million in cash as part of a plan that would completely dismantle the company, laying off all employees and selling off inventory and fixtures. Standard General had offered $16 million in a plan that would have kept 1,740 stores open, saving 7,500 jobs, but still laying off nearly 20,000 workers.

Office supply retailer Staples, which announced plans to merge with Office Depot in February, filed documents with the Securities and Exchange Commission showing that it intends to pay CEO Roland Smith $46.78 million for 16 months of work if the deal goes through. The merger would entail the closure of up to 1,000 stores and the potential layoff of tens of thousands of workers.

The plant closures and layoffs came as figures from the Commerce Department confirmed that the US economy slowed significantly in the fourth quarter of last year. The economy grew at an annual rate of 2.2 percent in the final three months of 2014, down from an initial estimate of 2.6 percent released in January.

The fourth quarter marked a significant slowdown compared with the second quarter, in which the economy grew at a 5 percent rate, and the third quarter, which had a growth rate of 4.6 percent. Analysts had expected the economy to grow at a 2.4 percent annual rate in the final quarter of last year.

Business investment on equipment in the fourth quarter was revised downward to show a 0.6 percent increase, down from a previously reported 0.9 percent. Reuters reported that the slowdown in investment likely reflected “the impact of the strong dollar and lower crude oil prices, which have caused a drop in drilling and exploration activity.”

Government spending contracted at a rate of 1.9 percent, led by cuts to federal spending.

Even the anemic pace of economic growth in the last quarter of 2014 was significantly higher than what is expected in the first quarter of this year, which ends next week. Economists from JPMorgan Chase, Macroeconomic Advisers and Goldman Sachs recently cut their estimates for first-quarter economic growth, all of them forecasting a rate of 1.4 percent to 1.5 percent. The Federal Reserve Bank of Atlanta is predicting even worse results, with a first-quarter GDP growth rate of just 0.2 percent.

A number of recently released economic figures underscore this gloomy outlook. The Commerce Department said Wednesday that orders for durable goods fell by 1.4 percent in February compared with a month earlier. The report also showed that non-defense capital goods orders fell for the sixth straight week.

The University of Michigan’s survey of consumer sentiment fell to 93.0 in March, down from 95.4 in February. Richard Curtin, chief economist at the University of Michigan’s Surveys of Consumers, told the Wall Street Journalthat, “most of the recent variation was among lower-income households, whose budgets are more sensitive to higher utility costs and disruptions in work hours.”

The significant appreciation of the dollar, which hit 0.95 euros earlier this month, up from 0.75 euros a year ago, has had a negative impact on the US trade balance and US corporate earnings.

Corporate profits fell 1.4 percent in the previous quarter, according to figures released by the Commerce Department on Friday. For the whole of 2014, corporate profits were down by 0.8 percent, the first annual fall in US corporate profits since 2008.

US corporations have responded to the appreciation of the dollar and falling profits with the demand that the Federal Reserve delay its plans to begin raising interest rates this year. Last week, Fed Chairwoman Janet Yellen hinted that the US central bank might begin raising rates later than it had previously indicated, and the Fed issued interest rate projections for 2015 and beyond showing a slower pace of rate hikes than previously predicted once the increases begin.

Yellen reinforced this message in remarks at the Federal Reserve Bank of San Francisco on Friday, declaring that she expected the “level of the federal funds rate to be normalized only gradually” and warning of raising rates “too quickly.”

The continued influx of cash from the Federal Reserve has led the Dow Jones Industrial Average to nearly triple over the course of the past six years, while allowing Wall Street bonuses to hit the highest levels since 2008. Average CEO pay in the US is higher than ever.

The response of the corporate-financial aristocracy to the renewed slowdown in the US economy will no doubt be an intensification of the policies that have characterized official economic policy since the 2008 crash: virtually unlimited amounts of cash for the financial markets coupled with a relentless offensive against the jobs, wages and living standards of working people.

 

http://www.wsws.org/en/articles/2015/03/28/econ-m28.html

US House passes sweeping new bipartisan assault on Medicare

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By Kate Randall
27 March 2015

In a 392-37 vote, the US House on Thursday approved a bill that makes sweeping changes to the Medicare program that provides health insurance to more than 54 million seniors and the disabled. The Medicare Access and CHIP Reauthorization Act must be approved by the US Senate and signed into law by President Obama, who indicated his support for the measure earlier this week.

The bipartisan bill, drafted by Republican House Speaker John Boehner and Democratic Leader Nancy Pelosi, ties future payments to doctors for Medicare services to “quality of care,” shifting away from traditional fee-for-service payments. And for the first time, the universal Medicare program will institute means testing for higher-income seniors, requiring higher premiums for these individuals to access benefits.

The bill constitutes a historic attack on the Medicare program. Boehner called it the “first real entitlement reform in nearly two decades”—a reference to the assault on welfare launched under the Clinton administration in 1996. “Today is about a problem much bigger than any doc-fix or deadline. It’s about solving our spending problem,” he said.

Pelosi echoed Boehner’s comments, declaring that it had been a “privilege” to work with the House leader, and that she hoped the agreement “will be a model of things to come.”

The coming together of the Republican and Democratic Party leadership behind the overhaul exposes the unanimity within the ruling class on the need for sharp cuts in “entitlement” programs—Medicare, Medicaid and Social Security.

It provides a permanent “fix” to a 1997 law that tied doctors’ Medicare fees to overall economic growth. As overall health care costs have risen sharply, that formula threatened deep reimbursement cuts to doctors, cuts that Congress has blocked with patchwork measures 17 times since 2002.

The House bill will do away with the scheduled payment cut, set to kick in April 1, and replace it with a 0.5 percent yearly raise in payments through 2019. After this, a new payment system based on “quality of care” will be implemented.

Such language has been adopted by Medicare in other frameworks, and is generally measured by readmission rates and similar statistics. In other words, doctors who see more of their patients readmitted will receive cuts in reimbursement. However, readmission is closely correlated with poverty and other social factors, thus cutting spending on health care in lower-income and working class areas.

By disconnecting reimbursements from services provided, doctors will also be incentivized to ration care and cut back on testing—the overarching aim of all the health care “reform” proposals backed by both Democrats and Republicans. The change will result in reduced services for Medicare patients overall and deep spending cuts by the government.

This shift has long been promoted in the private insurance sector. It is also a key goal of the Obama administration, which earlier this year set a goal to tie the vast majority of Medicare payments to programs promoting cost-cutting.

The second main feature of the bill would institute means testing for Medicare recipients, requiring higher-income seniors to pay more toward Medicare premiums for insurance and prescription drug coverage. Initial estimates are that this change would result in Medicare savings of around $30 billion over the next decade.

Congressional Republicans and Democrats alike are well aware that this fundamental change opens the floodgates for transforming a program that for the last half-century has provided health care insurance to those over the age of 65, regardless of income, into a poverty program available to only those poorest segments of society. This is seen as a first step in it being starved of funds and ultimately dismantled.

Boehner, salivating at these prospects, commented, “We know we’ve got more serious entitlement reform that’s needed. It shouldn’t take another two decades to do it.” He indicated that the Republicans would continue to push for funding cuts to other federal benefit programs.

Some Congressional Republicans balked at the overall cost of the measure, which the Congressional Budget Office estimates at $214 billion over the next decade. This would be paid for through $141 billion in new spending, with the balance divided between higher monthly premiums for higher-income Medicare recipients and payments by nursing homes and other health care providers.

Boehner and the Republicans see the implementation of means testing—and the subsequent savings for government—as a starting point for future overhauls to Medicare and other federal programs. This particularly applies to Social Security, the universal retirement program enacted in 1935 in the wake of the Great Depression.

Both Medicare and Social Security are not “gifts” by the government, but benefits based on the funds workers pay into these programs for their entire working lives through deductions from their paychecks.

As window dressing, the bill also provides two more years of funding to the Children’s Health Insurance Program (CHIP), which serves 8 million low-income children, as well as to the nation’s 1,200 community health centers. While Pelosi and the White House had pushed for four-year extensions for both of these programs, the majority of Congressional Democrats willingly compromised on this issue in order to push through the changes to Medicare.

The bill also includes abortion funding restrictions at community health centers, incorporating components of the so-called Hyde Amendment, which forbids federal funding of abortion except in the cases of rape, incest, or the endangered life of the mother.

Leaders of the House “pro-choice” caucus assured skeptical Senate Democrats that the bill’s language provides no additional abortion restrictions beyond those that already apply. In fact, the Obama administration acceded to these reactionary and unconstitutional restrictions in language in the Affordable Care Act (ACA).

Speaking Wednesday on the occasion of the fifth anniversary of his signing into law of what is popularly known as Obamacare, the president indicated his support for the new bipartisan Medicare bill. “I’ve got my pen ready to sign a good bipartisan bill,” he said.

The coinciding of the ACA’s anniversary and the current bipartisan bill is noteworthy. From the start, Obama’s health care overhaul has been aimed at a fundamental restructuring of the health care system, aimed at lowering costs for the government and corporations while slashing health care services for the vast majority of Americans.

Taking its cue from Obamacare, the change in Medicare represented by Pelosi and Boehner’s bill will set an example that can rapidly be extended throughout the health care system. Despite many Congressional Republicans’ vocal opposition to the ACA and vows to see it repealed, they are in agreement with its aim of rationing care and funneling more money to the health care industry.

Although the bill faces some opposition in the Senate, it is expected to pass, either before Congress leaves for spring recess today or on its return in two weeks. If it does not pass before the recess, Congress will likely pass a temporary fix to the Medicare payments to doctors.

 

http://www.wsws.org/en/articles/2015/03/27/medi-m27.html

The California drought: Water-rationing plan leaves corporate interests untouched

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26 March 2015

The unprecedented drought gripping California has deepened for the fourth consecutive year, having already set new records for the lowest annual precipitation levels on record. 2014 brought the highest calendar-year temperature for the state, while this February was the hottest on record and this January the driest.

A recent study conducted by Daniel Griffin and Kevin J. Anchukaitis found that the current episode “is the most severe drought in the last 1200 years, with single year (2014) and accumulated moisture deficits worse than any previous continuous span of dry years.”

Last Thursday, California Governor Jerry Brown announced a new bill, which he claims will provide $1 billion in drought-related spending, mostly on flood protection. The bill merely expedites funds already approved by California voters, and will do nothing to resolve the state’s dire water crisis.

Last Tuesday, the California State Water Resources Control Board intensified emergency legislation targeting residential “water wasters,” initially implemented last summer. The law imposes a $500 fine for offenses including excessive lawn watering.

Both measures leave untouched the giant agribusinesses and oil corporations that account for a majority of the state’s water usage and dominate the political system.

On Sunday, Chuck Todd, host of NBC’s Meet the Press, asked Governor Brown whether “considering how much water…is used for fracking [hydraulic fracturing]…isn’t that alone enough reason to prohibit fracking or temporarily stop it?”

Brown sought to deflect the question, responding: “No, not at all. First of all, fracking in California has been going on for more than 50 years. It uses a fraction of the water of fracking on the East Coast for gas, particularly.”

Throughout his entire political career, dating back to the 1970s, Brown has been entirely beholden to Big Oil, while posturing as a defender of the environment. He has accepted at least $2 million in campaign contributions from oil corporations since 2006, including Chevron, Occidental Petroleum, Southern California Edison, Valero Energy, Tesoro Corp, Conoco Phillips and Aera Energy (owned jointly by Shell and ExxonMobil). Most of these companies donated the maximum amount possible to Brown’s reelection campaign last November.

Earlier this year, the San Francisco Chronicle reported that, for years, state regulators knowingly allowed oil companies, mostly in the impoverished Central Valley, to pump their wastewater into groundwater aquifers that contained drinkable water.

Every year, the oil industry in California produces roughly 130 billion gallons of wastewater, as the state is the third-largest oil producer in the US. Kern County, home to most of California’s oil and hydraulic fracturing (fracking) wells, has the worst air quality of any county in the US, along with some of the highest rates of cancer and respiratory illness.

Climate change, a byproduct of the oil corporations’ unrelenting drive to accumulate profit, has played the most significant role in determining the length and severity of the ongoing drought, as well as the likelihood for future droughts.

On March 12, the leading bourgeois press outlet in the state, the Los Angeles Times, prominently featured an op-ed penned by NASA’s senior water scientist, Jay Famiglietti, titled “California has about one year of water left. Will you ration now?”

Famiglietti begins the op-ed by stating that “Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing.” He proposes a water rationing scheme across “all of the state’s water sectors, from domestic and municipal through agricultural and industrial.”

Despite the calls by experts to place restrictions on business, last Tuesday the State Water Resources Control Board furthered emergency drought regulations that target solely consumers, leaving agribusiness untouched. Local water districts must restrict lawn watering to twice weekly, among other tepid reductions in consumers’ water usage.

The state will now place local water agencies under intense scrutiny, ensuring that they levy $500 daily fines against “water wasters” that were first enacted last summer. Over the past year, few fines were doled out locally, with one notable exception being Santa Cruz, which issued over $1.6 million in penalties against individual consumers. The cities of San Ramon and Dublin, both east of Oakland, issued $40,000 in combined fines.

Instead of adopting any sort of progressive policy to implement well-known, rational planning methods that would ensure the viability of California’s water supply for future generations, the existing political setup seeks to reduce the highly complex issue to merely punishing individual consumers.

The drought has already devastated thousands of working-class families, as an estimated 17,100 agricultural laborers lost their jobs during last year’s growing season alone, with that number expected to rise significantly this year. The brunt of these job losses occurred in the agricultural heart of the state, the Central Valley, a stretch of land roughly 450 miles long, from Bakersfield in the south to Redding in the north, and between the Sierra Nevada to the east and the Coast Ranges to the west.

Between the spring of 2013 and the spring of 2014, water levels in groundwater basins throughout the Central Valley fell by 50 feet or more, amid a race to drill ever-deeper and more expensive groundwater pumps. In one of the Central Valley’s most productive agricultural regions, Tulare County, 874 well permits were issued in the first six months of 2014 alone, 44 more than the county issued in all of 2013.

In the process, hundreds of private wells across Tulare County dried up, leaving thousands of East Porterville’s working-class residents without water. The state’s only response to this dire crisis has been to provide limited amounts of bottled water to inhabitants, with no plans implemented to develop water infrastructure for residents.

A package of three bills signed last September by Brown will implement the first-ever groundwater regulations in the state, but will have no effect until 2040, and even then will not require businesses to report how much water they pump individually. Barring an end to the drought, which scientists have noted could become a decades-long “megadrought,” all remaining groundwater will have long disappeared by that time.

The legislation passed last Tuesday does nothing to curb groundwater usage by the agricultural giants, the only ones capable of shelling out upwards of $400,000 to drill the 2,000-foot (600-meter) pumps required to extract dwindling groundwater reserves.

Agriculture accounts for roughly 80 percent of California’s total water usage, while the remainder is used by urban industry and household consumers, with outdoor landscaping accounting for roughly half of total urban usage. Thus, at most the recent regulations will cause a 5 percent reduction in the state’s total water usage.

California produces over 99 percent of all almonds, pistachios, olives, walnuts, rice, plums, dates, figs, raisins, artichokes, kiwis, peaches and pomegranates grown in the US, and is also the leading producer of dozens of other food commodities. In recent decades, international demand has led to a large transition toward growing orchard and vineyard crops.

During the drought, many farmers have fallowed even more of their traditional vegetable crops, diverting water toward almond trees and other orchards, which take longer to mature and are thus a larger capital investment. California currently grows roughly 80 percent of the world’s almond supply, in addition to 43 percent of all pistachios and 28 percent of all walnuts, and these cash crops are indispensable to maintaining profitability.

The “almond empire” is centered in the San Joaquin Valley, home to the largest almond-growing monopoly in the world, Paramount Farming. Paramount’s owners, Stewart and Lynda Resnick, are closely connected to Governor Brown, as well as Democratic Senator Dianne Feinstein and other state politicians, and have influenced water policy in the state for decades.

This couple is the modern-day reincarnation of the most corrupt aspects of former Los Angeles Mayor Frederick Eaton and his associate Joseph Lippincott, immortalized in the character of Noah Cross, played by John Huston in the 1974 Roman Polanski classic Chinatown. In addition to Paramount Farming, their holding company also owns Paramount Citrus and Paramount Farms, the world’s largest growers of citrus and pistachios.

Financial interests, including New York-based retirement and investment fund TIAA-CREF and Hancock Agricultural Investment Group, a subsidiary of the insurance and financial services giant Manulife Financial, have recently joined the bumper crop frenzy, becoming some of the largest nut growers in California.

Despite the proven efficiency of drip irrigation for orchard and vineyard crops, 20.3 percent of all vineyard and 13.4 percent of all almond and pistachio crops in the state continue to be grown using flood irrigation methods. Thus, almond trees alone presently account for 10 percent of California’s total annual water usage, more than the combined domestic usage of the state’s 38.8 million inhabitants.

There are immense efficiencies to be gained through the statewide adoption of crop-specific irrigation methods and other efficiency improvements. Yet any such rational reorganization is blocked by the interests of the US financial oligarchy, which, controlling the entire political system, will not abide any impingement on its profits.

 

http://www.wsws.org/en/articles/2015/03/26/cali-m26.html