By Osama Al Sharif
Life will never be the same for millions of people as fears of a double-dip recession mount following last week’s degrading of America’s credit rating and warnings that Italy and Spain may be defaulting on their sovereign debts.
The US dollar, the world’s reserve currency and the backbone of the global financial system, is in trouble. China, America’s biggest creditor, is jittery and has expressed unhappiness with the way Washington is dealing with its endemic foreign debt problem. Economic recovery is in jeopardy and a chain reaction to the crisis could bring about an unprecedented stagnation.
Welcome to the age of austerity; of deep government cutbacks, especially in social programs and so-called entitlements, and of market volatilities and price instabilities. It’s not a pretty picture and the phenomenon is contagious. Growth in emerging economies will be stymied and vital economic indicators will dip for some time to come.
While economic experts are debating the signs of a double-dip recession others, like Nobel-laureate Joseph Stiglitz, have a more somber view. A proponent of stronger regulation he wrote recently that: Regrettably, the financial markets and right-wing economists have gotten the problem exactly backward: they believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government’s fiscal position, or at least yielding less improvement than austerity’s advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion.
The debt-ceiling debate in the US few weeks ago underlined the seriousness of America’s economic and financial situation. An ideological fracas between Democrats and Republicans over government spending and raising taxes on the rich resulted in a half-baked compromise that does not even begin to address America’s enormous debt — expected to reach a mind boggling $21 trillion in 10 years — and its widening budget deficit (US debt is now hovering around 100 percent of its GDP ($14-15 trillion). But as a result of grave spending cuts the poor will end up paying the price with no assurances that the economy will ever recover.
Austerity is also the theme in Europe, where governments are tightening the belt by reducing or erasing social benefits altogether. Britain’s National Health Service (NHS) program, once the envy of others, is falling apart. Millions of unemployed youth will not find jobs in their lifetime and the standard of living is expected to drop over the coming years. A government study predicted that its plans to cut welfare benefits could render 40,000 families homeless across Britain.
This global age of austerity is unlike anything that we have ever faced before. It is the combined outcome of decades of irresponsible fiscal policies by the biggest economic power on the planet coupled with an unregulated capitalist system that has overlooked the compounding social, environmental and demographic challenges that it has created along the way.
Unbridled greed and the concentration of capital and political power in a privileged minority have blinded lawmakers and regulators from addressing the flaws inherent in the current economic and financial systems. As a result we are on the verge of an unprecedented post-World War II crisis of apocalyptical proportions.
If the dollar falls — the jury is still out on this — the world economy will go berserk and we will most certainly face economic and social upheavals across the globe. A globalized economy cannot withstand a seismic event of this kind. The financial crisis of 2008 will look like a minor car accident compared to the fatal pile-up that is becoming more probable every day.
The big disappointment is that no one seems to be doing anything about it. President Obama has failed to deliver on his campaign promise to overhaul and reform Wall Street. He has repeatedly succumbed to right-wing pressures to leave the rich alone — more than 1400 US millionaires did not pay taxes in 2009 and apparently the remaining 235,413 millionaires in the United States paid less in taxes than they did when George W. Bush was in office in 2002!
This is symptomatic of how the biggest economy in the world, until China takes over in few years, is handling things. Meanwhile, indebted America prints more dollars and issues more Treasury bills. It is a recipe for disaster and no amount of austerity measures will even begin to deal with the thousands of billions of dollar, or euros, that the US and European countries owe to each other and to the rest of the world.
Economic upheavals usually lead to social unrest and even wars. The world is heading toward political uncertainty driven by economic instability. It is difficult to imagine an awakening taking place anytime soon. Austerity, which leaves the rich and powerful unscathed, is a short-term reaction, an economic tranquilizer that will definitely fail to sedate the people who stand to lose their pensions, social services and even their homes. The sad thing is that it might be too late to do anything about it!
— Osama Al Sharif is a journalist and political commentator based in Amman.