By BENJIE OLIVEROS
In 2008, when the economic crisis hit the US, newly elected President Barack Obama unveiled a stimulus package that bailed out the erstwhile “too big to fall” financial investment houses and banks. This went on for years with the US government implementing two rounds of quantitative easing measures. But these have not jolted the US economy into greater activity. Unemployment at 9.2 percent remains high, the economy is still lumbering along with a 1.9 GDP growth during the first quarter of 2011, and credit remains tight.
With still no end in sight to the crisis, US President Barack Obama and the Republicans who control Congress forged a compromise deal last July 31 raising the $14.3 trillion debt ceiling by around $2.4 trillion while the federal government committed to cut long-term spending in the next decade by roughly the same amount. This ties the hands of the US government in implementing future stimulus packages or other fiscal measures to spur economic activity and growth. With the right-wing Republicans adamantly defending wealthy Americans and their corporations from being taxed more, the US government is left with what Joseph Stiglitz calls as medicine du jour: austerity measures and more privatization.
Thus, no money could be had from the government any longer. Future economic activities would have to be financed from loans from commercial banks, which charge interest. With credit tight as it is and the economy still at a fragile state, getting loans from the bank would have to pass stringent measures and expectedly, banks would lend at higher interest rates. This would result in the further dampening of economic activity and investments, and more unemployment. Add this to the impending another round of the housing crisis next year, which this author discussed in a previous analysis “The world economic crisis and the state of the Philippine economy,” then the future is bleak for one of the centers of capitalism.
The American people would have to bear the brunt of the crisis. While Medicare and social security were spared from immediate cuts, there is no guarantee that it would not be reduced in the future. This would have to pass through a review of a special congressional committee. And chances are, there would be further cuts in government social services spending in the years to come.
Perhaps the only thing positive about this deal is that the US would also have to cut its defense spending, at least on paper. Pentagon would have to cut spending by $350 billion. However, in an article published by Democracy Now with the title “US Economy Sacrificed for Military Bias” written by Michael Hudson, William Hartung of the Center for International Policy said Pentagon could work around the cut by reducing veterans’ benefits, cut spending for international affairs, the Department of Energy and Homeland Security. And Pentagon, said Hartung, would eventually get the biggest share of the discretionary budget. In fact, Hartung and Hudson lamented, US war spending, which they say is the biggest factor driving US government debt, did not figure in the discussion of substantial cuts.
The other centers of capitalism are not far behind with their own sovereign debt crisis threatening to implode. Japan’s debt is 225 percent of GDP, much higher than the US, which is 97 percent of GDP. Germany’s debt is 83.2 percent of GDP while that of the UK is 80 percent of GDP. It could also be remembered that the sovereign debt crisis has already imploded in Greece, Portugal, Ireland and chances are it will hit Italy and Spain in the near future.
According to Jose Enrique Africa of Ibon Foundation, the BRIC countries – Brazil, Russia, India, and China – which are being touted as potential growth centers, would not be alternative growth centers because of their reliance on trade and investments with the centers of capitalism. China, said Africa, which is the country with the biggest holdings of US Treasury securities at $895.6 billion – Japan is second with $877.2 billion – is already experiencing a slow down.
How will these impact on the Philippine economy?
Remittances of overseas Filipinos would continue to suffer a slowdown in growth as unemployment hits more Filipinos abroad, especially the US which is still the biggest source of remittances, and receiving countries push for more nationalization policies such as Saudization, the priority given to hiring American nurses in the US, among others. Exports to the country’s main trading partners, such as the US and Japan, would also experience a further decline. Economic and military aid and assistance from the centers of capitalism would definitely be affected.
At the same time, in its frantic search for cheaper and more profitable investment outlets, these capitalist countries would exert more pressure on backward economies, such as the Philippines, to further open up all sectors of its economy to investments and plunder, liberalize trade, and remove all restrictions, regulatory measures and its few remaining protectionist policies. This would open opportunities for the Aquino administration’s PPP or public-private-partnerships (read: privatization). The only question is, who would benefit from these as experience has shown – with the power and water industries – that these type of “partnerships” resulted in higher prices and rates and made the Filipino people more vulnerable to the effects of the crisis, while the government protects the profits of its foreign investors.