Obama has given in to the most reactionary elements in US politics.  He has opted for deep cuts in public spending which will certainly include reductions in Medicare and Social Security (thus bad for Obama's base), and are certainly dysfunctional for US capitalism.  There's no sense of a long-term strategy for reviving growth or sustainable profitability here.  It has delivered for narrow sectors of US capital, specifically finance capital, but seemingly no one else.  And yet, it's still not enough.  

Standard & Poor's, the credit rating agency, has downgraded the US, which means that the cost of government borrowing will go up, and the ability to repay any deficit will be reduced.  It will also hurt consumer spending, as every American will have to pay more to borrow.  And, as we've already seen in Ireland, Greece and Spain, the attempt to pay it off by cutting spending only further weakens economies that depend significantly on such investment, thus reducing the revenues needed to pay any deficit.  It can only contribute to pressures toward a 'double dip', as the Eurozone crisis brings us back to 2007/8.  Corporate investment is weak, job growth is terrible, wage growth ditto, and consumer spending is fragile because households are still up to their ears in debt.  It would take very little to tip the economy back into crisis.  What's more, Wall Street traders appear to be perfectly well aware of this weakness, as they have been panic selling stocks since the debt deal was reached.  S&P's rationale is as follows: 

This is a raw exertion of class power.  Making it more difficult to repay debts while demanding that the government repay its debts faster is only a reasonable step if you accept that finance capital can do whatever the bloody hell it likes.  During the New York City fiscal crisis in the 1970s, created because lenders refused to roll over debts, a director at thew NY State Emergency Financial Control Board pithily explained: "The demands of the lender become reasonable because the lender is the lender."  A poignant reminder that behind every rationality lies a sociology.  Of course the hedge funds, ratings agencies, banks etc are less than concerned about the effect of underfunded infrastructures such as health and higher education.  As far as they're concerned, spending is too high and they don't much care how it comes down.  Theirs is a very narrow perspective.  But why doesn't the Wall Street establishment seem overly concerned that 'fiscal consolidation' of this kind will compound the fragility of the US economy and possibly tip the world into a new recession-cum-depression?

The pathologies of the US economy are not exactly a secret.  Michael Perelman identifies the following as weaknesses of US capitalism in its neoliberal phase: long-term underinvestment in research and development, low productivity resulting from a shift toward low wage service jobs, more financial vs productive investment, underinvestment in infrastructure, and an irrational military Keynesianism that results in the best innovation and research being conducted in secrecy, hoarded by the Pentagon etc..  Obama has performed sterling work on behalf of the Wall Street establishment, throwing his immense clout behind the bail outs, screening them from criticism, allowing them to continue to act with relatively little serious oversight, bringing them into government decision-making, and basically devising most of his policies with an eye to pleasing investment banks, bond traders and, at the outside, hedge funds.  But what he doesn't done is re-orient US capitalism in a more rational direction.  What he doesn't done is anything that could conceivably rescue the system from its pathologies.  This raises the question of why the wider US ruling class isn't kicking up a stink about it?

David McNally has made a strong case for arguing that US capital, or at least dominant sectors of US capital, find more and more of their investments and sales overseas.  Sluggish growth and profitability within the core capitalist economies has thus been more than offset by dynamism in south-east Asia.  As a result of imperialism, then, much of American capital is at liberty to make significant returns without worrying too much about what happens to infrastructures, consumer power or labour productivity in the US.  And with financialization, much of the US services and manufacturing economy generates revenues from financial investments rather than productive investment.  The centrality of imperialism here may explain why reducing military spending to cover the deficit isn't on the agenda.  It would also explain why the mandarins of Pennsylvania Avenue have appeared to be desperate to placate the ire of Republican tubthumpers, blasting away with biblical fury about the dangers of out-of-control spending.

So, we have an astonishing spectacle.  The political leadership of the dominant capitalist states is now trying to shred the public investment that has hitherto acted as a lifeline to their economies.  They are talking about savagely reducing labour costs, ostensibly to compete with China or India.  And they're being urged on by the banks and business federations despite their awareness of the tremendous peril involved.  This is actually going to undercut the conditions that led to their dominance in the first place.  It's as if they've given up on the idea of having a relatively stable economy with a productive, educated, healthy workforce, and have decided instead to jack up the absolute rate of exploitation, take as much as possible until the economy crashes again, and then raise the flood barriers, hoard their capital, let others take the pain, and allow governments to police the inevitable fall out.  

My assumption was that the austerity project was mainly opportunistic, that it condensed policies long desired by capital, and that it was pushed rapidly in order to preempt the Left and keep the initiative in the hands of the ruling class.  As a result, I anticipated that they would have enough flexibility to backtrack on or delay any measure that looked like seriously endangering their long-term profitability.  They could always return to the 'Keynesian' emergency management of 2008.  Perhaps that is still the best assessment.  But in these circumstances, ruling class opinion is likely to be fractured and highly unstable.  And it's not impossible that as the economy continues in its parlous state, as the ruling ideologies lose their plausibility and traction, and as states lose the ability to coordinate workable policy responses, the weight of opinion will form behind the slash-and-burn option.