Obama’s Ambush on Entitlements by Michael Hudson

Under Cover of “Crisis”

July 26, 2011

By Michael Hudson (Reprinted by Permission)

You know that the debt face-off is as staged as melodramatically as a World Wrestling Federation exhibition when Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as  Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet, Obama has put Social Security at the very top of his hit list.

The most reasonable explanation for his empty threat is that he is trying to panic the elderly into hoping that somehow the budget deal he seems to have up his sleeve can save them. The reality, of course, is that they are being led to economic slaughter. (And not a word of correction reminding the President of financial reality from Rubinomics Treasury Secretary Geithner, neoliberal Fed Chairman Bernanke or anyone else in the Wall Street Democrat administration, formerly known as the Democratic Leadership Council.)

It is a con. Obama has come to bury Social Security, Medicare and Medicaid, not to save but kill them. This was clear from the outset of his administration when he appointed his Deficit Reduction Commission, headed by avowed enemies of Social Security Republican Senator Alan Simpson of Wyoming, and President Clinton’s Rubinomics chief of staff Erskine Bowles. Obama’s more recent choice of Republicans and Blue Dog Democrats to be delegated by Congress to rewrite the tax code on a bipartisan manner – so that it cannot be challenged – is a ploy to pass a tax “reform” that democratically elected representatives never could be expected to do.

The devil is always in the details. And Wall Street lobbyists always have such details tucked away in their briefcases to put in the hands of their favored congressmen and dedicated senators. And in this case they have the President, who has taken their advice as to whom to appoint as his cabinet to act as factotums to capture the government on their behalf and create “socialism for the rich.”

There is no such thing, of course. When governments are run by the rich, it is called oligarchy. Plato’s dialogues made clear that rather than viewing societies as democracies or oligarchies, it was best to view them in motion. Democracies tended to polarize economically (mainly between creditors and debtors) into oligarchies. These in turn tended to make themselves into hereditary aristocracies. In time, leading families would fight among themselves, and one group (such as Kleisthenes in Athens in 507 BC) would “take the people into his party” and create a democracy. And so the eternal political triangle would go on.

This is what is happening today. Instead of enjoying what the Progressive Era anticipated – an evolution into socialism, with government providing basic infrastructure and other needs on a subsidized basis – we are seeing a lapse back into neo-feudalism. The difference, of course, is that this time around society is not controlled by military grabbers of the land. Finance today achieves what military force did in times past. Instead of being tied to the land as under feudalism, families today may live wherever they want – as long as they take on a lifetime of debt to pay the mortgage on whatever home they buy.

And instead of society paying land rent and tribute to conquerors, we pay the bankers. Just as access to the land was a precondition for families to feed themselves under feudalism, one needs access to credit, to water, medical care, pensions or Social Security and other basic needs today – and must pay interest, fees and monopoly rent to the neo-feudal oligarchy that is now making its deft move from the United States to Ireland and Greece.

The U.S. Government has spent $13 trillion in financial bailouts since Lehman Bros. failed in September 2008. But . Obama warns that thirty years from now, the Social Security fund may run a $1 trillion deficit. It is to ward it off that he urges dismantling the plans for such payments now.

It seems that the $13 trillion used up all the money the government really has. The banks and Wall Street firms have taken the money and run. There is not enough to pay for Social Security, Medicare or other social spending that the Blue Dog Democrats and Republicans now plan to cut.

Not right away. The plan will be to “paper over” the current crisis by delegating the plans to a “Deficit Reduction Commission #2,” appointed from Congressional members.

Finally, we have “Change we can believe in.” Real change is always surprising, after all.


Usually a crisis is needed to create a vacuum into which these toxic details are fed. Wall Street does not like real crises, of course – except to make quick computer-driven speculative gains on the usual fibrillation of today’s zigzagging markets. But when it comes to serious money, the illusion of a crisis is preferred, staged melodramatically to wring the greatest degree of emotion out of the audience much like a good film editor edits a montage sequence. Will the speeding train run over the girl strapped to the tracks? Will she escape in time?

The train is debt; the girl is supposed to be the American economy. But she turns out to be Wall Street in disguise. The exercise turns out to be a not-so-divine comedy. Obama offers a plan that looks very Republican. But the Republicans say no. There is an illusion of a real fight. They say Obama is socialist.

Democrats express shock at the giveaway being threatened. Many say, “Where is the real Obama?” But it seems that the real Obama turns out to be a Republican Wall Street imposter in Democratic clothing. That is what the Democratic Leadership Committee basically is: Wall Street Democrats. This is not as much of an oxymoron as it may sound. There is a reason why today’s post-Clinton Democrats are the natural party to undo what FDR and earlier Democrats stood for. A Democratic Senate never would stand for such giveaways to Wall Street and double-cross of their urban constituency if a Republican president would propose what . Obama is putting before them.

Here’s what the next Republican presidential candidate can say: “You know that whatever we Republicans want,  Obama will support us. If you don’t want a Republican policy, they you should vote for me for president. Because a Democratic Congress will oppose a Republican policy if we propose it. But if. Obama proposes it, congress will be de-toothed, and cannot resist.”

It’s the same story in Britain, where the Labour Party is called upon to finish up the job that the Conservatives start but need New Labour to subdue popular opposition to privatizing the railroads and a Public/Private Partnership financial giveaway for the London tube line. And it’s the same story in France, where a Socialist government is supporting the privatization program dictated by the European Central Bank.


Whenever one finds government officials and the media repeating an economic error as an incessant mantra, there always is a special interest at work. The financial sector in particular seeks to wrong-foot voters into believing that the economy will be plunged into crisis of Wall Street does not get its way – usually by freeing it from taxes and deregulating it.

Obama’s first fallacy is that the government budget is like a family budget. But families can’t write IOUs and have the rest of the world treat it as money. Only governments can do that. It is a privilege that the banks would now like to obtain – the ability to create credit freely on their computer keyboards, and charge interest for what is almost free, and what governments can indeed create for free.

“Now, every family knows that a little credit card debt is manageable. But if we stay on the current path, our growing debt could cost us jobs and do serious damage to the economy.”  But economies need government money to grow – and this money is provided by running federal budget deficits. This has been the essence of Keynesian counter-cyclical spending for more than half a century. Until the present, it was Democratic Party policy.

It’s true that Pres. Clinton ran a budget surplus. The economy survived by the commercial banking system supplying the credit needed to grow – at interest. To force the economy back into this reliance on Wall Street rather than on government, the government needs to stop running budget deficits. The economy will then have a choice: to shrink sharply, or to turn almost all the economic surplus over to banks as economic rent on their credit-creation privilege.

Obama also pretends that credit ratings agencies are able to act as mascots for their clients, the large financial underwriters, by making the entire economy pay even higher interest rates on its credit cards and banks. “For the first time in history,” . Obama dissembled, “our country’s Triple A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet. Interest rates would skyrocket on credit cards, mortgages, and car loans, which amounts to a huge tax hike on the American people.”

The reality is that running a budget surplus would increase interest rates, by forcing the economy into captivity to the banking system. The Obama administration is now deep into its Orwellian rhetorical phase.

During Obama’s speech I could not help feeling that I had heard it all before. And then I remembered. Back in 2008, Treasury Secretary Henry Paulson sought to counter Sheila Bair’s argument that all FDIC-insured depositors would be able to ride out the September crisis, with only the reckless gamblers losing the gains they hoped to make on their free credit. “If the financial system were allowed to collapse,” he warned in his Reagan Library speech, “it is the American people who would pay the price. This never has been just about the banks; it has always been about continued prosperity and opportunity for all Americans.”

But of course, it is all about the banks. Wall Street knows that to get sufficient Congressional votes to roll back the New Deal, Social Security, Medicare and Medicaid, a Democratic president needs to be in office. A Democratic Congress would block any Republican president trying to make the kind of cuts that Obama is sponsoring. But Congressional Democratic opposition is paralyzed when President Obama himself – the liberal president par excellence, America’s Tony Blair – acts as cheerleader for cutting back entitlements and other social spending.

So just as the City of London backed Britain’s Labour Party in taking over when the Conservative Party could not take such radical steps as privatizing the railroads and London tube system, and just as Iceland’s Social Democrats sought to plunge the economy into debt peonage to Britain and Holland, and the Greek Socialist Party is leading the fight for privatization and bank bailouts, so in the United States the Democratic Party is to deliver its constituency – urban labor, especially the racial minorities and the poor who are most injured by Pres. Obama’s austerity plan – to Wall Street.

So Obama is doing what any good demagogue does: delivering his constituency to his campaign contributors on Wall Street. Yves Smith has aptly called it Obama’s “Nixon goes to China moment in reverse.”

The Republicans help by refraining from putting forth a credible alternative presidential candidate. The effect is to give Obama room to move far to the right wing of the political spectrum. Far enough so that it is his own Democrats who are most intent on scaling back Social Security, not the Republicans.

This is done most easily under pressure of near panic. This worked after September 2008 with TARP, after all. The Wall Street bailout melodrama should be viewed as a dress rehearsal for today’s debt-ceiling non-crisis.


Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com


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Here is the accumulation of blogs we have written over the past six months or so.  Below I have listed the most significant ones and we ask that you distribute these to your Facebook  friends.  We expect to add to these on a regular basis.

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July 20, 2011

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Is the Debt Crisis Just Another Trumped Up Scam to Steal Social Security?

Posted on July 20, 2011 by doctom2010

Posted on July 12, 2011 by dandelionsalad photo by Jill Dalton, used with permission by Jill Dalton Guest Writer Dandelion Salad July 12, 2011 We’re all heard the hysteria, “If America doesn’t raise the debt ceiling she’ll default on her loans for the … Continue reading


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Posted on May 20, 2011 by doctom2010

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Posted on May 8, 2011 by doctom2010

by Jill Dalton, NYC May 8, 2011 Sunday night when I learned of the death of Osama Bin Laden I did not feel elated, I did not hop on the #1 subway and head to ground zero, nor did I … Continue reading →

Posted on May 3, 2011 by doctom201
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Who is President Barack Obama?–Updated

Posted on April 16, 2011 by doctom2010

by Dr. Tom Baldwin, Biloxi, MS April 22, 2011 This past week President Obama announced his intent to run for re-election in the midst of budget battles going on in Washington.  He also gave a speech on his 2012 budget, … Continue reading →

Posted on April 15, 2011 by doctom2010
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Posted on April 5, 2011 by doctom2010

by Dr. Tom Baldwin, Biloxi, MS April 6, 2011 On Monday, we had the announcement that the President had filed for reelection in 2012.  That should come as no surprise but he emphasized earlier that this was not to be … Continue reading →

Republican Fascist Governors Want YOU for Their Stew

Posted on April 1, 2011 by doctom2010

by Dr. Tom Baldwin, Biloxi, MS April 2, 2011 In November 2010, numerous Republican Governors were added to the mix of existing Governors Christie of NJ, Governor McDonald of VA, and Governor Brewer of AZ.  Specifically, thanks to the “excellent” …Continue reading →

Why Economic Recovery is a Myth

Posted on March 25, 2011 by doctom2010

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Posted on March 21, 2011 by doctom2010

On March 19, 2011 responding to the International Day of Action, my friend Glen and I arranged for a demonstration in beautiful downtown Biloxi.  It was scheduled to be a busy day:  A St. Patricks Day parade and a day … Continue reading →

Posted on March 19, 2011 by doctom2010

 by Dr. Tom Baldwin, Biloxi, MS, March 19, 2011 The performance of several state Governors since the 2010 election would be almost entertaining if it were not so serious.  It is imminently clear that they went into office with … Continue reading →

Just Call Me Paul Revere: “The Corporatists are Coming”

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Posted on March 4, 2011 by doctom2010

This is a repeat of a blog published in December 2010.  It is still applicable today, March 4, 2011, and I would add that my contention that President Obama shows no negotiation skills is clearly applicable.  Now that he is … Continue reading →


Posted on January 28, 2011 by doctom2010

By Jill of York Recently, I was boarding the C train in New York City where I encountered a woman who looked to be in her late 70’s sitting on the subway wearing a t-shirt which read: IS IT FASCISM … Continue reading →

Is the Debt Crisis Just Another Trumped Up Scam to Steal Social Security?

Posted on July 12, 2011 by dandelionsalad

photo by Jill Dalton, used with permission

by Jill Dalton
Guest Writer
Dandelion Salad
July 12, 2011

We’re all heard the hysteria, “If America doesn’t raise the debt ceiling she’ll default on her loans for the first time in our nations history.”  Everyone in Washington is in a panic.   All the Chicken Little’s are running around proclaiming, “The sky is falling!  The sky is falling!”  The corporate media picks up the mantra and echoes it throughout the land.  “The sky is falling!  The sky is falling.”  Now everyone’s in a panic, running around screaming, “The sky is falling!  The sky is falling!”

What to do?  What to do?  “I know.  I’ve got it,” proclaims President Obama, “We’ll cut Social Security, Medicare and Medicaid.  I’m so brilliant.”  Really?  Why didn’t I think of that?

So is the ‘debt crisis’ just another trumped up scam to steal Social Security?

The so called ‘dept crisis’ mayhem is what Naomi Klein discusses in her international and New York Times bestseller, “The Shock Doctrine:  The Rise of Disaster Capitalism.”  In her book Klein argues that the free market policies of Milton Friedman and the Chicago School of Economics were able to push through unwanted so called reforms in Chile, Russia and the United States while the citizens were reacting to disasters and upheavals.

The shock doctrine was used in the wake of Hurricane Katrina to privatize the New Orleans Public Schools.  It was also used to start the Iraq war by creating hysteria over WMD’s, which did not exist except in the imaginations and think tanks of the Bush Administration and the corporate media who banged the drums non-stop for war.  It’s called brainwashing.

I knew there were no WMD’s.  I lived through the Vietnam War and since my father served in military intelligence Saigon I paid close attention to what went on.   I knew all about the Gulf of Tonkin, My Lai Massacre and a myriad of other lies and atrocities our government used to get their message front and center in order to carry out their misdeeds.  You see growing up in the military our government’s lies directly affected my family.  For me it’s personal.  So I learned to look deeper — look beneath the propaganda to see what’s really going on.

The shock doctrine was used to steal our money and bail out Wall Street and the too big to fail banks by once again chanting, “The sky is falling!  The sky is falling!“ Millions of Americans, however, weren’t buying it and wrote and called by the thousands demanding our leaders not bail them out but let the market self correct and for a brief moment there was a glimmer of hope as the first vote did not pass but alas they just tried again and this time it went through and our government handed over 700 billion of our tax dollars to these corrupt institutions and their criminal occupants with the caveat that Wall Street share this money in the form of loans with Main Street which has not happened.

And now they are implementing the shock doctrine once again.  This time it’s to steal our Social Security money and get rid of Medicare and Medicaid.  It’s all lies.  Smoke and mirrors.  A game of Three Card Monty.  Call it what you will.  The goal is to steal Social Security and the safety nets that were put in place by the New Deal to protect Americans from economic tsunamis’.

Don’t take my word for it; according to Michael Hudson, Research Professor of Economics at the University of Missouri, Kansas City, “This is evil working with evil.”  They are using this so called ‘debt crisis’ to gut any and all social programs that were set up by the New Deal to protect Americans.  Two years ago Obama set up the Debt Reduction Commission and their goals were 1) Cut Social Security 2) When choosing between Wall Street and Social Security to choose Wall Street. “Let no good crisis go to waste.” was Obama’s former White House Chief of Staff, Rahm Emanuel’s, motto.

This is all a charade as Obama says one thing and does another.  This is about using the debt ceiling as a chance to ram through this austerity policy so they can steal Social Security and our safety net and instead give our money to Wall Street, the Pentagon and foreign aid.  Hudson continues, “Obama has given 13 trillion dollars to bail out Wall Street and nothing for the people.”

In actuality defaulting on the debt is unconstitutional. Section 4 of the 14th Amendment clearly states, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions…shall not be questioned.” Therefore by threatening a debt default the Republicans are violating the constitution.  You certainly don’t hear Obama mention this fact and he is purportedly a Constitutional lawyer but only when it fits his ideology it seems.

On top of that Social Security is solvent.  ”Let us be clear,” Senator Sanders said.  ”Social Security has not contributed on nickel to our deficit or our national debt.”  The program that benefits more than 50 million seniors and disabled has a $2.6 trillion surplus, he stressed, and will be able to provide full benefits for every eligible American for the next 25 years. “I am especially disturbed that President Obama is considering cuts in Social Security after he campaigned against cuts in 2008,” Sanders added.

But regardless of the truth or facts the dog and pony show of Washington continues their hypocrisy and lies.  So what else is new?   The Associated Press reported, “The House overwhelmingly passed a $649 billion defense-spending bill that boosts the Pentagon budget by $17 billion and covers the costs of wars in Iraq and Afghanistan.  While House Republican leaders slashed billions from all other government agencies, the Defense Department will see a double-digit increase in its budget as of Oct 1.”  Barney Frank said, “The military budget is not on the table. The military is at the table, and it is eating everybody else’s lunch.”  Meanwhile we’re still in Iraq, Afghanistan and Libya’s in its fourth month with no signs of stopping.

Jane Hamsher reported in her piece, “Breaking Point: Obama and the Death of the Democratic Party” that in March of 2009 three administration officials called David Brooks to say Obama “is extremely committed to entitlement reform and is plotting politically feasible ways to reduce Social Security as well as health spending.”

Then Obama appointed Alan Simpson, former Republican senator from Wyoming, as co-chair of the Deficit Commission.  Simpson is well known for his stance that old-age entitlements will bankrupt the country.  Obama put Simpson there for a reason so he can pretend he has no choice but to balance the budget on the backs of the old and the poor through cuts to Social Security, Medicare and Medicaid.  It’s been nicknamed the Cat Food Commission for a reason.

There is a very simple solution to this problem.  Merely end the Bush/Obama tax cuts.  Just bringing their tax rate back to Clinton era levels would do the trick.  Then cut the military budget and end these absurd illegal, immoral wars. Make corporations pay taxes and cut the Cadillac healthcare and pension plans of all members of Congress.  They should get the same deal as the rest of us.  Put them on Social Security and Medicare and see how all of a sudden none of this would matter. Or, according to Michael Hudson, the Federal Reserve could just print more money.

But “It’s the economy stupid.” The real concern for Americans is lack of jobs and high unemployment.  Recent numbers show unemployment is now 9.2% but in actuality it’s closer to 17% and higher for African Americans and Latinos.  Where is the jobs bill we were promised?  Are they too busy sending our jobs oversees to care or just incompetent?

This is not just about crazy Republicans or the poor little Democrats who can’t stand up to the strain.  This is out and out theft.  The Republicans pull farther and farther to the right so Obama can say, “See the Republicans are so mean and crazy I had to do this and I’m not as bad as them.  It’s not my fault.  I tried.”  Well, that act isn’t working anymore Mr. President.  Let’s face it.  The Democrats (except for Bernie Sanders who takes no corporate money) are just as beholding to their corporate puppet masters as are the Republicans. They just try to keep it on the down low.

Let’s be honest here.  George W. Bush could never have gotten away with this crap.  I believe that’s why Obama was put in the White House.  The truth is the so called ‘free market’ has blown up in their global corporate faces and instead of correcting things they’ve decided instead to destroy Social Security and other safety nets for the American people while continuing to dole out corporate welfare and start more illegal wars for oil.

This is not compromise. This is not leadership. This is theft.

According to Joseph E. Stiglitz, Professor at Columbia University and 2001 Nobel Prize in Economics, “Our economic situation is the result of 30 years of unbridled right wing free market ideology.  “Unaffordable tax cuts and wars, a major recession, and soaring health-care costs – fueled in part by the commitment of George W Bush’s administration to giving drug companies free rein in setting prices, even with government money at stake – quickly transformed a huge surplus into record peacetime deficits.”

Stiglitz continues, “Regrettably, the financial markets and right-wing economists have gotten the problem exactly backwards: 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.”

George Carlin explained it best.  They don’t want well-informed educated citizens because then we’ll figure out what’s going on…And now they’re coming for your Social Security money so they can give it to their criminal friends on Wall Street…They use the media to brainwash us.  The game is rigged.  “It’s called the American dream for a reason; cause you have to be asleep to believe it.”



George Carlin – The American Dream

Glenn Greenwald: Obama Pushing Cuts to Social, Security, Medicare and Medicaid

Michael Hudson: Debt Ceiling Charade a Move to the Right

Shock Doctrine: Disaster Capitalism (Film by Naomi Klein & Alfonso Cuaron) (short clip)


Jill Dalton  is a recovering army brat/writer/performer who has appeared in film and television as well as performing her solo plays in New York and around the country.  Most recently she can be seen in and consulted for William Hurt on the HBO film,  “Too Big To Fail.”   Her articles have been published on: Dandelion Salad, RSN, OpEdNews & Progressive Activists Voice.  She can be contacted @ jdalton3@gmail.com.