War in Syria: Barack Obama has run out of friends

In passing the decision on Syria strikes on to Congress, the President has decided it's better to look like a coward than a hypocrite.

Yesterday, in an announcement that took pretty much all news networks and commentators by surprise, Barack Obama took precisely zero military action in response to Syria's highly-publicised recent use of chemical weapons.

For even the first few paragraphs of his speech, everyone still assumed there would be Tomahawk missiles in the air within hours.

“In a world with many dangers, this menace must be confronted. Now, after careful deliberation, I have decided that the United States should take military action against Syrian regime targets,” the President said. “I’m confident we can hold the Assad regime accountable for their use of chemical weapons, deter this kind of behaviour, and degrade their capacity to carry it out. Our military has positioned assets in the region. The Chairman of the Joint Chiefs has informed me that we are prepared to strike whenever we choose.”

So far, so Desert Fox. But then, the President changed tack.

“I’m also mindful that I’m the President of the world’s oldest constitutional democracy,” he said, in one of the more awkward non-sequiturs of his speaking career. “I’ve long believed that our power is rooted not just in our military might, but in our example as a government of the people, by the people, and for the people. And that’s why I’ve made a second decision: I will seek authorisation for the use of force from the American people’s representatives in Congress.”

That's right: despite not technically needing the approval of his legislature to take military action, Obama is magnanimously seeking it anyway. This would be a big deal even if there wasn't an enormous elephant in that particular room, but of course there is, in the form of David Cameron's catastrophically embarrassing failure to achieve the exact same vote, despite – in theory – having a much tighter constitutional hold on his legislature than Obama.

But the US president has run out of friends. The UN is completely gridlocked by Russia, while the UK, America's usual ally in such adventures, now isn't on board either. Nobody, not the Arab League, not NATO, not the war-weary American public nor even the war-eager hawks in the Republican party for whom limited missile strikes don't go far enough; nobody, except suddenly belligerent France, is on board with the President's plan.

That being the case, Obama has decided to duck acting unilaterally. Instead, he is betting on his own ability to sell the war to the people, and therefore to Congress, in just nine days. If he succeeds, of course, he can go to war without being accused of riding roughshod over Congress, and international law. He cannot be accused of acting alone.

But if he fails, it will be a catastrophe for his credibility at home and abroad.

This is Obama's own fault, really. He talked himself into a corner with his 'red line' ultimatum, and has found himself cornered between two versions of himself: one, a year ago, laying down the sanctity of international law on chemical weaponry; and the other as a candidate in 2008 waxing lyrical on how the primacy of Congress should be respected in warlike matters. The latter position makes going to war alone, without Congress, the UN, a national mandate, or even the British along for the ride, unpalatable. So, with his position on chemical weapons staked out in 2012, but no support, and mindful of what he said about similar decisions as a candidate in 2008, he has taken the less lonely option. He has chosen to look like a coward, instead of a hypocrite.

Is that entirely fair? Was this cowardice? To some extent, yes. To the Syrian rebels who had been expecting air support, it looks like when the crucial moment came, America blinked. After more than two years of inaction, their disappointment is unsurprising.

One thing is certain: Obama is not really acting out of concern for constitutionality. Remember, he had no such misgivings about not consulting Congress when he took action in Libya two years ago. But then, he had UN backing for that; this time he faced standing alone. So he passed the buck.

Which is not to say that, paradoxically, shoving the responsibility for this decision on to Congress wasn't in its own way a brave move. After Cameron's humiliation in the Commons last week, Obama will be acutely aware that a losing vote now, after he so clearly staked out his own position, would be worse than embarrassing: it could be seen as a de facto vote of no confidence in his administration. The stakes could not be higher.

With Congress away for the Labor Day holiday, he has until 9 September to make his case. Obama would not have taken this risk unless he had reasonable confidence that he is going to succeed – but the American legislature is notoriously unpredictable, obstructive, and – in the case of the House of Representatives – controlled by the Republican party. There are factions who are going to make his job difficult: libertarian Republicans and dove Democrats want to leave Syria alone to fight its own civil war; and on the other side, interventionist Republicans like John McCain think targeted strikes don't go far enough.

Coward or not, the President now has a hell of a fight on his hands - before an American shot has been fired.

Barack Obama in the Rose Garden on August 31. Photo: Getty

Nicky Woolf is a freelance writer based in the US who has formerly worked for the Guardian and the New Statesman. He tweets @NickyWoolf.

Getty
Show Hide image

We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?