The “State of the Nation” report released last week by the Salvation Army charity in New Zealand revealed an appalling social crisis, driven by rising unemployment, low wages and high living costs.
Using brutal austerity measures, including mass redundancies and wage freezes across the public sector, the far-right National Party-led government is imposing the burden of the economic recession on working people. At the same time, it is cutting taxes for the rich and preparing to divert billions of dollars to the military, to fully integrate the country into US war plans against China.
Unemployment increased by 33,000 people last year to reach 156,000, or 5.1 percent—the highest level since September 2020. It is forecast to reach 5.5 percent by the middle of the year. As well as cuts to healthcare and other public services, factories including paper mills and meatworks have closed down, devastating entire towns.
Real unemployment is far higher than the official figure, which only accounts for people actively looking for work. By the end of 2024 more than 409,000 people were receiving some form of welfare payment, 12 percent of the working age population.
There is growing poverty among working families. New Zealand’s gross domestic product per capita declined by 2.7 percent in the year to September 2024, and the Salvation Army notes that 37 percent of the workforce received no pay increase.
The government is driving down wages for the lowest-paid workers. It recently announced that the minimum wage will go up by just 35 cents per hour or 1.5 percent in 2025, half the annual increase in household living costs.
Foodbank in Invercargill, December 2024 [Photo: Facebook/Harcourts Invercargill]
The Salvation Army reports that “there has been a sharp rise in food insecurity over the past two years, and it reached the highest level for more than a decade in the year to June 2024.” The demand for food parcels is 40 percent higher than before the COVID-19 pandemic.
More than one in four children live in households that run out of food sometimes or often. In Pacific island families, the most impoverished section of the working class, 55 percent of children are going without food sometimes or often.
The government has made cruel cuts to emergency hardship payments for food and other necessities. According to the “State of the Nation” report, “The total value of government hardship support payments declined by around $180 million during 2024.… The number of grants was down by around 11 percent, and the dollar value reduced by 18 percent.”
Food banks are also getting less government funding. In 2023, during the previous Labour Party-led government, a record 600,000 people a month were relying on foodbanks—11 percent of the population. The New Zealand Food Network reported that last year charities experienced a 30 percent decline in the number of people they are able to assist.
Funding for school lunches has also been reduced, from $8 to $3 per meal, resulting in less nutritious and often revolting meals being delivered to hundreds of thousands of children in low-income areas.
Growing numbers of welfare recipients are having their payments reduced under a harsher sanctions regime, which penalizes people for failing to attend appointments and fill out forms on time. The Salvation Army notes there were “45,825 benefit sanctions imposed on people receiving welfare support during 2024, which was close to double the 25,329 sanctions in the year to December 2023.”
Homelessness is deeply entrenched and getting worse. Last month the government boasted that the number of households living in motels used for emergency housing has fallen from 3,141 to 591 in the past year. Associate housing minister Tama Potaka said this meant more people were “now living in better homes.”
In reality, the drop follows stricter criteria for accessing emergency housing, which the Salvation Army says has likely contributed “to rising street homelessness and housing insecurity.” Auckland Council, for example, reports that while the number of people in the city’s emergency housing has plummeted, the number sleeping in cars and on the street soared by 53 percent in just four months, from 426 in September 2024 to 653 in January 2025.
The opposition Labour Party has feigned outrage over the government’s cuts and the worsening social crisis. Its finance spokesperson Barbara Edmonds said the National Party had “promised a better economy, but all we’ve seen is an economic downturn, rising unemployment, and the sharpest recession, excluding COVID-19, in 30 years—all of which happened under National’s watch.”
This is sheer hypocrisy. The 2017–2023 Labour government—supported by the Greens—used the pandemic to transfer tens of billions of dollars in public funds to the rich and corporations. Then, in 2022, the Reserve Bank began raising interest rates with the explicitly stated aim of triggering a recession and driving up unemployment, to increase the exploitation of the working class. This agenda was enforced by the union bureaucracy, which suppressed and betrayed struggles by teachers, healthcare workers and others.
Labour lost the October 2023 election in a landslide, after it campaigned for cuts to public spending, removed all restrictions on the spread of COVID-19 and supported Israel’s genocidal onslaught against Gaza.
As unemployment escalated in 2022–2023, the number of children living in households below the poverty line increased from 166,200 to 202,100. The number of people classed as “severely housing deprived” also increased under Labour from 99,462 in 2018 to 112,496 (2.3 percent of the population) in 2023.
Thousands of teenagers dropped out of study and took on jobs to support their families. According to the Salvation Army report, the rate of people leaving high school without any qualification rose from 10.6 percent in 2020 to 16.2 percent in 2023.
Only 37.8 percent achieved a university entrance-level qualification in 2023, the lowest figure in a decade. In poorer areas, just 13.7 percent of students achieved university entrance or higher.
At the same time, mental health problems have surged among young people. A Ministry of Health survey shows that the proportion of people aged 15 to 24 experiencing “high or very high levels of psychological distress” nearly doubled from 13.3 percent in 2017 to 22.9 percent in 2024.
Herbert Kickl, leader of Austrian Freedom Party (FPOE), gestures during the traditional FPOE May day event at the Urfahraner fair in Linz, Austria, Wednesday, May 01, 2024. [AP Photo/Christian Bruna]
Coalition government negotiations between Austria’s far-right Freedom Party (FPÖ) and the conservative People’s Party (ÖVP) have failed.
The collapse in talks was announced by FPÖ leader Herbert Kickl after a meeting with Federal President Alexander Van der Bellen in Vienna last Wednesday. The FPÖ won the federal election in September last year with 28.8 percent of the vote, against 26.3 for the ÖVP. With Kickl unable to secure a coalition agreement, the Alpine Republic still has no government more than four months later.
Immediately after the announcement, Van der Bellen invited the party leaders of the ÖVP, Social Democrats (SPÖ), Greens and Neos (New Austria and Liberal Forum) to his Hofburg official residency to explore the possibilities for new negotiations. He emphasised the urgency of establishing a stable government as quickly as possible.
The options are new elections, from which the Freedom Party would be the only party to benefit according to current polls, the formation of a minority government dependent on securing vote by vote support from parliament, the convening of a technocratic “government of experts” or a further attempt to form a coalition without the Freedom Party.
According to press reports, the ÖVP and SPÖ resumed discussion on a possible coalition on Monday. “Talks are ongoing on whether or not cooperation and the conclusion of a government agreement are possible,” said the ÖVP. The SPÖ, which came third in the election, also confirmed the talks.
An alliance between the ÖVP and SPÖ would have a majority of only one vote in the National Council (lower house of parliament). In January, negotiations between the ÖVP, SPÖ and Neos on budget issues had failed. Regardless of whether the ÖVP and SPÖ form a government or whether there will be a different government coalition or new elections, social cuts, anti-refugee agitation and increasing military spending will be at the centre of the government’s agenda.
This became clear after the tragic knife attack in the southern Austrian town of Villach on Saturday, in which a 14-year-old was killed and five others injured. Although no reliable information was available about possible motives, the fact that the suspect was a 23-year-old Syrian immigrant with a valid residence permit was enough to launch an aggressive smear campaign against refugees. Representatives of all parties vied with each other to call for tougher punishments and deportations.
“Lock up and deport” is now the motto, said acting Interior Minister Gerhard Karner (ÖVP). He also announced that, with immediate effect, there would be “massive random checks” across the country. Cynically, Karner justified this far-reaching measure by saying that the perpetrator had not previously come to the attention of the police.
The FPÖ and ÖVP had already agreed on much of the future government’s agenda, which would include far-reaching cuts in the social, health and education sectors. They had already agreed to adopt the FPÖ’s programme in full when it came to refugee and asylum policies. They had also agreed on a far-reaching expansion of the security authorities and a massive increase in their powers.
If the FPÖ is not included in the government after all, it is not because of its racist, inhuman policies and the fact that the party has close ties to neo-Nazi circles. And it is also not because of its demand to destroy the last remnants of the welfare state and enforce this against all opposition in the population.
The reason is the FPÖ’s relationship with Russia, which is perceived in Austria and the EU as an obstacle to a further military escalation in the context of the NATO war in Ukraine.
The trigger for the talks to fall apart was the FPÖ’s demand to lead the Interior Ministry and the Finance Ministry. In particular, the claim to head the Interior Ministry triggered fierce tensions, since this ministry controls the secret services.
In order to avoid jeopardising the coalition agreement, the ÖVP proposed that the FPÖ be given its own asylum and migration ministry as a concession. In return, the ÖVP would head the interior ministry with control over the security authorities and secret services.
On Wednesday, ÖVP leader Christian Stocker stated that foreign partners had issued very clear warnings that Austria would be excluded from the international flow of information between secret services if the FPÖ were to gain control over the secret services. According to Stocker, foreign representatives had made this very clear even before the elections.
Konstantin Kuhle, deputy leader of the Liberal Democratic Party (FDP) parliamentary group in Germany and a member of the parliamentary intelligence oversight committee, had already told finance daily Handelsblatt shortly after the October elections that if the FPÖ entered government, Germany would also have to “reevaluate its intelligence cooperation with its neighbour.”
The chairman of the secret service committee, Konstantin von Notz of Germany’s Green Party, expressed a similar view. “In times of a war of aggression in Europe that is contrary to international law and massive influence and disinformation campaigns, especially from Russia, the FPÖ in government would certainly be a considerable security problem for Austrian authorities, but also for its partners,” von Notz told Handelsblatt.
When Kickl was Interior Minister under Chancellor Sebastian Kurz (ÖVP) from 2017 to 2019, he authorised a raid on the intelligence service BVT (Federal Office for the Protection of the Constitution and Counterterrorism). This was carried out by a police unit under the command of an FPÖ official. What happened to the files and data seized at the time remains unclear to this day.
At the same time, a secret unit was set up under Kickl, staffed with FPÖ cadres. It was later revealed that this unit worked closely with Russian services. In the wake of these events, in 2018, the BVT was excluded from the so-called Bern Club, an informal association of Western domestic intelligence services. The successor organisation of BVT is currently working on a renewed approach to the association.
The FPÖ’s Eurosceptic stance and its call for an end to sanctions against Russia have already caused conflicts between the parties in the past. The FPÖ opposes the EU sending arms to be used against Russia. It also maintains a friendship treaty with the pro-Putin party United Russia and numerous high-ranking FPÖ members have close personal contacts in the Kremlin.
In this context, tensions over the “Sky Shield” missile defence system resurfaced during the coalition negotiations. Launched by Germany in 2022, this joint missile defence and airspace data exchange project now involves 21 European nations. Although neither a NATO nor an EU project, it is clearly aimed at further escalating the war against Russia.
In the context of the growing conflict between the US and Europe, the implications of a possible FPÖ government within the EU are also being viewed with concern. Harald Vilimsky, an FPÖ member of the European Parliament, welcomed Trump’s initiative to negotiate directly with Russia, describing it as a “historic opportunity” that deserved “the highest respect.” Vilimsky said that the negative reaction of EU leaders to this development was therefore all the more incomprehensible.
Trump’s announcement that he would negotiate with Putin over the heads of the Europeans has further exacerbated the crisis within the EU and there are growing calls for a strong and united Europe to assert European interests not only vis-à-vis Russia but also against the US. The FPÖ’s orientation towards Trump and Putin is seen as an obstacle in this regard.
Prime Minister Jonas Gahr Støre with Ukrainian President Volodymyr Zelensky in July 2022 [Photo by President of Ukraine / CC BY-NC-SA 4.0]
Norway’s Labour Party-Centre Party coalition government broke up late last month over differences on the further integration of the country’s energy policy with the European Union (EU). Amid a rapid spike in home energy bills in parts of the country, driven by Norway’s role as a major energy exporter to Europe and increased demand across the continent, the rural-based Centre Party (SP) left the government and is campaigning for Oslo to take back more control over energy policy.
Labour Party (AP) leader and Prime Minister Jonas Gahr Støre headed the coalition with the SP since the AP’s 2021 election victory. Since elections cannot be held early under Norway’s constitution, Støre will continue to serve as head of a minority Labour government until September, the first single-party government in Norway in 25 years. He recruited former NATO Secretary General Jens Stoltenberg, who served twice as Prime Minister in AP-led governments between 2000 and 2013, to be finance minister.
The breakup of the coalition government followed on the heels of sharp energy price spikes late last year, especially in the country’s south. These shocks, which saw energy production costs rise as high as 13 kroner (€1.1) per kilowatt-hour, have their roots in Norway’s energy deregulation during the early 1990s and were fueled by the country’s close integration into Europe-wide energy markets. The price rises produced mounting popular disaffection with the government, which has focused on massive defence spending increases as it oversees the transformation of Norway into a key staging ground for US-NATO aggressive military operations against Russia.
While no expense will be spared on equipping Norway to serve as a junior partner of the imperialist powers in their wars of plunder, broad sections of the population confront high energy prices and a rising cost of living.
The immediate issue that led to the coalition’s breakdown was a proposal by Labour to adopt directives under the EU’s fourth energy package, which was finalised in 2019. Norway is not an EU member, but as a member of the European Economic Area (EEA), which grants free trade access to EU markets for Iceland, Liechtenstein, and Norway, Oslo is obliged to enact many EU legal provisions into national law. The SP denounced the government for giving up Norwegian control over energy policy and insists that Oslo should refuse to approve the directives.
The nationalist critics used the legal directives as a pretext, since they relate to renewable energy targets and building regulations for energy efficiency with which Norway already largely complies. They argue that connecting Norway’s power grid with Germany and Britain by undersea cables has sharply increased prices, and that this trend will accelerate if the EU’s control over energy policy expands and market-based energy prices continue to apply. Calls have been made for cables with Denmark and Britain to be cut in order to guarantee affordable prices in Norway.
While energy deregulation and Norway’s integration into a Europe-wide corporatised energy market have undoubtedly opened up Norwegian households to higher energy bills, the nationalist arguments ignore the fact that energy prices across the continent have also skyrocketed due to the imperialist-backed war on Russia. The sharp reduction of natural gas imports by the European powers from Russia has driven up prices across the continent, forcing a turn to more expensive imports, including from the US. Continent-wide demand has also spiked for Norway’s considerable energy resources, including its natural gas and hydro power that generates most electricity for households. To cite just one example, electricity prices for German households in the second half of 2023 were 20 percent higher and gas prices 22 percent higher compared to a year earlier.
The correct response to this development is not national isolationism, but a turn by Norwegian workers to their class allies across Europe, whose living standards are also declining under conditions of war and capitalist crisis. An international movement in opposition to the imposition of the cost of militarism and war on the backs of the working class in all countries must be based on a socialist programme.
Politically, the whipping up of nationalist sentiment towards the EU over the energy question by the SP plays into the hands of the far-right Progress Party (FRP) and right-wing Conservatives (Hoyre), who could establish a government after September’s election. The AP is currently at third place in the polls, behind the Conservatives and the FRP, who governed together between 2013 and 2020, the first time that the far-right party served in a Norwegian government.
The fact that the Conservatives and far-right FRP can benefit from the energy-price spike is above all due to the AP’s right-wing record. Under Stoltenberg’s leadership, the party embraced the right-wing, anti-immigrant chauvinism pioneered by the FRP, and Støre’s government has continued where its right-wing predecessor left off on strict public spending controls, while making available substantially more for the military. Støre has sought to win back some popular support with a proposal to cap household energy prices at 0.4 kroner per kilowatt-hour, but this is only scheduled to take effect on 1 October, i.e., after parliamentary elections in September.
Norway is a country with considerable wealth, with its Government Pension Fund Global (GPFG), better known as the oil fund, worth an estimated $1.7 billion. It holds approximately 1.5 percent of all shares of listed companies in the world, giving the Norwegian ruling class significantly more clout in the financial markets than the country’s population of 5.3 million would suggest.
But the use of the fund is strictly regulated to ensure public spending austerity and stable profit-making conditions for big business. The government can only use a maximum of 3 percent of the fund’s total value in each year’s budget, a figure set under the Conservative-FRP government in 2017. This framework, continued by the current AP government, has produced growing social inequality and increasingly stretched public services. A report by Norway’s Central Statistics Bureau (SSB) in September 2024 revealed that income inequality grew between 2016 and 2022 by 5 percent. The Gini coefficient, an internationally recognised scale for measuring levels of social inequality in society, with 0 representing absolute equality and 1 representing absolute inequality, rose from 0.358 to 0.375 when income from wages and capital investments were included.
All parties in parliament, from the far-right FRP to the Socialist Left and ex-Maoist Red Party, agree that Oslo must massively expand its military spending. Last April, the parliament (Stortinget) unanimously passed a 12-year defence spending plan that includes an additional 600 billion kroner (€51 billion) in spending, which will see the defence budget almost double in real terms by 2036. Underscoring the unanimity within the political establishment on ensuring Norway is a frontline state in the imperialist powers’ war to subjugate Russia to the status of a semi-colony, the introduction to the long-term defence agreement prepared by the Standing Committee on Foreign Affairs and Defence declared, “The committee, members of the Labour, Conservative, Centre, Progress, Socialist Left, Red, Liberal, and Christian Democratic parties, considers that Norway needs a credible and deterrent military defense at a time characterized by a security policy gravity we have not experienced in a very long time.”
The Green Party, the ninth party in parliament, also supports the agreement but was not represented on the committee.
Norway was a founding member of NATO and a firm US ally, but sought throughout the Cold War to play a less provocative role, for example by refusing to allow foreign troops to deploy on its territory. All of this has now changed. Major military exercises involving thousands of NATO troops are a regular occurrence, especially in the country’s north, where cross-border operations with Sweden and Finland aimed at Russia take place often. In early 2024, Norway transformed its biennial “Cold Response” NATO exercise into “Nordic Response.” Taking advantage of Sweden and Finland’s recent NATO membership, “Nordic Response” involved 20,000 soldiers, and hundreds of ships and aircraft from the aggressive military alliance.
The 12-year defence package includes the purchasing of a fleet of at least five frigates and five submarines, accompanied by anti-submarine helicopters. The modernisation of the navy is seen is crucial by the military leadership and Oslo’s NATO allies, who expect Norway to expand its presence in the North Atlantic and on its Arctic coast to target Russia. With the Baltic Sea virtually controlled on all sides by NATO member states and access to the Mediterranean blocked by Turkey’s closure of the Bosporus to warships following the US-provoked Russian invasion of Ukraine, Moscow’s northern route along the Norwegian coast and into the Atlantic Ocean is one of the few remaining free passages to the open sea it enjoys.
US Air Force MQ-9 Reaper Drone [Photo: USAF, Tech Sgt. Jim Bentley]
The Trump administration officially designated eight Latin American gangs, including six Mexican drug cartels, as “foreign terrorist organizations” (FTOs) on Wednesday. This designation, traditionally reserved for politically motivated groups targeted by the Pentagon and CIA, allows for stricter sanctions and, under the ever-expanding interpretation of legislation that launched the “War on Terror” after 9/11, paves the way to military actions in Mexico and the broader region.
Despite concerns in the corporate media that this move could harm trade and business relations globally due to fears of potential US prosecution and sanctions, the FTO designations are aimed at setting a precedent for ever-more predatory US foreign policies and military interventions.
Revealing the wide net being cast by the decision, Trump’s initial executive order outlined the three main rationales for the designations: 1) the groups’ convergence with “antagonistic foreign governments”; 2) that they are “entities engaged in insurgency and asymmetric warfare”; 3) and their alleged “infiltration into foreign governments across the Western Hemisphere.”
This framework makes clear that the FTO designations use the claim of countering drug trafficking and violent criminal organizations as a pretext for promoting war against geopolitical rivals, building up the repressive apparatus against working class opposition, and regime change operations.
Additionally, the FTO designations open up another line of attack in the Trump administration’s war against migrants. US immigration law prohibits granting asylum to individuals who have provided material support to terrorist organizations, regardless of the circumstances. Migrants coerced into paying cartels for safe passage or those who have been victims of extortion might be deemed ineligible for asylum based on these interactions.
Even though the media and US officials repeatedly cite it as the main reason behind the escalation of operations against cartels, fentanyl and the tens of thousands of overdose deaths in America are not mentioned in Trump’s order.
The designations coincided with reports by CNN and the New York Times of increased CIA-operated drone surveillance over Mexican territory. According to US authorities, the flights, utilizing MQ-9 Reaper drones, are aimed at monitoring cartel activities and locating fentanyl production labs in northern Mexico, with the intelligence gathered being shared with the Mexican government.
The expansion of drone surveillance began under the Biden administration, and has intensified under Trump, especially after the FTO executive order in January. Trump also appointed former Green Beret and CIA paramilitary officer, Ronald Johnson, as US ambassador to Mexico.
Mexican President Claudia Sheinbaum responded to these reports on Wednesday insisting that there is “nothing illegal” about the CIA drone surveillance flights since they were agreed to by her predecessors. The flights were “part of the dialogue,” she said.
But the lack of transparency surrounding these missions, which had never come to light before, suggests that they are part of the escalating US violations of international law. Each week brings new revelations or actions by the Trump administration reaching further toward a wide and indefinite presence of US forces in Mexico under the pretext of fighting the drug cartels and smuggling of migrants.
Accordingly, Sheinbaum has expressed opposition to the FTO designations, viewing them as potential infringements on Mexican sovereignty, while at the same time advocating for calm and national unity along with increased cooperation and joint investigations with the US military and intelligence apparatus.
On Wednesday, Gen. Gregory M. Guillot, commander of the US Northern Command, which oversees operations in North America, and Gen. Ricardo Trevilla Trejo, the Mexican Army chief, met and signed a Joint Statement of Understanding on cooperation along the border. This followed the approval by the Mexican Senate green-lighting the deployment of a small group of US Special Forces into Mexico to train Mexican Marines for counter-cartel operations.
On February 3, Washington agreed to suspend 25 percent trade tariffs against Canada and Mexico for 30 days in return for concessions, including the deployment of 10,000 troops by both countries to the borders with the United States. These concessions have not stopped Trump from including both neighboring countries in his planned global tariffs on aluminum and steel.
US officials speaking anonymously with the Times gave assurances that the CIA has not yet been authorized to employ drones in lethal actions inside Mexico.
However, billionaire Elon Musk, appointed by Trump to implement much of his economic agenda, responded to the FTO designations by writing on his platform X: “That means they’re eligible for drone strikes.”
The Trump administration sees the consolidation of a Fortress North America subordinated to the geopolitical and economic diktats of the American ruling class as a precondition to advancing its strategic conflicts with Russia and China. As in the calls for Canada to become America’s 51st state and threats to seize Greenland and the Panama Canal, Trump seeks to subordinate Mexico politically to his fascist and neo-colonial agenda through threats of military and economic war.
The Economics Studies program of the Brookings Institution has published a study on how mounting US federal debt, now at $36 trillion, could spark a devastating financial crisis in the US and globally.
While it concluded that the chances of such a crisis are low, the fact that such an analysis has been carried out by a major US think tank indicates this issue is causing greater concern. As the report acknowledged, “That the US is on an unsustainable fiscal trajectory is well-established and has long been evident in debt projections.”
Their paper, they wrote, sought to “examine the various channels through which debt can affect the economy to assess the risk that elevated debt will lead to a crisis.”
They defined a fiscal crisis as a “sudden, large and persistent downturn in demand for Treasury securities relative to supply that triggers a sharp and persistent spike in interest rates.”
One of the transmission mechanisms through which such a crisis could pass into the broader financial system is the so-called repurchase or repo market. This is the market in which financial institutions obtain short-turn funds, sometimes just overnight, using Treasuries as collateral.
The use of Treasuries in this way is relied on “heavily” in the financial system, the report noted, and a “sudden loss of confidence would impair liquidity, potentially leading to widespread bank failures, as banks and financial institutions use Treasuries to meet capital requirements.”
Such an event is not “off the charts” but has already happened. In September 2019 there was a crisis in the repo market when interest rates on ultra short loans shot up to as high as 10 percent from their normal level of a fraction of a percentage point and the Federal Reserve was forced to intervene.
The report warned that a crisis in the Treasury market would “most likely” be accompanied by a “dramatic fall” in both the US dollar and equity markets. Given the critical role of the US Treasury market in the global financial system, it “would likely lead to a financial crisis involving widespread bank losses, a collapse in credit availability, and very likely a global recession.”
Such a scenario is well within the bounds of possibility. In fact, the conditions for it emerged in the freeze in the US Treasury market at the start of the COVID-19 pandemic in March 2020. For several days there were no buyers for US Treasury bonds, supposedly the safest financial asset in the world.
A full-scale global meltdown was only prevented by the Fed which intervened to the tune of several trillion dollars to back virtually every financial asset.
As Darrel Duffie of the Graduate School of Business at Stanford University wrote shortly after the immediate crisis had passed, while the Fed accomplished what it needed to do, it was not acceptable that the market was based on “the notion that the Fed is available as the lender of last resort.”
Duffie remarked that the turmoil revealed that the structure of the Treasury market was “overdue for an upgrade.” In the five years that have since passed, nothing resembling that has taken place. In fact, the various financial regulatory authorities are still trying to figure out what exactly took place in March 2020 and what might be done to prevent a recurrence.
The report posed the question as to whether future disruptions could be so large that even the Fed could not respond effectively. It said given the Fed’s capacity to purchase an unlimited amount of Treasuries this was “unlikely.”
“Still,” the report continued, “as the Treasury market continues to grow, episodes of dysfunction might become more frequent, potentially undermining confidence in US Treasuries as the world’s safest asset.”
The report’s authors recognised they were very much in uncharted waters—there has never been a time, except in World War 2, when the US debt to GDP ratio has been as high.
That was in very different conditions. The US was then an industrial powerhouse which formed the economic basis for the post-war boom through which it was able to pay down the debt. Today the US economy is shot through with debt and financial parasitism, dominated by the financial oligarchy whose source of wealth is not the expansion of industrial power but market speculation.
These issues are not touched on in the report, but the authors are aware that their claim that the chance of a crisis appears to be “quite low” rests on somewhat shaky ground.
“We recognise,” they wrote, “there is great uncertainty about the repercussions of debt as a share of GDP rising to levels far exceeding historical precedents, and an analysis benchmarked to historical relationships in the macroeconomy may understate the risks of a fiscal crisis.”
After analysing projections by the Congressional Budget Office on the increase in debt, the report noted that “the required adjustments to fiscal policy to stabilise the debt are sizable.” Moreover, those projections well be an underestimate because they are based on present conditions and not the measures which the Trump administration has planned such as major tax cuts for corporations and the effect of tariffs.
Where is the axe going to fall? There were no explicit policy prescriptions, but the answer was contained in the analysis of the reasons for debt escalation.
“In 2024, Social Security and health programs accounted for 3 percent more of GDP than they did in 2006 while revenues and non-interest spending were about the same. Thus, primary deficits as a share of GDP increased from 2006 to 2024 because spending on Social Security and health programs rose.” 2006 was chosen as the baseline because it was prior to the global financial crisis of 2008 and might be considered as being “normal”.
As with all such institutions providing advice on the running of the capitalist economy, the Brookings analysis essentially rules out as “off limits” for its calculations any consideration of the massive increases in US military spending, or the trillions of dollars handed to corporations and banks in the form of bailouts and subsidies. Also ruled out are the effects on the economy of the provision of virtually free money to companies and banks by the Fed, and, more recently, the payment of interest to Treasury bond holders, now approaching $1 trillion a year.
The focus of policy prescriptions, either explicit or implied, is on expenditure measures that most directly impact the working class.
Among possible triggers for a crisis it listed problems that the Fed is unable to mitigate. These included a depression or war, and political brinkmanship, which regularly takes place over lifting the debt ceiling leading to the loss of credibility. Also listed were the fear of default, a loss of inflation control and concerns that the Fed had abandoned its mandate and was allowing hyperinflation, and a “strategic default” at least on some debt. On the last possibility, Republican Senator Lindsey Graham suggested in 2020 that China should not be paid the $1 trillion it holds in US Treasuries.
The overriding fear pointed to was that investors came to believe that “the US was never going to address its long-term fiscal challenges.” This raised the “serious possibility” of a strategic default on its debt and “the result could be a cataclysmic event.”
It said the fiscal challenges had to be addressed and a “perceived unwillingness” to ever take these steps “would likely lead to a fiscal crisis, even with a Federal Reserve willing to act as a lender of last resort.”
The report did note that there was great uncertainty about “debt as a share of GDP rising to levels far exceeding historical precedents.” But it concluded that analysis suggested “so long as the US maintains its strong institutions and a fiscal trajectory that isn’t vastly worse than the ones currently projected the chance of a fiscal crisis over the next decades appears quite low.”
During an online event to discuss the report, however, David Wessel, a senior fellow at Brookings, drew attention to these lines which he said had been “haunting him.”
Clearly referencing the upending by the Trump administration of what had been economic, political and legal norms and the weakening of US institutions and a worsening fiscal trajectory, he said: “These are things I used to assign a zero probability to that are now somewhat higher.”
Louise Steiner, one of the authors of the report, said she was worried about the chance of a crisis not sparked by the amount of debt, and “not following the law as we used to understand it.”
Jo-Ann Fabrics store in Manchester, Connecticut [Photo: Wikimeida Commons]
US retailers are expected to close 15,000 stores this year, more than double the 7,325 shuttered in 2024 and breaking a record set in 2020 at the height of the pandemic.
Last week, bankrupt fabric retailer Jo-Ann announced it is planning to close around 500 locations this year, over one-half its 850 stores. The cuts will impact 49 states.
Through January this year, there were already 2,000 reported closures, including bankrupt Party City (738) and Big Lots (601). Pharmacy chain Walgreens has closed 333 stores and has targeted 500 more for closure this year.
2024 saw a number of other high-profile bankruptcies, including department store chain Macy’s. Bankrupt furniture retailer Conn’s had 553 store closings last year while bankrupt American Freight closed 353 locations and LL Flooring closed 213 stores. Overall, retail bankruptcies doubled over 2023 going from 25 to 51.
One Jo-Ann employee posted on social media, “The higher-up’s knew all along that stores would be closing, stringing store employees along that maybe... Corporate greed and major mismanagement above the store level in all its glory! Working our patooties off, hours cut, absolutely minimal staffing, customer complaints, that’s what the last year and a half has been! The only store remaining open in MD is Annapolis, and it’s more of a craft store than a fabric store.”
Another posted, “Sad day at Joann’s, I have worked with all my Joann family for 30 years. My heart is sad for all the employees and customers affected by these closings.”
The largest store closings in 2024 were in discount stores and pharmacies. Leading the list was Family Dollar with 700 store closings. CVS Health had 586 pharmacy closures and, Rite Aid closed 408 stores, followed by Walgreens with 259. This has led to warnings of the creation of “pharmacy deserts,” forcing people to travel out of the local area to fill prescriptions.
A number of factors are behind the mass of retail closures, such as the shift to online selling, but depressed spending amid growing social distress is certainly a key driving force.
Overall, January saw tepid job growth with employers adding 143,000 jobs, down significantly from the 261,000 added in November and 307,000 in December. The unemployment rate stood at 4 percent, still relatively moderate by historical standards, but concealing high levels of economic insecurity exacerbated by low-wage jobs and part-time and gig work.
The decline in job creation has been an ongoing trend. New jobs rose 2 million in 2024, down from 2.6 million in 2023 and the record 4.6 million in 2022, following the forced return to work during the pandemic. New job openings stood at 7.6 million in December, down from 12.2 million in March 2022.
After rising for the previous year, retail sales dropped 0.9 percent in January, the biggest decrease since March 2023. Sporting goods, hobby, musical instrument and bookstore sales were down 4.6 percent. Even online sales were down, falling 1.9 percent. Building material store sales fell 1.3 percent. There were declines in other categories as well.
The fall in sales was at least partially due to the unusually cold weather across much of the US and the fires in Southern California. However, other factors probably came into play as well, such as fears of harder economic times ahead with Trump’s looming tariff war and federal job cuts. According to a University of Michigan Consumer Survey for February, one-year inflation expectations reached a 15-month high in early February as households perceived that “it may be too late to avoid the negative impact of tariff policy.”
Another factor in the downward pressure on spending is the growth in consumer debt. At the end of 2024, credit card debt stood at a record $1.21 trillion, according to the Federal Reserve Bank of New York. That was $45 billion more than at the end of the third quarter of 2024 and an $82 billion year-over-year rise, or 7.3 percent.
Credit card debt is made more burdensome by the continued high interest rates, with the typical average credit card interest payment now at around 20 percent.
Matt Schulz from Lending Tree told CNBC, “Stubborn inflation has shrunk a lot of Americans’ financial margin for error from slim to about none, forcing people to lean more heavily on credit card debt.”
Workers are increasingly struggling to make minimum credit card payments and delinquencies are rising. According to the Federal Reserve Bank of New York, levels of serious delinquency, defined as 90 or more days past due, remained stable for mortgages but was up slightly for auto loans and credit cards in the final quarter of 2024. It also reports that 3.5 percent of all outstanding debt is in some state of delinquency.
The continued high rate of inflation is also eroding workers’ incomes, as pay rates struggle to keep up. The official rate of inflation stands at 3 percent, but the effective rate is higher for most workers. For example, the cost of rent and housing, which takes a disproportionate share of many worker’s income, rose to over 4 percent in 2024. In fact, last year saw an 18 percent rise in homelessness. The impact of this was tragically visible by the recent freezing deaths of two young children who were sheltering with their homeless family inside a van in a Detroit casino parking structure.
Adding to pressures on consumers is the increasingly precarious state of employment. Supposedly record pay rises for autoworkers were accompanied by a wave of auto layoffs last year.
Facing the threat of tariffs, and uncertainty and higher costs in the transition to electric vehicles, automotive companies are retrenching globally. This was underscored by the announcement by German auto parts maker Continental that it will cut 3,000 jobs globally in its automotive research and development operations by 2026. This comes on top of 7,000 job cuts that it previously announced.
Michigan-based automotive seat supplier Lear Corporation cut 15,000 jobs globally last year and projects a similar number for 2025. The company saw net income fall 9 percent last quarter and is seeking further retrenchment ahead of anticipated tariffs and continued uncertainty in the auto sector related to EV production and development.
Last year also saw a global bloodbath in tech jobs. The recent advances in artificial intelligence (AI) presage even more cuts as companies utilize the new technology to replace workers. These cuts have been driven by both the effort to cut costs as well as the deliberate policy by the Biden administration and the Federal Reserve to drive up unemployment in order to forestall demands for higher wages.
The policies of the Trump administration, which is targeting hundreds of thousands of government jobs for elimination, and seeking to launch trade war against nominal allies as well as rivals, can only serve to drive up unemployment and economic destitution further.
Following last year’s general election, in which the fiercely pro-big business, Hindu supremacist BJP lost its majority in the Lok Sabha, the opposition INDIA alliance and particularly its “left flank,” comprised of various Stalinist and Maoist parties, claimed that a chastened government would henceforth be susceptible to popular pressure.
This was a fraud, aimed at containing the swelling but inchoate popular anger over mass joblessness, endemic poverty and the BJP’s relentless communal incitement within the reactionary framework of establishment politics, and their efforts to replace Narendra Modi and his BJP with a right-wing capitalist government. One that would be no less committed than Modi’s to “pro-investor” policies and India’s “Global Strategic Partnership” with US imperialism.
In the eight months since, the BJP government has continued its rampage against working people’s social and democratic rights.
Indian Prime Minister Narendra Modi campaigning during the 2024 national elections [AP Photo/AP Photo]
The budget for the 2025-2026 fiscal year, which Finance Minister Nirmala Sitharaman presented to parliament at the beginning of this month, provides massive subsidies for corporate India, cuts income taxes for a small privileged layer and sharply increases military spending, while slashing social spending for India’s impoverished workers and rural toilers.
Yet Sitharaman, the finance minister since 2019, had the temerity to claim her budget was “by the people, for the people.” In reality, it was a budget for the capitalist oligarchs, the billionaires like Gautam Adani, Mukesh Ambani, and the Tata and Birla families, whose fortunes have grown exponentially over the past quarter-century, thanks to the policies of successive Congress and BJP-led governments. This included the fire sale of public assets, massive corporate tax cuts and other concessions, and the state promotion of precarious contract-labor employment.
As supposed proof of her budget’s “pro-people” character, Sitharaman pointed to an income tax concession extended to those who earn up to Rs. 1,200,000 rupees (US $13,812 annually). Such persons will no longer be subject to any income tax, as long as they file using a specific tax form. Much of the corporate press claimed that this was an income tax “bonanza” to the “middle class.”
This is all smoke and mirrors. The vast majority of Indians pay no income tax, because their incomes are so miserable. In 2024, in a country of more than 1.4 billion people, only 86 million people filed an income tax return.
Until now, the annual income threshold at which one has to pay income tax has been 700,000 rupees ($8,093), more than double the annual median income of Rs. 324,680 (around $3,900). The lower tax threshold, it need be added, will only be available to those who use the government’s “New Tax Regime” (NTR). Introduced in 2020-2021, it provides lower tax rates than the “Old Tax Regime,” but in the name of simplification it eliminates many exemptions and deductions.
Sitharaman and the numerous government cheerleaders in the corporate press have claimed that the raising of the income tax threshold will boost middle class consumer spending and thereby augment India’s economic growth rate. In truth, whatever boost in consumption it delivers will be highly circumscribed, as even the incomes of privileged middle class people have been squeezed in recent years by sharp rises in food prices and other goods.
In response to pressure from both domestic and international capital, the Finance Minister made a budgetary promise to enhance the “Ease of Doing Business” by dismantling or ignoring environmental and other regulations that stand in the way of private profit making. Already the government has gutted the country’s labor laws to an extent that workers in even relatively large enterprises can be fired at will, and employers can now freely hire contract workers instead of permanent workers.
With the Indian economy’s growth rate beginning to falter in the face of global economic headwinds, weak capital investment, and anemic growth in consumer spending, especially among the least well-off Indian corporations, foreign investors and credit rating agencies made it clear in the run-up to the budget that they expected the Modi government to provide significant fiscal stimulus.
Even as they did so, they also exhorted the government to press ahead with “fiscal consolidation,” that is, reducing the budget deficit to GNP ratio through intensified austerity measures, especially targeting price subsidies and other “redistributive” measures.
According to some projections, India’s growth rate could be as low as 6.2 percent during the 2024-25 fiscal year ending in March. While that would be far in excess of the rate of growth rate in any of the advanced capitalist countries, it is widely conceded that India needs an annual growth rate in excess of 8 percent just to absorb the yearly intake of new entrants to the labor force.
The budget was very much written to meet the conflicting imperatives of providing stimulus for big business and squeezing social allocations.
In last year’s budget, the government made a pretense of being concerned about the now years-long phenomenon of “jobless growth,” announcing various subsidies to boost the hiring of new employers, trainees and apprentices. In her February 1 budget speech, the Finance Minister had effectively nothing to say about job creation, although nothing suggests that last year’s measures have made even a small dent in the jobless crisis, leaving tens of millions, including millions of university graduates, unemployed or under-employed.
India’s growing debt trap
In the fiscal year starting April 1, 2025 and ending March 31, 2026, the government anticipates spending Rs. 50.65 trillion ($585.55 billion), as compared with Rs. 47.16 trillion ($561.43 billion) in the current fiscal year.
Close to 31 percent of the budget, amounting to Rs.15.69 trillion ($183.53 billion), is financed by debt with interest payments estimated at Rs. 12.76 trillion ($147.51 billion), constituting far and away the biggest single budget item.
Since capital investment by Indian corporations has been in a freefall over the past decade, the government is more than ever the principal source of new capital investment. The government has earmarked a massive Rs. 11.21 trillion ($130 billion) for Capital Expenditure (CAPEX), a 10 percent hike from the previous year.
This will be spent building infrastructure projects, such as roads, bridges, ports and electricity to facilitate the growth of Indian capitalism, and in the form of private-public partnerships. In practice this means funneling massive amounts of public funds into the pockets of politically well-connected crony capitalists, such as Adani and Ambani, who routinely overcharge for their “services,” use lower quality materials to increase their profits and frequently fail to meet construction deadlines.
For example, as of February 2024, 443 out of 1,902 ongoing projects had reported cost overruns amounting to Rs 4.92 trillion ($56.88 billion), a massive 18 percent increase over the original estimates.
The military budget has been hiked by close to 10 percent to Rs. 6.81 trillion ($79 billion). This comes on top of close to double-digit annual hikes over the past decade.
For just these three items, interest payments on the national debt, CAPEX and the military, the government has budgeted Rs. 30.78 trillion ($355.85 billion). This represents about 61 percent of the total budget, leaving a meager 39 percent for all other expenditures.
This is why the social sector and agriculture have been the target of massive cuts. The budget for the Agriculture and Farmers’ Welfare department has been cut from the Rs. 1.31 trillion ($15.14 billion) that the government expects to spend this fiscal year to just Rs. 1.27 trillion (14.68 million). The budget allocation for the provision of subsidized foodstuffs, such as rice and lentils through India’s Public Distribution System (PDS), is the same as last year, Rs. 2 trillion ($23.12 billion). Due to inflation, this amounts to a massive cut, one that will compel the hundreds of millions of impoverished people who depend upon the PDS to eat even less.
Spending on healthcare and education remain woefully inadequate with an astounding shortage of 2.4 million hospital beds and at least 1.2 million teachers.
A girl stands in her shanty home on the outskirts of in Guwahati, India, Friday, Feb. 10, 2023. [AP Photo/Anupam Nath]
The Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS), which is supposed to guarantee 100 days of menial manual work to one adult member of every rural household, is being starved of funds. The allocation for the coming year is stagnant at Rs. 860 billion ($9.94 billion). The daily wages paid to this most oppressed layer of the rural working class reveal the utter cruelty of Modi government. In many of the states, daily wages for extremely strenuous backbreaking outdoor work still amount to a miserable Rs. 200 ($2.31) per day. Even these wages are frequently held up for weeks, even months. At least 65 million rural households numbering about 300 million people depend upon MGNREGS for their livelihood.
The massive increase in military spending is a humongous drain of public funds. Out of Rs. 6.81 trillion ($79 billion), around Rs. 1.8 trillion ($20.8 billion), is allocated to buying new military equipment, such as fighter jets, nuclear-capable ballistic missiles and other weapons systems.
This military spending is directed first and foremost at China, and secondly at New Delhi’s traditional arch-rival, Pakistan. The India bourgeoisie has harnessed itself to US imperialism’s military-strategic offensive against China, in the hopes of securing US investment and strategic favors.
However, for the influential Observer Research Foundation (ORF) think tank, which is financed by India’s Reliance Industries owned by the oligarch, Mukesh Ambani, the military budget is inadequate, or at least must be fundamentally restructured so that much more money is spent on weapons and far less on personnel, especially pensions.
The Modi government has announced a disinvestment (privatization) target of Rs. 470 billion ($5.43 billion). This exceeds the Rs. 330 billion ($3.81 billion) the Modi government expects from its disinvestment receipts in FY2024-25. Disinvestments of government ownership in public enterprises and other assets, such as ports and airports, are another mechanism the Modi government uses to enrich India’s capitalists. For example, the government sold off the government airline Air India to the Tata conglomerate for a miniscule amount in 2021.
Placing the burden of taxation ever more fully on India’s workers and toilers
The budget will further increase wealth and income inequality in India, already among the worst in the world. The revenue of the Indian government is overwhelmingly derived from income taxes and the highly regressive Goods and Service Tax (GST) introduced in 2017. GST is charged for all goods, services and even packaged food items and routinely adds 12 to 18 percent to the price. Although indirect taxes did exist at both the state and federal levels prior to the imposition of the GST nationwide in April 2017, the tax burden on the masses from the GST is nothing less than crushing.
GST and income tax revenues now amount to Rs. 26.16 trillion ($302.43 billion). As compared to this, corporate taxes are estimated at a mere Rs. 10.82 trillion ($125 billion). Since coming to power in 2014, the Modi government has worked systematically to shift the tax burden to wage earners while consistently cutting corporate taxes. In the 2010-11 fiscal year, the corporate tax amounted to 67 percent of direct tax collection, and the remainder was collected as income tax from wage earners. There was no GST at that time. Currently, the tax burden on wage earners and the lowest strata of the population constitutes 71 percent of the total direct and indirect tax collection.
The charity organization OXFAM India in a report released on January 15 highlighted the extraordinary burden of the GST on the masses. It stated:
Approximately 64 percent of the total Rs. 14.83 lakh crore (trillion) in Goods and Services Tax (GST), came from the bottom 50 percent of the population in 2021-22. As per estimates, 33 percent of GST comes from the middle 40 percent and only 3 percent from the top 10 percent.
The majority of Indians do not have regular jobs and make a living in what is termed as the “informal sector,” comprised of small roadside fritter-sellers and other hawkers, daily casual workers, servants and the like. Since no new jobs are being created, especially in the manufacturing sector, which accounts for a mere 15 percent of India’s GDP, more and more youth are compelled to fend for themselves as so-called “self-employed.” So desperate is the condition of the Indian masses that, according to a study conducted by Foundation for Agrarian Study (FAS), the data from the government’s Household Consumption Expenditure Survey in 2022-23 revealed that more than 360 million people are unable to afford daily food, healthcare and housing.
Despite all the talk of the Indian economic growth rate being the “envy” of the world, the Indian economy is in dire straits even from the utterly crass standpoint of bourgeois economists. Capital investment from foreign and domestic capital has plummeted over the past decade. In the 2024 Fiscal Year FDI (Foreign Direct Investment) inflow plunged by 62.17 percent to $10.58 billion, a 17-year low.
So desperate is the need for capital investment, India’s Chief Economic Adviser V. Anantha Nageswaran advocated last year that the Indian economy should integrate itself into China’s global supply chains or promote FDI from China. This even as New Delhi integrates itself ever more fully into the US war drive against Beijing.
