The U.S. stock market is racing down today, millions of individuals whose pension funds are linked directly to large stock funds (not to m abd ention those who one stocks directly) in response to Standard and Poors "downgrading" of  the U.S. bond rating.   What is this all about?

First, there is an excellent article in today's New York Times by Nobel Prize winning economist Paul Krugman, who the Obama administration should have made head of the Council of Economic Advisors or, if it could, Chair of the Federal Reserve (and still should). 

 Krugman makes the point that Standard and Poors has in many ways far less "credibility" than the U.S. economy.  The present "debt" crisis, Krugman contends,  is largely the result of the the 2008 stock market collapse directly related to the mortage housing crisis. 

This, Krugman reminds all of us, was  brought on by the hundreds of billions of bad paper which major financial institutions took on, both because deregulation offered them quick  profits in speculative buyng and selling and because Standard and Poors  gave a great many of these mortage funds a AAA rating!  

Krugman uses the old Yiddish joke about Chutzpah(or overweaning arrogance) which goes like this:"the orphan who kills his parents and then  throws himself on the mercy of the court because he is an orphan."  I as a Marxist prefer another variation of that joke which I think is more relevant to events today:  "the man who kills another man by throwing him off a roof and then claims in court that the man died because of the law of gravitation."!

That is much more relevant  as I see it because  Standard and Poors CEO has claimed that his agency is responding to the failure of American politicians to respond to the "laws" of the market and control the American debt through reducing "entitlements" (the Reagan era putdown widely used by large capital and their media fans) aka social security, medicare, discretionary social spending and increasing revenues (the second, which means taxes of course, Standard's CEO  only whispered).

First, as I said in an earlier article, quoting the head of a raters association of which Standard and Poors is a member, even a short term default ,which analysists claim explains why the Democrats largely caved to right Republicans on the debt ceiling fight, would not have too much of an effect. 

As for the stock market, we should remember that it remained pretty flat for decades (from World War II to the 1980s) after which  deregulation and real income stagnation, along with all sorts of schemes to put more and more money into the stock market, produced our present system of, to use Naomi Klein's valuable description, "casino capitalism."  The stock market has always been based on "confidence" which  of course produces endless cons and swindles.   Regulation of the kind established in the 1930s (and undermined from the 1980s on) was the real way to create the stability in the market which  is the only basis for serious confidence, especially by the large institutional fund investors who control the de facto savings of tens of millions of Americans.

But what should be done and what can done? Let me make a few suggestions and then ask our readers for their ideas.

First it is essential for the President to go the people and explain to them exactly what this means, making it clear that Standard and Poors, given its track record, is  far less trustworthy than a Las Vegas odds maker in evaluating the U.S. economy.

Then, if the market continues to drop tomorrow, President Obama should do what Franklin Roosevelt did with the bank crisis of 1933(and here I know that many of our readers will  shrug at any comparison to Obama with Roosevelt, which I and many others made extensively in 2008-2009) by declaring a stock market holiday, closing the U.S. stock exchange to prevent a run on stocks as Roosevelt did with the banks

Of course, Roosevelt then came forward with a reform program for the banks, of which FDIC was for the people the most important feature.  Obama has not effectively pushed the restoration of banking/stock market regulation, although there have been marginal improvements. 

The U.S. government must not allow itself to be held hostage to Standard and Poors as it largely allowed itself to be held hostage to the Republican right.  The only serious deficit reduction program has to be centered on both rising incomes and  a restoration of progressive taxation.  "Entitlements", the Reagan era term that Standard and Poors uses, are the  social economic rights of the working people of the U.S.  They are in reality way to too low, not too high, when compared to  the rights that other working people have in other advanced industrial countries.  And this, meaning the lack of national health care, a better social security system, pprograms like public day care and free tuition higher education,  also detracts from mass purchasing power, increases consumer debt, and undermines the economy.

First, it is time to demand real national health care aka socialized medicine  The present sytem costs twice as much as real socialized medicine systems in the rest of the developed world and compels everyone from senior citizens to the parents of infants to pay far greater out of pocket expenses than people in any other industrialized nation have to pay (most including our Canadian neighbors pay nothing out of pocket for basic coverage).

Repealing the "detaxation" policies of the last three decades would also directly contribute to large deficit reduction. 

It is important to remember that the federal deficit only doubled between 1945 and 1975, when the regulatory and tax systems developed in the New Deal era were in place,  the stock market was relatively stable, trade unions, while stagnating in terms of real growth and declining in terms of percentage membership, still represented about one fourth of the non agricultural force.

Also  income gaps over those decades  continued to narrow--the exact oppose of the  last three decades, where the debt from 1981 has increased around 14 times, the number of workers in private sector unions has dropped to nearly pre New Deal levels(under 10 percent) and income gaps between upper income groups and the general population have grown spectacularly.

A high wage economy characterized by  an updated and restored system of regulation of industry and finance, a restoration and expansion of social economic rights/benefits to the whole people, and federal policies to strengthen and revive the trade union movement represent the only peoples solution to the deficit (which is a major problem since it means that more and more income is devoted to interest payments to finance capital, not to peoples needs),  Stale Reagan era recitations of debt to GDP growth ratios, which Wall Street, Standard and Poors, etc., use when it suits them, offer the more misery to the people, and of course to the economy, since the peoples employment and incomes are the economy.