Our trusty North America correspondent, that intrepid man about Washington, thought it prudent to let me know about (and explain in simple terms), the intricacies of the financial crisis which is currently threatening to shut down America, and with it most of the Western world.As soon as the Republicans took control of the House, people who know about Washington realised that there was a potential for a major crisis. The necessary increase in the statutory national debt ceiling, which allows the federal government to continue to borrow money, would need to be approved. Normally, says Danny, that presents no problem. The debt limit was raised seven times during the Bush the Younger’s administration. Indeed it is raised all the time, by agreement of both parties.
In Danny’s own words: “Not raising it is simply unthinkable. It would force the United States Treasury to default on its debt obligations....traditionally among the most secure and highly rated in the world. The economy of the United States would implode, and with it, much of the economy of the western world. So the stakes are the highest in the world.....literally!”
So what, you might ask is the problem. Well, try fruit cakes... not literally of course, but it’s an appropriate appellation for people in the so-called Tea Party (which, of course, is not a party at all, but a right wing faction of the Republicans, populated by such nut jobs as Michelle Bachmann), members of which now sit in Congress.
They say no. NO MORE DEBT. It is, as Danny says, ‘religious heresy’ to continue to fund debt.
So the Republican leadership: in the House and in the Senate decided to tell the President that any increase in the debt ceiling must be coupled with huge spending cuts to reduce the budget deficit. And that this must be done by cutting social programmes. Absolutely no new taxes on the wealthiest America
ns would be agreed to by Republicans!President Obama is calling their bluff. He said that he will not cut programmes for the most vulnerable in society while the rich enjoy no tax increases. There will be absolutely NO spending cuts without also increasing taxes on the rich, and corporations. (The GOP wants the social programs that benefit the poorest Americans to pay for it all.) Impasse.
The economies of the West are being held to ransom by people who want to cut the little that is spent on the poorest and the sick, and in many cases may even be stupid enough not to understand what is at stake.
Of course the mainstream Republican Party does understand the implications of allowing the economy to crash and burn...and that the biggest losers in that situation would be...the rich. So Republicans in Wall Street, for example, are telling the leadership to get the situation sorted sharpish.
The very last date for agreement is August 4. I wonder who will blink first.
(Sincere thanks to Danny for his email about this. Parts of the above post are copied directly from it.)
Pics: Michelle Bachmann looking completely mad, and sticking her finger right up that dude's nose. Barack Obama not doing any of that stuff.
Goldman: These Companies Could Get Crushed If The Government Goes Into Austerity Mode
ReplyDeleteThe whole of the world is now in debt and default is going to start sometime soon, batten down the hatches.
I wonder how many will take all this austerity sitting down, especially as those and such as those will have no part in austerity. Spam sandwiches for tea at Chequers? Uh huh!
ReplyDeleteTris...you have that spot on. I wouldn't place any bets on deep austerity coming down the road anytime soon. People generally SAY they want austerity until the details are fleshed out. And programs which produce government contracts to corporations are among the hardest to cut of all.
ReplyDeleteThe Republicans have dug themselves into a position which is untenable. They decided to hold the normally routine debt ceiling increase bill hostage to spending cuts. By which they mean cuts in social programs, which the Democrats will never accept without some tax revenue offsets. And yet nothing defines today's GOP as much as their "no new tax" position.
Tris....one small typo. The US Treasury says that the deadline for default is August 2. But economic Armageddon will not happen. At some point, one side will blink. It could even come down to 11:00 PM on August 1. A one-sentence bill could pass both houses of Congress, with the bill rushed down Pennsylvania Avenue for Presidential signature in the last hour before midnight.
Politically divided government in Washington is never a pretty thing to see.
Danny,
ReplyDeletedespite the obvious 'hell no' attitude of the more fiscally conservative US republicans ... they do have an element of truth in what they say..surely?
Obama has presided over a 40% increase in US debt - that isn't the hallmark of competent president-administration.
Further, raising taxes on the richer folk tends to lead to less rather than more tax intake, but also less entrepreneurial job creation.
Obama cannot expect to tax and spend like he has done. Not out of a fiscal conservatism on my part, for I am not particularly hardline on that --- but because his stimulus policies have NOT worked.
I would add however, that the US defaulting on its debts would have the same kind of global impact as a eurozone collapse.
ReplyDeleteBoth are unthinkable, but this is the era of the unthinkable become reality.
Danny: It's only spot on because I cribbed, and in some places copied, directly from your email. The typo on dates was all mine. You supplied me with the correct date and for some reason, known only to the gods, I decided, in an act of unsurpassed generosity, to give them an extra 2 days to sort out their mess. ;¬)
ReplyDeleteDean,
ReplyDeleteI'm sure that Danny will give you a more learned answer than I can, but there are some, to me, obvious observations on your comment.
From the text that Danny sent me, and that I reproduced, you can see that President G W Bush (hereafter referred to as DubYa) raised the debt ceiling 7 times in an 8 year presidency. I can't give a figure on the percentage rise that that involved but I think that you will agree that that's hardly competent fiscal management either.
I agree that taxing the very rich usually mean that the overall tax take goes down, because the rich find ways to avoid payment, legal or illegal. In poor people that is a crime, or is at least frowned upon; in the rich it seems to be something to be proud of. Whichever, a tightening of the tax laws would reduce it.
You talk about the stimulation not working, but here, where the opposite is happening and everything is being cut, the borrowing is still increasing. It just doesn't need to be agreed by parliament here.
Both Obama, and for that matter Cameron, inherited a financial mess of monumental proportions. Neither's solution is effective.
I agree that a US collapse is out of the question. It would mean the end of the economic world as we know it and of course millions of rich people over the world would lose fortunes. It therefore will not be allowed to happen.
Dean, You touch on the essential points of the great debate going on in Washington. The Democrats scorn the characterization of Obama as "just another tax and spend Democrat" in the face of the dramatic increases in the public debt that took place in the Reagan and George W. Bush administrations. As for the stimulus spending, the current Republicans seem to forget that in the face of imminent economic collapse, a large stimulus program was proposed by George W. Bush, and first enjoyed wide bipartisan support. Obama was in fact criticized at the time for advancing a program that was much too small, from the standpoint of Keynesian economic theory.
ReplyDeleteAs for tax revenues, Ronald Reagan famously insisted that lowering taxes would balance his budgets. But the increase in the national debt as a percentage of GDP during the Reagan and Bush Administrations puts the spending of the Obama administration in the shade. Surely there are limits to supply side theory as real as those to Keynesian theory.
An "element of truth" in the GOP position to be sure. There is no doubt that the present budget deficits are unsustainable, and that there must be changes in the major entitlement programs to reduce them. It is equally clear that the Democrats will exact some sort of tax revenue increases as a part of a grand deficit reduction package. It was simply a tactical error for the Republicans to choose the debt ceiling bill....which should have been a routine bookkeeping issue....as a hostage to the negotiation of the larger issue. It is a bill that ultimately they MUST pass. But they face a president who will not accept their deficit reduction demands without tax revenue increases. Increases which the Republicans MUST NOT accept, based on GOP principles, and recent campaign promises. They simply took an initial negotiating stance which they can't easily back out of. It depended on a complete capitulation by the Democrats. And Obama seems determined.
But Dean, please spare me the "tax and spend" cliche. A spender, Mr. Obama may be. But a taxer he is not. He is presiding over a government which is levying the lowest federal taxes in decades....by some accounts, since the 1950's. And he hasn't raised taxes by as much as a penny.
Tris....As to my comment. Not more learned, but surely longer.
ReplyDeleteAnd the US Treasury sends thanks for the additional two days you allotted them. ;-)
Danny:
ReplyDeleteThe nub of the matter is that the GOP chose the wrong barrel to put the President over.
As we have agreed, the collapse of the US economy will not happen because (nearly) every rich and powerful person in the world has a vested interest in it not happening.
And, as Dean says, the same applies to the €-zone. I'd add Japan, which is also in severe trouble after the earthquake, tsunami and nuclear meltdown in a matter of days.
Probably among the richest and most powerful, with their vested interests, are the GOP's own supporters in New York. It was a piece of very dodgy strategy on their part, although I see that they have been backed into a difficult place by the tea cakes!
It's a shame that things are pushed to the wire.
It will be the same in Europe. As in the States the economies of the rich states must subsidise, to a certain extent, the economies of the poorer states. The political structure is different in Europe, with the individual states having far more power over their finances, but in the end Germany and Austria will have to pay for the financial follies of Greece, Ireland and Portugal. It is in the interests of the rich countries to do it, for all the fuss they make about it.
Tris....The wrong barrel indeed. Success of the Republican strategy, with its entrenched positions coming out of the gate, depended on a complete capitulation by the Administration. Instead, they've encountered a president who seems quite willing to bet his presidency on this one.
ReplyDeleteHe's played it skillfully. He now comes across as the responsible adult in the room, willing to negotiate and compromise. And polls show that the public blames the Republicans for this crisis by a significant margin.
It's in some ways a repeat of the take-it-or-leave-it Republican budget and debt limit extension sent to President Clinton by Newt Gingrich and the House Republicans in 1995. Clinton vetoed the budget, shut down the non-essential operations of the federal government, and the Republicans ended up taking most of the political blame. Old Newt was in much more of a mood to compromise after that.
And you're absolutely right about the Wall Street Republicans. This "old" Republican party will have some Congressional heads, if they lose a ton of money on this fiasco, thanks in part to GOP pandering to the crazy people of the Tea Party.
tris
ReplyDeleteI wish the tea party nutters would stick to their mad idea all the way and when it leads to an economic crisis all well and good.
Anybody who supports lunatics that want to keep more expensive light bulbs as way 'Being free'
deserve whatever bad things they get.
The rise of the mental Tea Party loons is just confirmation of a fading USA which will fade a lot sooner under Tea party leadership.
Perhaps a good thing for the rest of the world USA Hegemony should give way to the rising powers China India Brazil (Scotland?? even).
although normally there is a war in which everybody gets shot to Feck(If you know your history) before the End of Empire is realised.
America has gone from being like this
"America is like a large friendly dog in a small room. Whenever it wags its tail it knocks a table over."
To becoming a harsher crueler nation to their own peoples let alone the rest of the world.
LOL Danny : "the responsible adult in the room". Based on what the stakes are, I'm glad there is one.
ReplyDeleteNiko: It's an idea that they should go all the way and make fools of themselves, but I'm not sufficiently versed in the workings of the world economy to know how much damage it would do.
ReplyDeleteIf it went too far I suspect it would be Obama who was held responsible.
...Oh and Niko, I'm not sure I see Scotland up there with the new Big Boys n the Block. I'd like to think of us as a place that got on with running OUR little corner of the world well, instead of off sorting out everyone else's while our own goes to hell in a handcart.
ReplyDeleteTris, since by some polls she is leading the GOP Presidential race in Iowa, Michele Bachmann and her husband are getting the kind of intense scrutiny by the press (and television comedians) that only comes to "serious" presidential contenders. The man at the left of the picture you posted is her husband Marcus Bachmann, who claims to be a "Dr.", but apparently isn't. Anyway, he runs a "Christian counseling clinic" which (it is asserted) on occasion "cures" gay people. He has recently referred to gay people as "barbarians." (But he now claims that he was actually talking about children.)
ReplyDeleteAnd recently his wife, the "future president", speaking to a crowd in New Hampshire, pointed out that New Hampshire is the state where the first shots were exchanged with the British Army at Lexington and Concord. Well, there IS in fact a Concord, New Hampshire. But the "shot heard round the world" actually occurred in Massachusetts, a fact that is known by any American school child over the age of eight.
And did I say "comedians" were taking notice of "Dr" Bachmann, his wife, and the traveling GOP freak show? If it will open in Scotland (it may not), you might be interested in this clip for its entertainment value. (YouTube is rich in Bachmann clips now.)
http://www.youtube.com/watch?v=hCu67Dw05wc
PS: It's interesting that Sarah Palin is hardly even mentioned anymore. But why would she be? The Tea Party Republicans were actually able to find a crazier woman than she is. ;-)
ReplyDeleteIt occurs to me that the person of Obama in all of this has been overlooked by you all.
ReplyDeleteWho was the star of his first year of office? Not him, but Hilary. Who was it who oversaw the surrender of US leadership of the free world abroad, when he let UK and France lead the fight against the despot of Tripoli?
Obama is not exactly a sane politician either. Under his watch, he has carried on spending money that the USA doesn't have --- Bush may indeed have spend and cut taxes in an unsustainable combo, but I don't see Mr No-Drama doing anything to reduce the US federal debt burdens. No, he has added to them, and achieved what?
Tris points out that a fiscally conservative programme has not had the huge impact here in the UK as hoped, but this is (forgive me Tris) a complete red herring.
The real question which needs answering is why after two years of continued spending, borrowing and keynesian 'investment' has the US failed to secure meaningful growth prospects?
Surely it is time to consider radically cutting back on Federal spending, place more powers into the hands of the states and keep taxes competitive for job creators?
Last time I checked, the big ole Federal government has been the cause of -- rather than solution to -- many of the US recent economic tribulations.
p.s. No one better even dare call me a tea partier, otherwise I'll go all war of jenkins ear over here ;)!!!
ReplyDelete...casting the interlocutor as Spain!!
ReplyDeleteHell's teeth Danny. He sounds like a bit of a fruit cake himself. The clip was hilarious.
ReplyDeleteI love it when politicians make prats of themselves over stuff that the average 5 year old would know. There's one in England, who ironically is their education minister, and who is always getting his facts wrong.
Sometimes you wonder if it's you or them that are dafter.
Dean. I'll leave the questions of Obama and Clinton to Danny. I think he will be interested in that comparison.
ReplyDeleteBut I will take you up on the red herring accusation. My point was that the financial crisis is so great that nothing seems to be working, not stimulus; not austerity.
We know here that the main reasons that unemployment figures have been kept down are that people are taking pay drops or fewer hours in order to save their jobs. This means often that the state has to support them more through tax credits, and that because of the way that benefits are now paid, many people who get no financial support from the government if a partner is still employed, don't bother to register in a Jobcentre that will never be able to find them work. (I mean they aren't great at finding people jobs, and most particularly the new unemployed who have qualifications and experience.
The staff are rude and unhelpful and the service is horrific. Added to which most of the staff treat the clients, sorry customers, as if they were something that they had scraped off their shoe.
Danny: It's the way of the world. You can only be a sensation for a short time/ Whether it's the X Factor, Britain (or America)'s got Talent or politics. There will always be someone that little wilder, nuttier, more outrageous, more ill-informed who will come along and knock you off your perch.
ReplyDeleteWho needs Palin when the world has the ever crazier Bachmann to laugh at?
Dean, The lingering recession, with more than 9 percent unemployment, has been a disappointment, and it will surely endanger Obama's reelection. And I have no idea how to solve the problem. But there are economists with Nobel credentials who say that the very LAST thing you want to do in a recession is cut spending. Actually that seems pretty reasonable to me, with kind of a common sense feel to it. So I'm wary of the GOP tax cut mantra that's invariably advanced as the grand solution. Employment growth was vigorous under Bill Clinton in the 1990's. Then George W. Bush cut taxes dramatically in 2001, and employment was stagnant througout the next decade. So the tax cut solution looks pretty much like snake oil to me.
ReplyDeleteBut surely some special situations were at work in 2001-2010 we are told, and the Bush tax cuts in fact DID make the economy better than it would have been otherwise. OK, then we must also accept the argument that the Obama stimulus DID work, and averted another great depression. Ironically, Mr. Obama is now the one pushing for trillions of dollars in spending cuts as part of the debt ceiling package, while the Republicans are backing away from that position.
As for the state governments, they're generally in as bad a financial shape as Washington, and are often mired in special interest political corruption. The right wing loves them for their frequently reactionary politics, not for any demonstrated skill at governance.
Obama's leadership? Domestically he was a rock star. Hillary was just a successful politician who came in second. Perhaps as Secretary of State, she shone more brightly on the international stage. Obama is now rebuked by the left of his party and vilified by the Republican right. He has steered a center course and had notable political successes. As for free world leadership, we'd had the Bush led wars in Iraq and Afghanistan, much to the displeasure of almost everyone in the UK and Europe. So when Libya came along, Obama was more than happy to let the UK and France take that one. We thought they would happy about that. ;-)
I understand that China are keeping an eye on things, so we are all in good hands!
ReplyDeleteMunguin...Maybe they'll try to help. They're probably pretty worried about all the billions of dollars in US Treasury bonds they hold. ;-)
ReplyDeleteMunguin: I guess we have to get used to the idea that China will have to have a weather eye ion most things now.
ReplyDeleteIn 2001 another American friend of mine was at a seminar on world power at the UCSD and the USA's hegemony, the conclusion of which was that within 20 years the baton would have passed to China.
We are at the halfway mark.
Danny: Fortunately, I haven't a brass bean in American bonds, but you can bet the Chinese are watching this with a measure of concern.
ReplyDeleteOf course THEY know that this time everything will be OK, but they must be concerned about this whole tea bag nonsense.
OK. No one in their right mind surely is predicting President Bachmann, but this is the kind of mess that these loonies can cause in the world economy just by having a representation in the House.
One of my concerns would be that a de facto Communist state, and most certainly not a democracy has got such a financial hold over the most powerful Western country.
Under the current leadership, so far friendship, but the premier was in England not long ago and made it clear, in public, to Cameron, that their internal affairs (human rights) were not up for discussion.
There seemed to me to be a new assertiveness about the fact that this 'put down' to London, albeit subtly couched, was made in a public speech, rather than expressed in private.
The fact is, of course, that London needs the trade agreements far more than Beijing does. I wonder how long it will be before the Chinese start mentioning such things as conditions of these agreements.
Of course, another major consideration would be what might happen if there were to be a change of leadership and a more hard-line approach were to emerge...
Clarke and Dawe - European Debt Crisis
ReplyDeleteLet's get owned by China, CH. It seems to be the answer....
ReplyDelete...Oh we're working on it. I see. Thanks.
Tris, interesting comments about China and its new assertiveness. Of course Americans are concerned about China's influence, while being more than happy that they buy our bonds. In the long run, we must simply reduce our budget deficits to a manageable level. This will happen when the crisis is severe enough and the politics of the moment permits it.
ReplyDeleteBack in the 1970's, America was mired in economic stagnation and double digit inflation, while economically powerful Japan was all set to rule the world. You don't hear much about Japanese hegemony anymore. Now the problems have changed. The debt crisis is not stagflation, and China is not Japan. But China has problems coming down the road too. And the noise from the grandstanding politicians continues unabated.
Its a long read.
ReplyDelete650 Years Ago:
How Bankers Rigged the First, and Worst, Global Financial Crash
*Separate Church and State.
*Use only sound money, not fiat currency.
*Avoid foreign entanglements.
*Do not allow party factions to control politics.
*Keep a FREE press to maintain an informed and involved populace.
We are perhaps in pending deep trouble today, because the situation now seems a whole lot like it was back in 1340 AD.
Danny:
ReplyDeleteYes, of course, you're right. China will certainly have problems to face.
But it will certainly face whatever is coming ...civil unrest (which it seems to contain by a mixture of stick and carrot) is possibly amongst the most pressing. There must be many Chinese now with some freedom to watch how much better things are elsewhere. I wonder how long it will be before the workers that keep us in cheap goods decide that they want some of that too.
Aye, CH. That's a bedtime read for me....
ReplyDeleteThanks for posting.
Danny,
ReplyDeletePlease do not take me for an idiot!!
"Obama's leadership? Domestically he was a rock star."
HE IS NOT VIEWED D0MESTICALLLY AS A ROCK-STAR!
I have comprehensive figures showing that he is consistantly below 50%, and the averages show that NO PRESIDENT is ever elected, for SURE, with a poll ave of less than 50%!!
Don't shunter me that shit.
Long comment in two parts follows. Sorry, but it’s a complicated story.
ReplyDeleteDean....you wound me. Whatever could I have said that suggests that I consider you other than the most astute of political observers? Allow me to explain more fully my view of Mr. Obama.
First you said "who WAS the star...?" So I replied in the past tense, referring to the 2008 campaign and early presidential administration. Now you say "IS not viewed", and quote current poll numbers. So I must also reply in the present tense. The confusion in assessing Mr. Obama’s popularity arises from what seems to me to be the most fascinating journey of any politician of our time through political and economic turmoil, and the estimation of his skills by an angry and confused electorate.
THE PAST:
For more than a year leading up to the Iowa caucuses and New Hampshire primary, Hillary was quite simply the presidential heir apparent to the despised (by then) George W. Bush. But then, nothing less than political lightning struck the junior senator from Illinois. I must insist that he did in fact become a political “rock star." SCREAMING crowds of supporters....literally. And a black man from the mean streets of Chicago took the county Democratic caucuses in Iowa. IOWA!!!!! Lilly white middle America! It was beyond belief. Hillary went on to take New Hampshire. But throughout the bruising state primaries, rock star Obama drew the screaming crowds, and Hillary, more quietly, locked up support and votes from traditional large-state Democratic bastions. When it was over, Mr. Obama and his adoring crowds took the day, and Hillary went into relative political eclipse.
On election day, Obama won a big victory. And on inauguration day, the first African-American president in history enjoyed an approval rating of 68%. But he had also inherited the complete wreckage of the George W. Bush administration. And on the eve of the election, the economy had collapsed and the banking system was threatened. It almost seemed to be FDR and 1933 all over again. Huge unemployment engulfed the nation. And politically, as the economy worsened, the new president found himself facing an angry electorate, composed of an invigorated GOP right wing, and the left wing of his own party who expected controversial campaign promises to be fulfilled. And the screaming crowds of supporters had simply gone home, satisfied that they had made their history. They’ve not been seen since.
The choice of Hillary Clinton as Secretary of State was a popular one among Democrats and many Republicans. And there’s no doubt that as domestic turmoil intensified, her excellent performance at State made her a valuable asset to the administration. A “Star?” Well, I’m sure that some newspaper articles described her that way. But it was surely a more modestly shining star than Obama’s had been. The point was that she was good at her job, and was insulated from all the domestic controversy, as she traveled the world and showed the flag.
Contd…
ReplyDeleteTHE PRESENT:
So now, Obama the political rock star is often viewed as a has-been. It was preordained by the economic turmoil. I read that no incumbent president has ever been reelected with an unemployment rate over 7.4%. But don’t count him out. During the rock star period, he shattered all previous fundraising records. And the first quarterly results for 2012 have just been announced. He broke his own record for the corresponding period in 2008. As for approval ratings, or even election totals, you’re simply wrong about needing 50% for presidential success.
First, an approval rating above 45% is very good for an incumbent president in the months before any actual campaigning for a second term takes place. And in a climate of 9+% unemployment, it’s almost phenomenal. During the economic turmoil of Ronald Reagan’s first administration, after his 59% landslide win over Jimmy Carter, his popularity plummeted to 42%. (Spiking down to 35% in a Gallup poll, when unemployment hit 10% early in his presidency.) He went on to score an even larger electoral vote landslide against Walter Mondale in 1984, with an almost identical 59% of the popular vote. Historically, Obama has very good poll numbers for this point in a first term presidency.
And with our arcane eighteenth century electoral college system, you certainly don’t need 50% of the vote on election day. Bill Clinton was elected to his first term with 43% of the popular vote, and only managed 49.2 % for his second term. But in those cases, there was a viable third party contender in the race you say. True. So look at the solidly two-man election of 2000. George W. Bush won the presidency with only 47.9 percent of the vote.
So, in this environment, with an approval rating over 45%, and record fundraising results, I would argue that Obama is almost assured of a second term. A well run campaign is probably worth at least five percentage points to an incumbent president, maybe more. Finally, don’t forget that his opponent has to pass Tea Party scrutiny in the GOP primaries. Bachmann could easily take Iowa and South Carolina, and come in a strong second in New Hampshire. Then what happens? She stays in the race as a serious contender. Bachmann for President? Or at least VP? A party that gave us Sarah Palin can certainly give us Michele Bachmann.
Put your money on Obama in 2012!
Dean: Don't mess with Danny about American politics.
ReplyDeleteHe has forgotten more than most of us will ever know about the subject.
Danny: I apologise. That kind of rudeness is unusual on Munguin's Republic. I like to think that we can discuss and disagree here without descending to insulting language.
I fear Dean may have enjoyed a glass or two of Port after dinner.
Your answer was fascinating and has certainly concentrated my mind of the likelihood of an Obama second term.
You'd think that the GOP might have grasped the fact that having a member of the lunatic fringe on the presidential ticket is not the brightest of ideas.
Dean has read this tris meanwhile over the pond and here.
ReplyDeleteAhhhhhhh economics CH... it's all over my head. But inequality always, always makes for unhappiness, and most countries don't take that for too long...
ReplyDeleteScotland needs to be independent to deal with what might be coming down the line.