Playing With Default
An extraordinarily dangerous problem, Greenspan says
If the showdown over debt and spending between the House majority and the White House isn't resolved before the first week of August, the federal government will no longer be able to send out Social Security checks, run Veterans Administration hospitals, pay Medicare costs or operate the national park system, to mention just a few significant items. Hundreds of thousands of federal workers would be furloughed without pay, and millions of seniors would stop spending money, slamming an economy that already seems stalled.
But the consequences of that unprecedented situation would reverberate around the world, as nearly every expert—from the top bond trader, Mohamed El-Erian, to former Federal Reserve Chairman Alan Greenspan—has warned.
Because both the U.S. dollar and U.S. Treasury notes are so important to world trade and investment, a default on U.S. debt could drive the global economy into a recession worse than that from which we have been slowly emerging. The same experts have warned against the Republicans' insistence that they force more budget cuts before they pass a higher debt ceiling.
Indeed, Greenspan is so concerned with the prospect of a debt default, either now or in the future, that he has advocated increasing taxes to the same level as before the George W. Bush tax cuts. Congress must approve a higher debt ceiling, said the conservative fiscal guru—or risk catastrophe if the United States does not meet its obligations. The brinkmanship that had led to the current impasse in Washington, he told CNBC, is "an extraordinarily dangerous problem for this country."
Risking Another Blow to America's Power and Prestige
Why is it so perilous for Republicans and their tea party backers to push toward default? The rating agency Moody's, following a similar warning weeks ago from Standard & Poor's, is threatening to downgrade U.S. Treasury securities if an agreement isn't reached within the coming month. Such a historic event would be much worse than embarrassing—and the Moody's analysts now believe that a default is increasingly likely.
"Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit," said a statement issued by the ratings firm, "the degree of entrenchment into conflicting positions has exceeded expectations."
Political polarization over the debt limit "has increased the odds of a short-lived default," it said, meaning that Moody's doesn't believe even the Republicans would permit the default to continue. But the nasty reverberations of even a brief default could last far longer, with sharply rising interest rates, crashing stock prices, a plunging dollar and yet another blow to America's prestige and power.
Most economists also believe that the Republican insistence on cutting spending in a slowing recovery is simply wrong because it will reduce demand and cost jobs. The party's congressional leaders have yet to explain how they will boost the economy by throwing yet more people off federal and contractor payrolls, which will further depress the housing market, as well.
Remember that these are the same geniuses who opposed the auto bailout two years ago—which has now proved not only to have saved hundreds of thousands and perhaps millions of jobs, but at a very low cost. Somehow they seemed to believe that Europe and China should build cars while we let our auto industry wither.
While cutting spending and restraining the debt sound appealing, they must be done with great care. The Republican claim that there will be no harm in approaching default, or actually defaulting, is ridiculous to anyone who actually understands how markets work—and the damage they can sometimes wreak.
© 2011 Creators.com
What our liberal writer says is essentually true regarding the effect on our economy if the US defaults on its debt. And we have to keep borrowing to pay the day to day expenses of the government. Raising taxes on a few billionaires is futile, especially if they have moved their money in tax haven countries. Everyone will have to pay. I believe in 2013 we will see everyone have to take a 10% cut in pay via taxes or reduced government pay and benefits.. That means government workers, teacher, postal employees, people on welfare and social security -- will get a 10% hair cut. Smart money knows this and many have moved cash into gold and silver. Noticed the prices lately? Gold exchanges are popping up everywhere. I feel kind of stupid now for selling off some of my bullion when gold jumped to $900 and ounce. Now its over $1500. I think it will only go higher but I have no way of knowing how much. There is heavy trading the black market for gold. Everyone can buy an EFT on the stock market in gold, but its all on record and you have to pay taxes on the gains. Better to own the real thing.
We would have been better off if we had not built our entire lifestyle system off of credit... credit cards, auto loans, mortgage loans, student loans, federal deficit. As it turns out, when the money a somebody is counting out from their pocket cash at the checkout counter was earned by hard work, they are much less likely to pay a high markup "fashion" price. Credit was somebody else's money, easy to waste. Somebody from the deep south told me that momma's wisdom was "Your own money spends best"... as in wisest, not fastest. Hard-earned cash facilitates fair trade, credit only facilitates "impulse" trade.
There is no such thing as "waste" when it comes to money, except when you roll up your hundred-notes to light your cigars like was once done almost a century ago. That "waste" is a matter of opinion, could be government paycheck, a union paycheck, a retailer's gravy-profit, a regulatory fee or fine, money paid to hire that push-up bra receptionist, taxes, etc. That money was also turned around and re-spent in the economy, allowing all us affluent movers and shakers in the suburbs to build up our estates, fill the empty rooms in our houses, cottages, and garage stalls, fill our swiss bank accounts, invest in Wall Street.
For all of you who have money today, you would not have even a quarter of it if it were not for OTHER people (or Washington) going into debt. Does not matter if you were "the man" or were only working for the man.
The upper class, the middle class, and the working class who think they got something to lose are duking it out, no way are any of them going to go down without a fight. They are playing that brinkmanship right now, like a big economic game of chicken.
Blame Obama all you want. He has no answer, the Democrats have no answer. Republicans have an answer, only because it is at the expense of the common public, protects the few who currently have the money. The Dems have no answer because they are trying to find one that lets everybody win, that's where the votes are. They depend on getting at least 50% of those who are able to vote, a money-blind majority, not a wealthy minority.