U.S. hits the ceiling

U.S. hits the ceiling

Postby meteorite » Wed Jul 27, 2011 6:05 pm

Perhaps I should have entered this under economics, but so often economics and politics are so intertwined that it's hard to separate the two. So often, bad economics are the product of political stupidity.

As this is written there is a real world danger that the United States will hit and exceed the legal limit on its allowable national debt on August 2d, six days from now. Until the debt ceiling is raised, which takes an Act of Congress, the U.S. will have to stop spending money on all government activities, though perhaps (no one mentions this) the normal revenue stream may allow, say, the purchase of more fuel for the military's tanks and aircraft. But they will not be able to pay off their Treasury Bonds as they come due, or interest obligations, or payments to entitlement programs such as Social Security or Medicare. In short, the United States will be bankrupt.

On an international scale this will be catastrophic. The United States isn't Greece, which also stands on the edge of the cliff of bankruptcy. Greece an be bailed out, they're small enough. The United states is not. When it collapses it will likely drag the rest of the world down with it.

The Star's witty and acerbic political columnist Heather Mallick explains what is going on:

Mallick: Canada will get soaked as U.S. sinks

July 26, 2011

Heather Mallick

Sane people look on the debt ceiling impasse in Washington with mystification, then horror. The lunatics-taking-over-the-asylum metaphor is being used even by some Republicans as the Tea Party Republicans’ rigid ideology on spending threatens to derail a nation.

Here’s the situation: The debt ceiling, which covers spending long ago approved by Republican and Democratic presidents, is $14.3 trillion (U.S.) and has been routinely raised in the past. It’s separate from the U.S. deficit of $1.4 trillion, a current problem caused by George W. Bush’s tax cuts and by Barack Obama’s continuing to wage two unwinnable, unaffordable wars and starting a third in Libya.

The deficit is under political democratic control. The debt is what Americans are stuck with.

The Tea Party Republicans say the budget must balance, with cuts to spending and no tax increases, not even to the rich. This will take generations to accomplish. They want it done next year, even though this, or a downgrading of U.S. debt, will send the nation into a new depression, which will lower demand and job creation, further lower tax revenue and create an even bigger debt.

“This isn’t checks and balances,” writes Clive Crook of the Financial Times of London. “It’s paralysis.”

The villain is ideology. If you cleave to a single belief, either left-wing or right-wing, and ignore the manifold — the huge agglomeration of elements in a complicated world that surrounds you — you will a) be excoriated, which you enjoy, and b) destroy your nation.

Like Anders Breivik, you won’t care because you stuck to your ideology and did your thing.

As David Brooks finally wrote in the New York Times about Republican extremists, a decade after it was obvious to everyone else, “The members of this movement do not accept the logic of compromise, no matter how sweet the terms.” As he put it, they have no sane economic theory, no moral decency and despise impartial experts. They are “fanatics.”

They have driven the Democrats and Republicans to consider a hideous thing, a perversion of democracy that stinks of tyranny. A “Super Congress,” sidestepping Congress and the Senate, comprising six members from each party to fast-track the debt ceiling deal without amendment. In other words, a central committee. Give it a chairman and you have yourself a totalitarian state. Cool.

What will happen if there is no agreement? International finance and stock markets aren’t political, they’re implacable and if they don’t like you, you will pay.

The U.S. government effectively hit the ceiling in May but is cozying along its payments in whatever way will keep its debtors happy. And it may be moot, as soaring debt may cause a debt downgrade anyway. This will make everything more expensive: mortgages, credit card debt, the cost of doing business.

There will be no highway maintenance, no capital projects, no feeding the poor or paying to educate children. Please note that the descent of American education brought about the Tea Party. When you vote against the national interest because you’re too uneducated to grasp what it is, you take your nation into a lower echelon.

The impact on the consumer will be fast and harsh. Elderly Tea Party voters will get smaller Social Security cheques. Medicare will shrivel. Americans will measure out their life in accumulating grime, as Canadians are learning to do because they voted in a debt-cutting, jail-building, military-expanding prime minister. Toronto’s already looking scruffy and that’s just a year of one absurd ideologue of a mayor.

An American economic slide will echo around the world but especially damage the U.S.’s biggest trading partner, Canada. Try exporting goods to Americans who can’t or won’t pay.

And all because of a small group of people with glassy eyes and a Grade 4 math class dream where all addition and subtraction ends with the number zero.

The debt ceiling is not a pebble in a pond, it’s a boulder in a puddle and it will splash you and me. We’ll stay cold and wet for the next decade.

hmallick@thestar.ca
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