Is America on the brink of meltdown?

drc

What do people think about this article from Will Hutton in The Observer?;

http://www.guardian.co.uk/commentisfree/2011/jul/17/obama-america-economic-meltdown-murdoch

What hope is there for us if America is driven to the brink of meltdown?

If the US cannot service its public debts and defaults, the outcome will have catastrophic consequences

Will Hutton, The Observer, Sunday 17 July 2011


When President Obama, the supreme rationalist, says that there are just days to avert Armageddon, everyone should sit up and listen. For months, Republicans have used their new majority in the House of Representatives to block any move to lift the artificial cap on the amount the US government can borrow. If by this Friday they still refuse – insisting on up to $4trillion of spending cuts, excluding defence, and no tax increases as the price of their support – then the US will be unable to service its public debts. The biggest economy on Earth will default.

The results will be catastrophic, argues JP Morgan chief executive Jamie Dimon – a warning repeated by Obama. The US government will have to start to wind down: soldiers' wages and public pensions alike will be suspended. But in the financial markets there will be mayhem. Interest rates will shoot up and there will be a flight from the dollar. Banks, uncertain about their expected income from their holdings of US Treasury bonds and bills, will call in their loans, creating a second credit crunch. Some may collapse. Even to get days away from such a prospect, says Obama, will now have costs: every creditor to the US has been shaken to the core by American politicians not taking their responsibilities as borrowers seriously. They will exact a higher price for lending in future, even if a bargain is struck now.

But the Democrats cannot agree to the Republicans' absolutist demands, in part because the arithmetic of deficit reduction does not work without tax increases and cuts in defence spending, in part because they passionately believe that with taxes the lowest for 50 years, the US's rich should share in the pain and in part because in any human exchange there is an element of horse-trading. The Republicans want to suspend the rules by which not just Washington but any political system operates. They want to be political winners who take all, risking even the collapse of the US economy to get their way.

Yet even though their sums do not add up, they will not budge. They are immovable. Steve King, an ultra-conservative from Iowa, says that warnings from Wall Street's finest are "empty threats". Others, elected as Tea Party candidates last November, consider they have been told by God to pursue the holy mission of rolling back the insidious and demoralising advance of the federal government. Taxation is the illegitimate confiscation of honest citizens' hard-earned dollars; in a perfect world, there would be a tiny state, close to no taxation and no regulation. Americans must confront the reality that their country is allegedly bankrupt, a situation they say is created by irresponsible Democrat politicians and their allies, false Republicans. "Real Republicans" don't blink.

President Obama has tried to fashion a bargain with a collection of rightwing politicians that most in Washington regard as both mad and dangerous. Yet, after months of talking, the Republicans will not offer to bargain, causing President Obama to walk out of the talks last Thursday in pure exasperation. It says a lot about American politics and culture that such a passionate minority believes that it can defy not just American political tradition but also the normal terms of trade that define human association.

Everyone expects there to be a compromise at one minute to midnight on the very last day. I am not so sure. These are politicians who in some respects have more in common with Islamic religious fundamentalists than the Enlightenment tradition which gave birth to western democracy. The Tea Party sees neither virtue nor integrity in any position but their own. Nor do many of their number want to build political careers. They have been sent by God and their electors to bring down Washington.

There has always been this fundamentalist strand in US life, but what has inflamed it over the last decade is a twofold process – a wrong-headed understanding of why US economic pre-eminence is being challenged, closely linked to the breakdown of a public realm in which ideas are discussed, traded and exchanged in a climate which respects argument. The abolition of the Fairness Doctrine in 1987, which required all broadcasters fairly to represent all points of view, has created a mass media shouting, ranting, sloganising and overwhelmingly from the political right.

The leader in the charge is Rupert Murdoch's Fox News, a TV channel with an audience of 100 million in which all news and comment have to be shoehorned – subtly in its news operation and overtly in its commentary – into a conservative worldview. It operates, as the former White House communications director Anita Dunn has said, "as either the research or communications arm of the Republican party". Leading Republican stars such as Mike Huckabee or Sarah Palin are on its payroll. Its political shows pull no punches: the hosts are hard-line Republicans. If Fox News were to permit the case for tax increases to be fairly reported or discussed it would not be doing its job. Murdoch, refusing in a Fox News interview last week even to discuss the News of the World, would be displeased.

No explanation of the Tea Party "Real Republican" intransigence over the debt talks is possible without understanding how its political base has been constructed and sustained. But the damage goes well beyond the US getting so close to debt default. It makes rational discussion of wider US policy options close to impossible. Like reporters in the Soviet Union or China, Fox News journalists have to parrot an ideological line: the US economy's dynamism is rooted entirely in sturdy, enterprising, God-fearing individuals threatened only by federal taxes and regulation. Thus the Republican negotiating stance.

Navigating an economy through the aftermath of a credit crunch with a mountainous legacy of private debt and crippled banking systems is enormously difficult. On top, there is the spectre of the implosion of the euro. Yet in the US – and to a degree in Britain – the political right is implacably opposed to the creative public action that in the past has been crucial to success in such circumstances. It is already clear that even if the US avoids default in the weeks ahead, the price will be to so cramp the US government that it can do little or nothing.

Mr Murdoch is apologising this weekend for the behaviour of his papers over phone-hacking. That, as western economies totter on the precipice, is not all for which he has to apologise.

Thrugelmir

Definately heading for a defining moment at the crossroads.

Read an interesting article recently on the growing support for the Tea Party. Who actually want cuts. As they recognise that raising the debt ceiling. Is merely kicking the can further and further along the road. Which can't be done for ever.

geneer

yes. but then it has been for a while.
I'm sure they will sort something out.

Mr_Mumble

Will Hutton is Polly Toynbee with a penis.

Official estimates for the US deficit over the next 10 years:
http://www.npr.org/blogs/money/2011/07/15/137845220/-13-trillion-the-projected-10-year-deficit

Taxes are automatically expected to rise at the end of 2012 (the above CBO numbers factor this in):
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2011/Tax/Bush-EraTaxCuts.jsp

What happened the last time the US defaulted in 1979:
http://dmarron.com/2011/05/26/the-day-the-united-states-defaulted-on-treasury-bills/

The US Treasury will not default:
http://blogs.marketwatch.com/fundmastery/2011/07/12/the-u-s-treasury-will-not-default/

Real Fox News viewer numbers:
http://tvbythenumbers.zap2it.com/2011/07/15/cable-news-ratings-for-thursday-july-14-2011/98141/
(admittedly mid-Summer so the average of 2.3m for primetime is low compared to the regular numbers of ~3m, still a far cry from 100m!).

Some background on Anita Dunn:
http://online.wsj.com/article/SB10001424052748704597704574487431322664964.html

pqrdef

Thrugelmir wrote: »

As they recognise that raising the debt ceiling. Is merely kicking the can further and further along the road. Which can't be done for ever.

I expect they said that to William of Orange.

Thrugelmir

pqrdef wrote: »

I expect they said that to William of Orange.

If US debt gets downgraded. Then interest rates will rise. Turing a weak recovery in recession.

There's nothing worse for financial markets than uncertainty.

StevieJ

Expecting Alice any moment

sabretoothtigger

geneer wrote: »

yes. but then it has been for a while.
I'm sure they will sort something out.

pqrdef wrote: »

I expect they said that to William of Orange.

It could carry on forever.
USA is a beneficiary of the current world order yet we are seeing some revolution in that and I think its all related

By itself USA finance doesnt appear to float but so long as China is communist and uses its peoples wealth to support foreign nations then USA is stabilised by world trade logged in its favour
Maybe they elect for europe instead ?


I thought Obama would be a 1 term president. I dont know but as he is not a leader but a delegator and the horizon is filled with challenges he could easily falter.
I dont know anyone else is better then him though, especially in the public eyes he might just spin the failure


The debt ceiling is a false flag. Any downfall will be a change in the tide not a single event, USA is rigid in its reliance on low rates.
They cant cope with change, ironically




Obamas very credible arguments on Oil imports

then the US will be unable to service its public debts. The biggest economy on Earth will default.

The results will be catastrophic, argues JP Morgan chief executive Jamie Dimon – a warning repeated by Obama. The US government will have to start to wind down

Ive not read the article fully but this premise is false. JP Morgan is a primary government dealer AFAIK so its inside the loop or the bubble.
Imagine someone who spends far more then they can afford then stops spending that money. That is normally a good thing and I think it would be here also

Im sure it'd be a shock, it'd be the first time in decades they stopped spending too much. This is a positive, its labelled as negative but eventually if you control spending and force them to rationalise every penny spent. It is a good thing, for government, for taxpayers and for the world probably including UK people

'Unable to service' is not true. These big lenders dont deal with persons or organisation with zero income. (though subprime was mislabelled risky debt also)

USA has alot of tax income, they can service debts because we know the rates are incredibly low and are not a large part of spending.


We're talking about alot of strife and struggling to manage, that sums up life imo. Pension payments etc must be a big burden.
Ultimately the economy would thrive if government is forced to compete for efficiency with private business who cannot force payment via taxes and/or print money.
All people public and private, struggling, finding the best way and succeeding in making a 'profit' is a hidden positive behind the big talk on disaster. That will be a big job but alot of people are looking for one

michaels

Funnily enough Clinton was much further down after the first mid-terms but came back partly because the Republicans shut down Govt rather than agree a budget deal...sound familiar?!

sabretoothtigger wrote: »

I thought Obama would be a 1 term president. I dont know but as he is not a leader but a delegator and the horizon is filled with challenges he could easily falter.

pqrdef

Mr_Mumble wrote: »

The US Treasury will not default:

That's all right then. No need at all to miss any coupon payments, they can just cut down on the pensions and unemployment pay instead.

The trouble with asking people to wait for their money is that people want to know where it's going to come from in the future. If the Treasury can't pay what it owes this month, why will next month be different? To say there's plenty of money coming in is the argument of somebody who lives on ever-increasing payday loans.

The 1979 "default" is irrelevant, because there was no doubt at that time that the money would be forthcoming.

At present, there's no way forward other than an increase in the debt ceiling, since a move into budget surplus, even if achievable at all, would take years. But if the raising of the debt ceiling doesn't happen now, why will people believe it's going to happen?

sabretoothtigger

I think they could continue without raising the debt ceiling in a triage kind of way, the ultimatums are childish.
Politics is empowered by all that money, it really would require alot of change and bring a nasty halt to that 'stimulus' deficit they got in action

michaels wrote: »

Funnily enough Clinton was much further down after the first mid-terms but came back partly because the Republicans shut down Govt rather than agree a budget deal...sound familiar?!

I did read of that previously. I do not think this one event is why he would be one term.
I just think he is the wrong guy at the wrong time, he has taken the controls when it was already in a dive. Passing the ceiling wont alter that

As you say both sides are trying to put it to their own advantage and are aware of the history of overplaying things.

In some way its going to need a radical uturn, thats bound to be unpopular.
That was my basic reason for the one term, a reversal of fortune and disappointment from people who expected him to be a magician or something