SAN FRANCISCO – The threat is in the air. The Republicans are making a tough stance they won’t agree to raise the debt ceiling if the deal includes raising some taxes. The Democrats insist any deal must have some revenue enhancements.
Neither party relishes the possibility that they will be blamed if the unthinkable happens. But the stalemate continues. At a news conference last week, the President reminded them that the real deadline to avert a default on American debt is not Aug. 2 but July 22 because it takes time to operationalize things. He told them that even his school age daughters do what they must way before deadline.
Up to this time, it seems the Republicans have just about convinced everybody that they are crazy enough to force an unthinkable default on America’s debt. There are enough of them who argue that apocalyptic predictions of dire consequences of a default are exaggerated. They insist something drastic is needed to get America’s finances on even keel. My guess is they will beat the deadline at the very last minute. The implications of a debt default is horrible enough for a country like Greece, an American default will be catastrophic not just for America but for the world.
Then again, things are quite confrontational in America today. Compromise, the lifeblood of the democratic process, is apparently now a dirty word. The Minnesota state government has shut down because the Democratic Governor and the Republican legislators were unable to find a common ground on a budget. California is also in a similar crunch as the Democratic Governor vetoed a budget sent by a Democratic majority he didn’t think was viable, even as he was unable to get minority Republicans to support what he had in mind. In other words, no one wants Gov. Brown’s compromise proposal.
This game of chicken that American politicians are playing may just bring about the worse possible unintended consequence on America and the world. And all these cannot come at a worse possible time given that the world isn’t quite out of the economic crisis that is in fact, threatening to degenerate into a double dip recession.
So, what exactly happens if America does default? A Washington Post column gives us an idea.
The federal government, it found out, pays 80 million bills a month. The Post reports a new analysis by the Bipartisan Policy Center warns that if the debt ceiling isn’t raised by Aug. 2, the Treasury Department will only be able to pay about 60 percent of the federal government’s bills in August. There is no established procedure to decide which bills should go unpaid.
They made some possible scenarios of what may happen. They will have to prioritize interest payments on debt to prevent a technical default. Then, there are payments to Medicare/Medicaid, Social Security, defense suppliers and unemployment insurance. “That means it stops paying military salaries, gives up on the FBI and the Centers for Disease Control, cuts all funding for food stamps and education, shuts down air control, tells NASA to head home, freezes the paycheck of every federal employee.”
Their study estimates a 44 percent drop in federal spending but can’t tell where that drop will happen. “So as we get closer to doomsday, companies that contract with the federal government will start hoarding cash to tide them through a period in which they might stop being paid. Seniors and other Americans who rely on federal transfers would be wise to do the same. And then if we do pass the borrowing limit, the economy is going to have to absorb a sudden and sharp drop in federal spending, which will reverberate among businesses that don’t directly work with the government but sell to those who do.”
Even if they continue paying interest on US bonds, their calculations show the federal government needs to roll over $500 billion of debt in August. “If we’re in quasi-default, who will want to purchase that debt? What will they charge us when they do purchase that debt? Because so many other kinds of debt benchmarks against the rates the Treasury pays, you’ll see borrowing costs rising throughout the system. Mortgages, corporate borrowing, all of it. it won’t just be the federal government that pays., It’ll be the economy.”
Pretty scary stuff!
What makes things scarier still is the non compromising mood prevailing not just among politicians but even in other areas. Americans will have to do without football and basketball because the players and the team owners can’t agree on salaries and other compensation. The attitude seems to be my way or the highway. They do not hesitate to risk getting the worse possible outcome, killing a sport, for instance, to get what they want. As I said, compromise is a dirty word.
It seems Europe is presenting a better picture. Problems with Greece, Ireland and Portugal are just as contentious but they somehow manage to reach compromise deals... and among culturally different nations at that. In America, the division is so stark it doesn’t seem possible to get to a common ground.
There should be no reason for America to go bankrupt. Despite its current economic problems, America still is a very rich country. There may be problems in wealth distribution but its economy is still many times larger than China or any other country. American multinationals also have a hoard of cash stashed abroad for tax purposes. There are also those who think President Obama can ignore the law on debt ceiling because there is a Constitutional amendment that says all federal government debt must be paid.
Maybe it is just that the bad economy has driven many Americans into such a foul state of anger at the status quo so that common folks think the worse possible outcome for the general economy would at least spread out the misery to include the well off.
The dollar being what it is in the world economy, it is unfortunate that the rest of us in the world will be dragged by the negative consequences of this internal struggle in American society. So that whether it is July 22 or Aug. 2, American politicians will have to reach some kind of deal or we are all screwed, one way or another.
There are worrisome survey data showing that at least 50 percent of Republicans don’t mind bringing America to the point of bunkruptcy. This would mean mainline Republican politicians who know how to compromise and deal will be reluctant to do what they must, specially with an election next year. President Obama, on the other hand, must stop hoping for any compromise and do what he can and what he must to prevent an economic catastrophe that affects us all.
Pinoy products Edison Carpo sent me this e-mail last week.
Its good to hear that you are in Orange County and have seen the shelves of the Asian supermarket, I assume it is the Ranch 99 in Anaheim that you visited (where rumor has it that a Jollibee will rise adjacent to it, from the former Pits Resto & Bar).
Yes, its really unfortunate that Thailand beats the Philippines in exporting native ingredients like gata and so many more canned tropical fruits. I’m not surprised because when I had my vacation last Christmas, I even found their products in far away Tuguegarao.
And to think that these products are geared towards the Filipino community, notice the GATA and BAGOONG in the labels. i would not be surprised if these goods came from Malaysia or Indonesia where we share common words, But they came from Thailand or even Vietnam.
Fine wine Jose Villaescusa sent this one.
A man told his wife that husbands like fine wine get better with age.
The next day, she locked him up in the cellar.
Boo Chanco’s e-mail address is bchanco@gmail.com. He is also on Twitter @boochanco