Thursday - July 14, 2011

is there a chance of an American default on debt?

I need this explained to me.  I’m missing something here.  I never thought about the USA and debt default. That was always “those other people.”

Lets start with the idea in mind that I am behind the curve when it comes to things economic.  Oh I understand cause and effect and not spending more then one earns.
Too many credit cards (been there) and not able to pay all the bills. (been there)
Wanting things I couldn’t afford but bought em anyway. (done that)
I once bought two cars because I couldn’t make up my mind between the two, and liked em both. A lot.  That’s all thankfully in the past.
Checking account even gets balanced.  Well, only since I married and then someone smarter then me.
So lets assume cos we should, that some of you here know more about this and understand it better then I am able to. And while we’re at it.  Why the hell do we have to shell out so much in foreign aid?  Why do we have to give any away? Why isn’t American money (and Brit too) spent at home?  How many little wars can America (and the UK) continue to fund? 

Am I wrong in assuming that politicians on both sides are grandstanding and thinking ahead to elections more then they are thinking about the country?  True, I ask because I have as little regard for politicians as I do for the criminal justice system in both our countries.

Here’s one view, in a conservative paper. Mostly conservative.  Kind of scary.

America’s political system isn’t quirky, it’s dangerous

The US economy is close to default, yet the parties are still playing silly games.

By Ed Conway

For the first time in its history, America is charging headlong towards a default. Don’t be fooled by how unlikely this sounds: unless there is a dramatic turnaround by August 2, the world’s largest economy will have to stop honouring its debts.

If it is hard not to find the idea faintly preposterous, it is only the latest episode in a farce which runs back for years. In the mid-1990s, the Clinton administration was forced to shut down parts of the federal government to keep the US economy afloat. For half of the current financial year, the Obama administration was forced to run the country on an extended incarnation of last year’s budget – rather as if George Osborne had decided in March to reprint last year’s document and present it to the House.

These silly episodes each derive from the same basic fact: that the world’s largest economy has a political system which is ill﷓equipped to manage a 21st-century economy. That it has taken a financial and economic crisis to bring this sharply into focus shouldn’t be entirely surprising – to adapt Warren Buffett, the billionaire investor, “it’s only when the tide goes out that you find out who’s been swimming naked”.

Today’s dilemma is stark.

There is a legal limit on the size of America’s total sovereign debt of $14.3 trillion, and with the costs of the recession still weighing down the federal budget, that ceiling is due to be hit on August 2. The letter of the law says that at that point the country simply cannot borrow more, and so must either stop financing its debt (a sovereign default) or cut internal payments. Indeed, this week, Barack Obama told CBS News that payments to social security recipients, veterans and the disabled could simply dry up on August 3. “There may simply not be the money in the coffers to do it,” he said.

Unlike Greece or some of the other weakened eurozone states, the US is not facing default because of its inability to pay. Its overall debt levels are manageable, at least in the short term. The explanation for the crisis is purely political – the Republican-controlled House of Representatives refuses to increase the debt ceiling. This is economic illiteracy of the highest degree: because the limit is an arbitrary figure, it takes no account of the size, health or spending demands of the economy. The figure which policy-makers plucked out of the sky in 1917 when they first devised this wheeze was $5 billion, which is enough to fund today’s US military apparatus for all of three days.

HERE for all of the article

Posted by peiper     on 07/14/2011 at 02:23 PM   
Filed Under: • Economics • USA •  
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