I will be keeping my fingers crossed for the next few days, hoping that Barak Obama can come to some accommodation with the Republican party over US debt limits. Right-wing Republican House of Representative members are playing a dangerous game of brinkmanship with the American President in an attempt to force him to make massive cuts in US government spending [without raising taxes], to claw back some of their unprecedented fourteen-trillion dollars of national debt.
Ironically, President Obama and the Republican House Speaker John Boehner agree that the government needs to make the cuts but while Obama believes that reductions in domestic spending, defense spending and health care programmes are required he also recommends that “the wealthiest Americans and biggest corporations give up some of their breaks in the tax code and special deductions”. The idea that wealthy Americans should actually contribute to cutting the debt is however beyond the pale for Tea Party Republicans like Michele Bachmann and Paul Ryan, who have publicly stated they would not support the Obama proposal. As Republicans are the majority in the US House of Representatives and right-wing Tea Party members hold the balance of power, what they believe [however extreme] becomes politically important.
The real motivation of right-wing Republicans is of course to undermine the Obama administration and to make him un-electable in the 2012 presidential election. If however neither Obama nor the Tea Party cave in by the 2nd August [the date by which the US must raise the national debt limit or be in default of debt payments to the rest of the world], the US will technically run out of money to pay its creditors and be in default. That will damage the US’s credit rating and reduce “confidence” in the American government, the dollar and the US economy.
Remember now, that the world was plunged into the current Great Recession back in 2008 thanks to an earlier American debt crisis, when the amount owed was only 60% of the current figure of nearly fourteen billion dollars. Now perhaps you can see why I for one, am getting concerned about the discussions currently underway in Washington.
Whatever economists say about levels of national debt, inflation rates, house price indices and consumer spending, the one thing that underpins economies is the level of confidence consumers feel in the system.
Across the internet, pundits are today recommending that investors dump shares and buy gold http://www.pri.org/business/economic-security/should-i-buy-gold4131.html , the final refuge of the monied fearful.
My worry is that if the US does actually default on its debt payments, there will be a run on high street banks and other financial institutions, precipitating an even bigger financial crisis than that of 2008. The ripple effects would then reduce the value of stocks and shares across the world and undo all the good that the US government and European Union have tried to achieve by injecting huge amounts of cash into their own failing financial institutions.
Let us all hope that within a few days, some compromise will be reached whereby the US continues to repay all of the interest on its mounting debts and retains the confidence of its domestic consumers. If not, we are all in big trouble…