US debt talks
Dancing into the abyss
Added on July 30, 2011 at 23:24 Riga time
On Saturday, July 30, the
GOP dominated House has rejected Harry Reid's (Democrat) plan with 246 to
173 votes. Unlike the GOP plan, the Reid plan would have allowed to govern
without rising the debt ceiling again until 2013, after the next
presidential and congressional elections.
Added on July 30, 2011 at 19:26 Riga time
In the evening of July 29, the
Republicans pushed their plan through the 435-seat House of Representatives
with a narrow 218 to 210 vote. Two hours later, the GOP proposal was
rejected by the Democratic majority in the 100-seat Senate with a clear 59
to 41 vote. Note that, in the House, not a single Democrat voted for the GOP
plan. In the Senate, all 51 Democrats, 2 independents and 6 Republicans
formed the victorious opposition. Time to compromise is running out...
US debt talks: Dancing into the abyss
Article added on July 29, 2011
Let's dance into the abyss, that seems to be the current
motto in Washington, D.C. With the 2011-deficit projected to be around 9% of
GDP and the overall federal and state debt reaching 100% of GDP if no
austerity measures will be taken, that's quite a gamble.
Europe is in a crisis too, despite the recent
summit, which has not resolved anything,
and despite the
Italian austerity budget.
mid-July showed that the public deficit in the entire Eurozone was estimated to reach
some 4.3% of GDP in 2011 compared with the 9% in the US mentioned above. That should make you think.
The US is still in a deep financial
crisis. Fannie Mae and Freddie Mac are still there. The banks are fewer and
bigger than ever. They are still intertwined and too-big-to-fail.
The US debt talks between Democrats and Republicans and between the
President and the GOP opposition should lead the United States back to a
Fiscal discipline is requested. At the same time, two-thirds of the US
economy is driven by consumption. The American problem is that both the
government (on all levels) and consumers have been living above their means
for decades; check the US-China trade deficit for some of the details. I
referred to this uncomfortable situation in
February 2009 as catch-22: you should both spend and save at the same
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The situation is worse than you may think.
After a long period of underinvestment in the American infrastructure, the
United States should massively invest public
money in the future and at the same time save public money. Not an easy task to accomplish.
How about getting rid of all subsidies, starting with the ones for
agriculture and oil companies?
From April to June 2011, the US economy only grew 1.3%, with analysts
expecting GDP growth to be around 1.8%. Worse, the first quarter growth has
been revised down: GDP did not grow 1.9% as officially announced earlier in
the year, but only 0.4%. That's a substantial difference.
What is the reaction in Washington?
The House Republicans may overplay their hand again as they did in the
Clinton years. In the 1990s, they pushed the Democratic president to the
center but, in the end, their demands became to extreme and they gave
Clinton a second life.
Boehner, Cantor and the Tea Party parliamentarians have to be careful. It is
true that Obama gave you a
“stimulus”, a bailout of car-companies, to pay back the unions for their
electoral help, as well as ObamaCare. When the Fairytale President tries to
sell himself as a fiscal conservative, he is not credible. At the same time,
the GOP forgot all about fiscal discipline during the years of Bush the
Torturer: lowering taxes while enlarging entitlements and fighting
ill-conceived and ill-managed wars.
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The years of Bush the Torturer were disastrous, but it
did not get better under Obama. The US are farther away from a zero deficit
than before. Paying down the debt is a long-term goal of a pretty distant
Grandstanding at the abyss does not help anyone. The United States have a
dynamic economy which can bounce back quickly, but courageous decisions are
needed now. There is no more room for delaying decisions, additional
earmarks and subsidies (e.g. for farmers and oil companies). Tax loopholes
have to be closed now.
In addition to cutting entitlements, the military sector has to be analyzed.
President Eisenhower said in his 1961 farewell address: “...
we must guard against the
acquisition of unwarranted influence, whether sought or unsought, by the
military-industrial complex. ... we - you and I, and our government - must avoid the impulse to
live only for today, plundering, for our own ease and convenience, the
precious resources of tomorrow. We cannot mortgage the material assets
of our grandchildren without risking the loss also of their political
and spiritual heritage.”
The most powerful US lobby is the military-industrial complex. Monopolies
and oligopolies reign.
Purchasing military equipment has become a black hole. In addition, there is
a total lack of financial accountability. Just think of the billions “lost”
in Afghanistan. Nobody knows where the billions of dollars to build up the
country have ended up. Also in the US, billions of military spending money are squandered to maintain unnecessary
military basis' and projects.
The left has to abandon the idea of a social-democratic state. The right has
to come to its senses regarding military spending and closing tax loopholes.
As for the debt ceiling, it has to be raised anyway because that is for
money Congress has already spent.
It may be the time for new political parties to emerge. There is not enough
competition for ideas. If you think the state is the solution, you vote for
the Democrats. If you think the state is the problem, you vote for the
Republicans. More choice is needed. The current politicians have to find a
sustainable compromise in their debt talks now, otherwise voters may soon
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