Thursday, July 14, 2011

"Debt Ceiling Kabuki"?

Some insight is provided by Mike Whitney into this "debt ceiling kabuki" theatre (melodrama) we're being forced to watch daily now. Pay no attention to the men behind the curtain.

Obama's goal is the same as the Republicans, to slash public spending as much as possible so more capital can be diverted to the wars and Wall Street. Period. The only difference is that Obama wants to make it look like the cuts were the result of hard-fought negotiations with GOP deficit hawks and not just part of his own corporate-friendly agenda. That way the Republicans take the hit public approval-wise while the Teflon President sails to victory in 2012. It's all politics. Here's a little more background from The Hill: "Despite the tension, Obama and the Republicans did seem to find common ground on about $1.7 trillion in cuts over 10 years, cuts that were identified during talks led by Vice President Biden. “And we’re willing to go further than that,” the Democratic official said. “It’s a pretty clear indication of how far the president has come in terms of his willingness to come off his maximalist position.”... “We had a pretty fulsome discussion on the specifics that the White House was prepared to agree to, or at least that they thought were options that were viable,” Hoyer said in an interview shortly after the meeting at the White House." ("Obama warns Cantor: 'Don't call my bluff' in debt-ceiling talks", The Hill) See? Obama has already given away the farm and wants to give away even more, right? That's why he's mad, because the Republicans won't play ball and provide him with the cover he needs to screw working people once again. By the way, notice how the Bush tax cuts--which Obama approved and which add another $3.3 trillion to the deficits in the next 10 years--haven't been a part of the current negotiations. Nor has the military budget. It's all cuts to popular social programs and public spending. So, yes, Obama does get ruffled when he can't do his job the way he would like to; when nit-picky Tea Partiers don't understand the way that Washington's corporate welfare system really works. Then he has to throw a hissy-fit and stomp his feet like a petulant 5-year old. But it's all just empty posturing; it doesn't really mean anything. . . . There is a serious side to the debt ceiling negotiations though, but it's usually glossed-over by the media. If the ceiling isn't raised by August 2, then the United States will technically default on its debt. Now, granted, the political establishment will move heaven and earth to make sure that doesn't happen, but still, the Tea Party contingent--that are adamantly opposed to raising the limit without major concessions--could throw a spanner in the works and derail efforts for a resolution. And, if there is no budget agreement by August 2, then this is what we can expect: "...Federal spending would instantly have to be reduced by about $100bn per month. By the end of 2011 federal spending would be about $500 bn lower for the year than it would have been otherwise. ....spending cuts of that size would reduce the US's 2011 GDP by multiple percentage points. The Q3 and Q4 GDP growth rates wold probably be on the order of between -5% and -10%. Recall that during the recession of 2008-09, GDP only fell by about 4% in total. The unemployment rate would be likely to rise by several percentage points from its current level of 9.2%, to perhaps 15% or more of the US population. Recall that at its worst, the unemployment rate during the Great Recession only reached 10%."...Federal spending would instantly have to be reduced by about $100bn per month. By the end of 2011 federal spending would be about $500 bn lower for the year than it would have been otherwise. So when you read someone blithely writing that the federal government will not default in the absence of a debt ceiling deal, and instead will merely have to trim excess spending, remember that what they're really advocating is a new and deliberately caused Great Depression. And not just in economists like me." ("Great Depressions", Streetlight Blog) As bad as it sounds, a US default would be much worse then Streetlight's dire predictions. Why? Because the so-called shadow banking system is propped up on US Treasuries. They're the foundation block in bank-funding operation that will experience sudden and significant haircuts if USTs are downgraded. And, we're not talking "chump change" here either. There's $4 trillion in Triple A collateral that could be marked-down if the debt ceiling isn't raised promptly. Here's a summary from The Economist: "A US technical default would convulse markets. Nothing else is certain...If a deal cannot be reached before August 2nd the Treasury says it will be forced to default..... Domestic banks would not have to classify their sizeable holdings of Treasuries as non-performing if they thought the default short-lived. But they would suffer nonetheless. Currently Treasuries represent roughly 30% of the collateral that financial institutions such as investment banks use to borrow in the $4 trillion repurchase (“repo”) market. They represent another 4-5% of the $1 trillion in collateral used in the derivatives market. A default could trigger demands by lenders like money-market funds for more or different collateral. Matthew Zames of JPMorgan Chase, writing on behalf of the securities industry in April, gave warning that this could “lead to deleveraging and a sharp drop in lending”. Money-market funds themselves hold another $338 billion of Treasuries. In the event of a default at least one would probably “break the buck” (ie, fail to give the principal back to investors), threatening “a broader run on money funds”, Mr Zames said....." ("The Mother of all Tail Risks", The Economist) Keep in mind that the financial crisis began in the repo market in August 2007 when French bank Paribas PNB decided it could no longer value the mortgage-backed assets (MBS) it was holding, so it stopped redemptions. That's what started the financial meltdown which peaked when Lehman Brothers folded a year later in September, 2008. In other words, there was a run on the $10 trillion shadow banking system because the collateral the banks were holding was quickly losing value. That depleted the banks' capital and sent the financial system in freefall. We're not saying that that WILL happen, but just that it COULD happen. That's what the debt ceiling flap is all about. And that's why Obama is peddling as hard as he can to resolve the issue before the deadline, because, once again, Wall Street is out on a limb and needs Washington to bail them out. Comment:

Peppino

I can't believe that people are buying into this shit! It's the coercion before the rape, when the wealthy steal even more of the tax revenues, and nothing is going to happen to prevent that. Obama doesn't have a handle on anything, he's just another stooge who does what he's told, and that's why there is no possibility of a crisis because there is no crisis -- there is no possibility of default -- not here, not in Greece or Italy, none at all. It's just necessary, from an extortionist's point of view, to make the suckers squirm before, magically, all of this shit will disappear and in its wake trillions more of the working people income will be in the hands of the greediest bunch of bastards in history. All of the gains of the working class in the world in the 20th century are going to be wiped out in a matter of a few years, and there is no force in place anywhere to stop it from happening short of an armed uprising, and there's no prospect of that. But, fuck, we don't have to fall for this shit, and write articles about it --Whitney is just doing the work of the Media here. We're going to be poorer; they're going to be richer. It's going to continue and the repression will get worse and worse, and no fucking invisible socialists or leftists are going to do any thing at all. It's a done deal. It's the crowning wave of the Reagan Revolution, and I'm not sure that the miserable assholes who voted him in don't deserve the hell they're leaving their children and their children's children in.
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4 comments:

buelahman said...

The problem with the last sentence is that, my family, too, suffers with these ass-kissing sycophants who deserve what they get due to their stupidity, their participation or their plain ignorance.

By God, I have been screaming about this for long enough and loud enough to reach many of these kissers. But, they don't give a damn. They THINK they are part of the in crowd... a part of the Obama legacy.

Good. When they all starve and their children suffer due to their idiocy, I will say "feed 'em fish heads".

Suzan said...

Fishheads?

Come on, B!

You're not gonna give them that much.

Love ya,

S

Rate of Dissent said...

All these money and numbers we see on the Spell-O-Vision feel like an elaborate fabrication. Sometimes I honestly believe they make it all up to keep us distracted. Obama has to deal with it because he's a worker too. A high level worker, but still a worker. Somewhere out there, the people we'll never see on TV or read about in the paper are likely having a hearty laugh. The real elite don't need money.

It's pretty funny. Jesus Christ said that the best thing to do is give all your money and posessions away to sick and hungry people. I can't imagine him sitting through one of these debt meetings. This reality is temporary - measured in years, for gosh sake. Life passes like a shadow, the Bible says. People manage to get pretty worked up though, especially about money. Sometimes I wish I had lots of it, just so I'd never have to waste another precious moment of my life thinking about it.

Anyways, cool article cool blog. Looks like a lot of work went into it.

Suzan said...

Not worry about money?

You and me both.

Wouldn't it be loverly (to coin a phrase long since bandied about on the stage)?

In the end, we're all dead.

As the commentator said.

Yet, it's the interim in which we live that counts and the pleasanter the better for all of us.

Thus, the idea of shared sacrifice to enhance the civilized environment. When the rich use their acquired wealth to buy themselves out of the sacrifice, the civilization always suffers.

Even the Bible says it's so.

Thank you so much for the compliment. I love meeting new readers.

Please come back and see us!

S