Countdown to Default

[Crewleader]

May 10, 2011

Is This the End of the Road?

Countdown to Default

By MIKE WHITNEY

Sometime in mid-May, the United States will hit the debt ceiling ($14.3 trillion) which is the legal limit that the country can borrow without congressional approval. If the ceiling isn't raised, the US will default on its debt and the government will begin to shut down. But that appears to be less likely now than it was a week ago because Treasury Secretary Timothy Geithner has implemented a plan that will pay off bondholders and keep the government operating until early August. Geithner's accounting maneuvers are designed to give the Obama administration and congress a little more time to hammer out the details on a final budget deal. But that's not going to be easy, because Democrats and Republicans are still far apart on the issue of spending cuts, and neither party is willing to give ground. And that's why Wall Street is so worried, because if a settlement isn't reached soon, the uncertainty is liable to roil markets and send stocks plunging.

The conservative Republican Study Committee is calling for "immediate spending cuts, spending caps at about 18 percent of GDP and a balanced-budget amendment similar to the plan unveiled by Senate Republicans in March." (Washington Post) That's not the kind of "compromise" that the Obama team is looking for, nor will the Dems agree to slash spending and risk a double dip recession just to placate GOP deficit hawks. That's a non-starter. So, the standoff will probably drag for a while longer while the looming August 2 deadline gets closer and closer. If negotiations break-down and policymakers aren't able to reconcile their differences by early August, then the big steel door on the Treasury vault will slam shut, government payments will stop, and the United States of America will default.

No one expects that to happen. The US has never defaulted on its debt and it's not going to now. But, guess what, it really doesn't matter, because by the time congress agrees to a deal, the damage will have already been done. You see, foreign banks and financial institutions don't base their investment decisions on what actually happens, but what they "think" will happen. So, if the political stalemate continues, investors will get increasingly nervous and move their money out of US Treasuries and into something else. And, that WILL happen because, every day that goes by, the uncertainty builds and investors grow more apprehensive.


http://www.counterpunch.org/whitney05102011.html

[PDJane]

1. Let's get this straight......

The Republicans made most of the deficit, by cutting taxes and increasing spending. That means that the debt ceiling is due to the republican profligacy. So now, they're making noises about that defit and not raising the debt ceiling because it sounds reasonable to an undereducated electorate, particularly their base, and the Koch brothers have taken over everything including the Florida State University and the WI and MI governments. Now, of course, those trillion dollar cuts they want are going to send the economy into the toilet...and it will kill people. That's a bloody waste. Of human potential, of resources, of capital.

These people are insane, and I have no idea why anyone votes for them.

[secondwind]

2. I love your post!

[Vinee]

3. nor will the Dems agree to slash spending and risk a double dip recession

I guess some people think we actually pulled out of the first dip. I don't. I think we spent about a trillion dollars to put a fresh coat of paint on a house that was on the verge of falling down.

[lonestarnot]

4. +10!