Tuesday, 19 July 2011
US 'DEBT DEFAULT POLITICS'
There is a great deal of confusion surrounding the issue of US public debt and the degree to which 'responsibility/worry' rests with the debtor or creditor. The confusion comes partly as a result of the fact that the US dollar is a reserve currency and China as America's purchaser of government bonds needs the US as a market. That is true, but it is also true that the US and Chinese economies are so intertwined that the US would only be hurting its own economy if it does not better manage its public debt - in my view by sharply raising income taxes progressively on those earning above $200,000.
The Tea Party and Republicans for the most part want to make sure that the tax privileges of those making above $200,000 are kept, that the corporate welfare state is kept while social programs weaken, and defense remains as strong as it was during the Eisenhower administration. In short, this type of reactionary thinking is behind the vacuous rhetoric regarding the 'wasteful' public sector - as though defense is not wasteful, as though corporate welfare handouts are not wasteful, while health and education are wasteful!
There are too many US corporations in China for congress and the White House to play political games with the budget and to use this as the defining issue for the 2012 political campaign. However, why not this issue that is so dramatic and so tragically real for the bottom 75% of the population that the Tea Party wants to hit with the bill so that the top 25% can retain its privileges? Why shouldn't the Tea Party go with this issue and label Obama as the President that wants to reduce America to - God forbid - Greece that is in effect in default and the only thing that remains is the announcement - by any other name!
Default is a last resort and almost an impossibility for a large country (great power) like the US that is itself both debtor and creditor. It is unthinkable for the US government to play blatant games with the nation's credit rating, although it can do what it needs to with regard to monetary policy so that in effect it is paying the creditors with a 'cheaper dollar'. The US is not doomed to the same fate as Greece or any other nation on earth, because it is in a unique economic, monetary and geopolitical situation. The noise is about next year's election and about whether the rich will preserve their tax privileges, and not about the imminent threat of default like the Eurozone periphery.