UNITED States (U.S.) President Barack Obama Tuesday declared that he
was willing to negotiate with Republicans in passing at least a
short-term budget that opens up the government at current funding
levels.
But Obama, during a media briefing Tuesday, said his offer
to negotiate with Republicans on the issues would “absolutely” stand if
Congress passes even short-term clean spending and debt ceiling bills.
However, he declared that “the only thing that I will say is, we’re not going to pay ransom for” America paying its bills.
This
came as it was revealed yesterday that there are no talks going on at
any level to resolve differences over the government shutdown and the
debt ceiling deadline.
But Washington’s march toward
self-inflicted financial calamity is setting off alarm bells around the
world as general bewilderment turns into genuine concern over a possible
default by the world’s lone superpower.
The International
Monetary Fund (IMF) as well as China and Japan – which hold a combined
$2.4 trillion in U.S. debt – have called for a quick resolution to the
crisis and expressed worries over the economic consequences of a
default.
Meanwhile, Obama said U.S. credit-worthiness will be affected if markets see that “we’re not paying all our bills on time.”
Noting
that he missed a major conference in Asia this week because of the
government shutdown issues, said the president said: “whenever we do
these things, it hurts our credibility around the world. Makes it look
like we don’t have our act together.”
He warned that if Congress
doesn’t raise the debt ceiling, “every American could see their 401Ks
and home values fall,” and the country would see a “very significant
risk” of a deep recession.
Obama said that Congress has to vote to
raise the debt ceiling as soon as it votes to reopen the government.
Failing to raise the debt ceiling “would be dramatically worse” than a
government shutdown, he said.
He criticised House Republican
tactics in dealing with the government shutdown and a debt ceiling
increase. “Let’s lift these threats from our families and our businesses
and let’s get down to work,” he told reporters yesterday.
Obama
spoke after Republicans reportedly offered a new approach yesterday to
resolve the U.S. fiscal standoff, proposing creation of a bipartisan
panel to work on deficit reduction and find ways to end the government
shutdown and make recommendations on a debt-limit increase.
The
proposal, which was quickly dismissed by Democrats, came as House of
Representatives Speaker John Boehner and President Barack Obama spoke by
telephone shortly after Boehner adopted a slightly more conciliatory
tone in comments to reporters.
“There are no boundaries here.
There’s nothing on the table, there’s nothing off the table,” Boehner
said after a meeting with House Republicans, making no mention of his
recent demands to delay parts of Obama’s healthcare law in return for
approving funds to end the government shutdown.
In the first
official response by China, Vice Finance Minister Zhu Guangyao said that
a solution must be found quickly in order to “ensure the safety of
Chinese investments” and provide stability for economies around the
globe.
“We ask that the United States earnestly take steps to
resolve in a timely way the political issues around the debt ceiling and
prevent a debt default,” he said. “This is the United States’
responsibility.”
The International Monetary Fund (IMF) has trimmed
its forecast for global economic growth at the same time as lifting its
UK growth projection.
It now expects global growth of 2.9% this
year, a cut of 0.3% from July’s estimate. In 2014 it expects global
growth of 3.6%, down 0.2%.
It cited weakness in emerging economies for the cut.
But
it warns that the political standoff over raising the US government’s
borrowing limit, if it results in the US defaulting on its debt
payments, “could seriously damage the global economy”.
It expects growth of 1.6% in the US this year and 2.6% next year, down 0.1% and 0.2% from its July forecast.
Economists have predicted that a default would do great harm to economies around the world.
Obama recounted to reporters his telephone discussion yesterday morning with House Speaker John Boehner:
He
was happy to eventually talk with Republicans about issues they care
about, but that “shouldn’t require threats of a government shutdown” or
economic chaos over the heads of the American people.
Yesterday,
there were news conferences and a high-level phone call between Obama
and the House Speaker, but no immediate sign of progress on reopening
the government a week into a partial shutdown or reaching a deal to
avoid the first-ever U.S. default next week.
Obama called Boehner
yesterday morning, and the White House then announced the president
would make a statement and take some questions from reporters at 2 p.m.
ET.
Earlier, Boehner demanded that Obama and Democrats negotiate
with Republicans on steps needed to end the shutdown that began on
October 1 and raise the nation’s debt ceiling before the deadline for
default on October 17.
“Americans expect us to work out our
differences, but refusing to negotiate is an untenable position,”
Boehner said, adding that Obama and Senate Majority Leader Harry Reid
are “putting our country on a pretty dangerous path” by rejecting GOP
calls for talks
- The Guardian
Demystifying the US debt ceiling: 5 things you should know
As the US government is about to hit its so-called debt ceiling of
$16.7 trillion on Oct. 17, the frightening prospect of the world’s
biggest economy running out of cash is dominating headlines around the
globe.
So, in an effort to shine some light on what exactly the
debt
ceiling means to all of us, Business RT spoke to leading
Moscow financial expert Chris Weafer, a senior partner at
Macro-Advisory.com.
1 What exactly is the
“debt ceiling?”
The US debt ceiling has existed for almost a century, and
describes the maximum amount of money the US can legally borrow.
The country introduced the legislative limit on its debt back in
1917, and since then it has stipulated the affordable amount of
national debt that can be issued by the US Treasury. As of
September 25, the US Treasury reported federal government debt at
just shy of $16.7 trillion
($16,699,396,000,000.00, to be exact)
in its daily
statement, a figure which has been reported for
130 days straight. This is about $25 billion shy of the precise
legal limit – $16,699,421,095,673.60. When the US approaches this
debt limit, it can take some “extraordinary measures” to buy some
time before Congress agrees to raise the ceiling. In its entire
history, the US has so far never reached the point of default,
where Treasury can’t pay its debt obligations.
2 Who holds the US
debt?
The US owes about two-thirds of its debt to US-based creditors,
with almost 66 percent of the country’s debt held domestically.
US individuals and financial institutions hold around 31.7
percent of US Treasuries, with the US central bank, the Federal
Reserve, which holds some 12 percent of the debt. Foreign
creditors, including China and Japan, own an estimated 34 percent
of total US government debt. These two 'big lender' countries
have recently urged the US to take decisive steps to avoid a
default.
3 What does the US borrow the money for?
In the US, often referred to as a 'big-spending' country, both
individuals and the government have habitually spent more than
they earn, pushing the economy deeper into debt.
“Just like any ordinary individual, the choice is either to
cut back on spending or to borrow money to bridge the gap,”
Weafer says.
In 2012, 22 percent of total government expenditures went to
social security (means-tested payments to the poor and
unemployed), while 21 percent was spent on healthcare, again
mostly for poor Americans who cannot afford private health
insurance. The third largest expenditure item is defense at 19
percent. In recent decades, the US defense bill has ballooned,
mainly due to costly wars in Iraq, Afghanistan and elsewhere. The
so-called War on Terror has also added greatly to the debt
burden, while the Department of Homeland Security, created after
the September 11, 2001, attacks on the US, has cost taxpayers
more than a cumulative $800 billion.
The biggest contributory factor to the fast-growing debt mountain
in recent years, however, has been the economic crisis that began
in 2008. Apart from hundreds of billions of dollars paid out to
rescue failing Wall Street banks that had made too many toxic
loans, the US government has also paid out large amounts on vital
social programs to aid the growing 'army of the unemployed'.
Coupled with the Bush-era tax cuts to the rich and big business,
lower average incomes and greater unemployment have hit
government tax revenues hard, sending federal government debt
sky-high.
4 Why can’t they simply
print more dollars and pay their debt?
No economy in the world can simply turn on its printing presses
and create as much cash as it wishes, as this would make its
currency worthless.
“If the amount of currency in issue is not sensibly related to
the strength of the economy, then foreign trade partners will …
devalue the currency quickly,” Weafer explains.
“If you
have one asset and income source which allows you to issue one
dollar, and then you print one more dollar, everybody else will
see what you have done and will value your one dollar at only 50
cents. Some countries have done that in the past, but in those
cases people soon had to use suitcases just to carry enough
currency to buy a loaf of bread.”
Under the Bretton Woods financial system, established in 1944,
the amount of currency in circulation was linked to gold
reserves. But in 1971, the US abandoned this system and started
to include a number of other economic factors, based on a
recognized ability to service debt and prevent inflation, and
maintain orderly trade with the rest of the world.
5 How would a US default affect people
around the world, on a macro and personal level?
If the US defaulted, then the world’s financial system
“would
start to freeze up,” Weafer says.
“Banks would pull back
from risk and lending. The US economy would slide towards
recession and the global economy would quickly be affected.”
A prolonged US default would lead to job losses everywhere and
much tougher borrowing conditions for companies and individuals,
he adds.
“A short period of default would also have a bad effect in
that it would hurt confidence in the world’s financial
system,” he says.
“Bankers and investors would assume that
a short-term fix in the US would mean it would only be a matter
of time before the same issue arises again in 2014. The resulting
caution would make life that much tougher for all of us.”
- RT news
Related post:
USA government shutdown !
