US Debt Crisis Oct. 2013

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English: Barack Obama signing the Patient Prot...
English: Barack Obama signing the Patient Protection and Affordable Care Act at the White House Español: Barack Obama firmando la Ley de Protección al Paciente y Cuidado de Salud Asequible en la Casa Blanca (Photo credit: Wikipedia)

After a shade more than 2 weeks (16 days to be precise) the US debt crisis appears to be coming to a close, well for now at least. America came within a whisper of default on its national debt because the Republicans and the Democrats couldnt see eye-to-eye on a solution.

On Wednesday 15 Oct. 2013 the Democratic leader Harry Reid said that Senate leaders had found an agreement, with non-essential government services to be reopened; but only until a new deadline of January 15, 2014. America’s borrowing authority will be increased until February 07, 2014. Reid said: “The compromise we reached will provide our economy with the stability it desperately needs.”

Yet to outside observers, the past three weeks have been totally baffling; a perplexing cocktail of Tea Party, Ted Cruz, Obamacare and debt.

So how and why did the Washington Administration came so close to pushing the world back into financial chaos.

  1. From the beginning, what was the Default? The US government nearly defaulted on its debt because the two main parties (yes there are only two choices and neither of them are particularly attractive from my European perspective), the Republicans and the Democrats struggled to reach a deal to increase the country’s debt limit (of course this simply means they are allowing themselves to borrow even more, as if the debt isn’t already at eye-watering levels!).
  2. What does that mean? The debt limit set is the total allowable $ value of government borrowing. The limit, set by Congress is usually issued in the form of treasury bonds and securities. If the debt limit isn’t increased, then America can’t honor its debts to foreign countries. We all get to pay for America’s spending!
  3. And why is that so bad? The US $ is the world’s reserve currency (travel almost anywhere and you can get by with US $). If the US can’t pay its debts, the stock markets would react swiftly and badly, plunging the US and the rest of the world back into recession (as if we ever really got out of recession in the first place).
  4. So why didn’t they just raise it without all the argument? This deal was so difficult to reach because the Republican speaker of the House of Representatives, John Boehner, was facing massive pressure from within his own party not to compromise with the Democrats. Amounting to, it would seem a ‘screw the economy’ attitude to get what they wanted or to those of us with a little more maturity, plain childishness!
  5. Right then, got that bit; but what did it all have to do with Obamacare? The Affordable Care Act, was passed into law in 2010 (that’s by both Democrats and Republicans), but is despised by the Republican Party, who see it as a violation of free market principles and an expansion of the state, a bit too socialist for them. It’s also President Obama’s signature achievement, making it a high value target for his opponents.
  6. And the Government Shut-down? The shutdown came about because Congress couldn’t (wouldn’t) agree on a debt budget for the country. The Republicans tried to tie the dismantling of Obamacare to the passing of a national debt budget deal. When the Democrats refused to cave-in on the healthcare law, the government closed. The Republicans then tried the same hostage taking tactic over the debt ceiling. Same result.
  7. Go on then explain why they threatened the debt ceiling? Breaching the debt ceiling would be a catastrophe; the US came to the brink of default because a small group of Tea Party-backed politicians (the lunatic-right) who just didn’t care if the government defaulted on its debts. They despise the Democratic government and they despise Obama even more. Had the US have defaulted, it would have happened on Obama’s watch, which would have been a victory of sorts for the Republicans after their failure to dismantle Obamacare. But screw the world!
  8. Right so we know why, now who? Led by Senators Ted Cruz and Mike Lee, this extreme right-wing (wrong-wing) of the Republican Party amounts to only 18% of the elected GOP, however it is hugely powerful thanks to the support of the Tea Party, who have threatened to challenge any Republican who voted in favor of a compromise with the Democrats.
  9. Okay, this takes money, where from? The Tea Party was able to threaten established GOP politicians because they have a lot of financial backing from wealthy businessmen such as the Koch Brothers. So any Republican politician that compromised would face a well-funded opposition campaign the next time voters went to the polls. Its all really about self interest.
  10. Got that, what do they stand for though? Even the Koch brothers didn’t want the US to default on its debt, that’s just bad for business. Meaning something else was driving the Tea Party; IDEOLOGY. The Tea Party came to prominence in 2008 after the global financial meltdown and the subsequent bailouts. They wanted less government regulation, less national debt and more fiscal responsibility! Not particularly bad when you say it like that but hang on just a second…
  11. Just tell me about the reality please? …2008 also saw the election of Barack Obama, the country’s first Black President (some people call him The Kenyan and some believe him to be Muslim, not that either is a bad thing as such but in some peoples eyes either one or both statements if true would be seen as a PR disaster). The Tea Party didn’t like this as they saw it representing a shift away from their view of “traditional America” (traditional America = Christian Right-Wing; the KKK is probably a good example of a Christian Right-Wing organisation in America). As such, they set about challenging everything Obama did, even if that meant bringing the US and the world to the brink of financial disaster. Great idea.

 

So, the Americans have pulled-back but honestly is anybody fooled? This situation is set for a repeat January/February next year. In short; situation normal, round two set for after Christmas!

 

Ye-Haaa welcome to the wild west!

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