Armageddon avoided – this time

We are like a blindfolded man walking towards a cliff, and if we keep walking in that direction, very soon we will fall off.

That’s how Democratic Senator Chuck Schumer described the looming crunch over the debt crisis in the USA on the 7.30 Report last night. The man leading the charge for the Tea Party right of the Republican Party is Ted Cruz:

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This article suggests that he knows exactly what he’s doing. Beyond getting rid of Obamacare, he’s destroying the Republican Party as we know it, to be remade in the image of the Tea Party. He also has an eye on running for president in 2016.

On the remake of the Party, most conservative Republicans fear they’ll be done over by the Tea Party come preselection time because it is so well organised, and, I believe, supported by Koch Bros funding.

On the presidency, there is a suggestion that he believes Obama will eventually be blamed for the chaos if the US defaults. There is another suggestion that he really is ignorant of what will happen if to the world if the US defaults.

Overnight our time a deal was concluded, I think essentially to kick the can down the road, as they say, until next February. Meanwhile Citigroup had already liquidated US Treasury bills falling due around the end of this month and reduced its exposure to government bonds expiring through to mid-December. That is, a major American financial institution was getting effectively downgrading what martin Wolf of the Financial Review described as “the world’s most important safe assets.” Defaulting is likely to be “a huge disruption to market liquidity and credit across the world.”

Damage has already been done to confidence in the American economy and currency which have acted as a stabiliser on the world economy in the past. Certainly China is worried about its $1.3 trillion exposure. According to Alan Kohler Japan is in for almost as much and the Middle East oil states are heavily exposed. All will be looking to diversify in the future, which will in any case depreciate their US$ holdings.

Australia, we are told, doesn’t hold a lot of US Treasury bonds. Effects here are nevertheless significant. Our dollar is likely to remain high and conditions in the non-resource sector are likely to remain difficult.

There is a question of the true deadline, which has been nominated by the US treasury. Seems at that point they will be down to their last $30 billion, plus tax receipts of $7 billion each day. On 1 November, however, non-interest payments $67 billion are due, plus $36 billion in interest payments on 15 November. The real problem is the big pile of $17 trillion of US debt.

Ironically the President has the power to raise the debt ceiling in an emergency. Martin Wolf tells us that he is faced with a “trilemma” He can ignore the debt ceiling and unilaterally issue new bonds. He can unilaterally raise taxes. He can unilaterally cut spending. But in each cae he would be usurping Congress’s normal functions.

Yet if he gives in to the demand of junking Obamacare, which is the law of the land, he would be encouraging extremely bad behaviour. Wolf’s suggestion is to get rid of the debt ceiling which he describes as “an invitation to mischief.”

Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund, goes into some of the nuts and bolts of the effects of default in the US and elsewhere. It’s not pretty, and potentially worse than the GFC. Ironically the GFC strengthened the US currency as a safe haven:

investors piled into US government bonds, because they offered safety and liquidity – prized attributes in a crisis. These are precisely the attributes that would be jeopardized by a default.

BTW Cruz is the son of Cuban refugees, born in Alberta, Calgary, and is the junior senator from Texas, only in his first term in 2013. His father, once in oil, is now a Baptist minister. I believe the Tea Party has roots in southern racism. A guest on Late Night Live the other day, pointed out that it also has an anti-communist Cuban connection.

33 thoughts on “Armageddon avoided – this time”

  1. The Republican Party will eventually drag itself out of this stranglehold by the Tea Party. It has a long and fine history and will have no future if it can only represent a narrow slice of America. There must be other sources of funds to counter whatever the Tea Party have.
    But this crisis has warnings for the international community as well. The US no longer deserves to be the sole reserve currency and it is time there was more diversity. We know from natural systems how valuable diversity is.
    So a wake up call for all. And a sigh of relief this one looks to be over

  2. Churchill nailed it when he said:
    “you can rely on the Americans to do the right thing when all other possibilities have been exhausted”.

  3. If anyone – like me – was confused over just why the Republicans would be trying so hard to wreck their electoral prospects, the pieces I have linked to show that the problem is more complex and definitely scarier than shortcomings in the American character as Terry2 (and Churchil?) seem to believe.

  4. Brian,

    I’m intrigued by the juxtaposition of your (unsupported) claim that the Tea Party “has roots in southern racism” and your causal reference to its funding by Jewish interests, namely the Koch Brothers.

    Would you like to elaborate.

  5. Doug the billionaire rwingnut libertarians in the US are so sus.

    Have you followed the way the Koch brothers people (and others) infiltrated the tea party, used people like Glenn Beck and various US rw thinktanks to grab control via the 2010 midterm elections?

    These freaks have a long term game plan to “convert sixty percent or more of the population to support our core values of fiscal responsibility, constitutionally limited government, and free markets.”* Thats all code for scrapping regulation/limitations on the power their capital gives them and funneling all wealth ‘upwards’.

    They aren’t interested in their “electoral prospects’ in the short term, they’re interested in long term power and not necessarily via the ballot box, which has always been a limit on power, especially the power of the wealthy.

    *Mark Meckler

  6. #2

    Nov. 9, 1860

    Across the country, the day’s headlines blazed with reports of Southerners’ response to Lincoln’s election. Perhaps most disturbing to many Americans, though thrilling to others, was news of a mass meeting in Savannah, Ga., the previous afternoon. Thousands of citizens – the largest gathering that the city had ever seen, newspapers said – had filled Johnson Square at the heart of downtown, thronging around a monument to Revolutionary War general Nathanael Greene to launch a revolution of their own. The crowd cheered wildly as a speaker declared that “the election of Abraham Lincoln and Hannibal Hamlin to the Presidency and Vice Presidency of the United States, ought not and will not be submitted to.” The shouts and whoops redoubled as a flag was unfurled across the white marble obelisk: a banner with a coiled rattlesnake and the words “SOUTHERN RIGHTS. EQUALITY OF THE STATES. DON’T TREAD ON ME.”

    The Don’t Tread on Me flag, as you well know Collywobbles, has been adopted as the/a symbol of the US Tea Party.

  7. Australia proved denying money to Government can effectively bring on a change of Government. Howard has been on a long speaking tour in the US since being turfed out of Office. He always claimed his Government was the most right wing ever. He purged his party of wets/liberals to the point where only a couple remained at the time of his defeat.
    The ultra conservative side of the Republican Party feted him, cheering his input and no doubt wished they had a mechanism to emulate the division between the House of Reps and the Senate.
    I remember the unconscionable non acceptance of the twice elected Whitlam Government by the ‘born to rule’ then, and I see the similarities now.

  8. Jules and Helen, why the abusive tone? I simply asked a question.

    I don’t claim to be an authority on US politics or history, much less the Tea Party.

    A more nuanced, polite and adult take on the situation based on polling.

  9. The US far right is a menagerie of mutually hostile monomaniacs, chiliasts and conspiracists. The Tea Party is an umbrella nomenclature that unites these fanatics in uneasy tension against a common enemy.

    Thus, southern racists, northern racists, zionists, snake handlers, libertarians, and grumpy old men can all feel they belong because they have no forum to learn about how much they hate their confreres. If, god forbid, they ever get to wield executive power, that exercise will be a very rude awakening for Tea Party members.

  10. The standoff in the US can be traced to this meeting tho I doubt the meeting is the origin of it.

    It was at this meeting that the ultra wealthy right in the US finalised its plans for electing as many republican tea partiers as possible in the 2010 midterm elections. It was those elements of the republican party that precipitated this crisis.

    Lee Fang of thinkprogress.org covered the meeting, kind of, cos it certainly wasn’t open to journos who were actually working while there. Tho Glenn Beck gave a presentation. The Kochs organise these meetings, they’re held twice yearly.

    By the way gollybiggles Fred Koch was a founder of the John Birch society. While it isn’t a racist group per se it certainly skates on some thin ice, and opposed the civil rights movement in the US and the subsequent civil rights legislation. I don’t think the Koch’s are Jewish either, tho stormfront’s website claims they are, with one commenter saying (wtteo) “they look Jewish, and I’m great at sniffing out Jews so they must be”. In fact most of the people who claim the Koch’s are Jewish are neo-nazi’s of one variety or another and are making the claim simply to fit their vile “evul joos run the world” mythology.

  11. I’m intrigued by the juxtaposition of your (unsupported) claim that the Tea Party “has roots in southern racism” and your causal reference to its funding by Jewish interests, namely the Koch Brothers.

    Golly, the Koch (pronounced Koke) family have been conservative Christian luminaries for several generations. The Jon Birch society is not known for its lack of anti-semitism.

    Perhaps you’re confusing them with the ex-mayor of NYC, Ed Koch (pronounced Kotch)?

  12. There are no experts on individual Americans here whatever they describe themselves.Do it through Alex Jones or Rense.com.Or KeelyNet. who will point a few home truths between matters of energy.

  13. I have no idea why Gollybloggles chose that nym. It seems to invite messing around with. Nevertheless such messing is disrespectful and not good netiquette. Gollybloggles obviously finds it offensive, so we should respect the choice.

    Shortening as tt has done is a standard Australian practice.

    Gollybloggles, I had no Jewish connection in mind. A few weeks ago I saw an article pointing out that the South was like another country and that a major political reorientation took place in the 1960s when Lyndon Johnson introduced desegregation laws. Prior to that the old confederate states used to vote Democrat. Ever since they have voted Republican. To some degree the Tea party is refighting the Civil War as per Helen @ 9 and 10.

    There was a letter in the AFR yesterday along the same lines. Debt represents the fundamental moral bankruptcy of the North. Apparently one American historian openly refers to the South’s role in modern American politics as the “jihadists from within”.

  14. Michael Vincent had useful roundups of the debt crisis on Radio National here and here. A must read though is the interview with Professor Linda Bilmes from the Harvard Kennedy School.

    She describes the US method of budgeting as “stone age”. Then there was this:

    I think that where president Obama has some responsibility here is that despite having spent much of his political capital having the Affordable Care Act enacted, there has been an insufficient outreach to the American public to explain the Affordable Care Act and that was most illustrated on one of the late night comedy shows and all the people he interviewed said that they hated Obamacare, but they loved the Affordable Care Act, even those two things are the same thing.

    Amazing!

  15. Doug Evans @ 2:
    Thanks for that link to Robert Perry’s article. “Chilling” doesn’t begin to describe it. Being a millionaire, in itself, does not exempt anyone from insanity – further, it may be useful to look at the histories and mindsets of high-ranking Nazis or power-players in Imperial Rome for comparisons.
    A glimpse of what the future hold for Americans, God help them!, if these loonies get their way can be found in the mid-1980s novel – and film – “The Handmaiden’s Tale”.

    zorronsky @ 14:
    Wonder if these millionaires think a Harper-Howard axis might have a sweeter sound to it than a Harper-Abbott axis? Wouldn’t be the first time Americans have interfered in Australia’s internal affairs. As the saying goes: Money talks, ….

    Brian and all:
    When a Wall Street wallah said, the other day, that The Market had now factored in the political shenanegans, he wasn’t making a comment – he was issuing a grave threat. The U.S. economy and government will never ever be the same again.
    In some ways, this attempt at national suicide is far more destructive than the combined effects of the Viet-Nam War, the loss of the space shuttles and the 9-11 attacks combined.

  16. Prior to that the old confederate states used to vote Democrat. Ever since they have voted Republican.

    Mostly but not entirely. Jimmy Carter swept the south in 1976 and Bill Clinton won some southern states.

    Thanks to the fast growing Latino vote, Texas is now not all that far from being a Democrat state. If this happens, the Dems will have an electoral college on the White House.

  17. It seems to me that the Republican Party (Lincoln’s party, for chrissake!) has become an uneasy alliance of the christianist taliban, a bunch of cornpone nazis, and the spivs and chancers of Wall Street. Now wonder they can’t articulate a coherent position on anything.

    It seems the party of Menzies has got similar (but thankfully smaller) problems …

  18. re dylwah’s link @ 26.
    The political history of the US is littered with the rise and fall of minor third parties and the strong survival of both Democrats and Republicans regardless. Though I will admit the GOP seems at the moment to have gone completely bonkers.

  19. Paul Burns @ 27:
    The inability to look beyond an over-simplistic Two Party system is one of the serious flaws throughout the Anglosphere, not just in the USA. It is one reason that an effective parliamentary democracy – with equity, social justice and progress – is impossible wherever such primitive thinking prevails. Yes, you can have all the pretence of effective parliamentary democracy with it but not the solid reality.

    More than one American visiting Australia has said something along the lines of: You’re lucky in Australia, you got the convicts; we got the Puritans …. without realising that our political system here is as inefficient and unfair as is theirs – just in different ways.

  20. GB @ 22, I think permanent damage has been done to the primacy of the $US. The Chinese, the Japanese and the oil states will be quietly rebalancing. Problem is there’s not that much choice, but one result will be that the Australian dollar will remain higher than is comfortable.

  21. Paul Burns @ 27
    Perhaps GOP can now deal with their difficult minority because their actions are so clearly ‘bonkers’ and open to ridicule. Big institutions tend to be resilient in the face of internal forces that threaten to damage entire enterprise.

  22. Mahaut1329,
    The GOP’s problem with the Tea Party seems to be that Tea Party ideologues have tied up Republican preselections – or at least the equivalent to our party preselections.
    OTOH, after this last failure, Tea Party members may be looked at askance by the wider Republican Party. I don’t know enough about how the Republican Party works internally to voice an opinion as to whether moderate Republicans are even capable of breaking the Tea Party stranglehold. But, reading between the lines in various press reports, there seems to be some pessimism as to whether that stranglehold can be broken.
    I also get the impression Republican moderates share the Tea Party’s aims, but strongly disapprove of their strategies and tactics – eg shutting down the Government – to achieve those aims.
    I suspect the Republicans will be toast at the next Congressional elections.
    But what would I know? I’m a foreigner from afar looking at a situation with very imperfect knowledge.

  23. Given that the 1995 and 2013 shutdown crises followed almost precisely the same trajectory, driven by identical political forces , to a complete victory by a Democratic president, it is fair to say that if the Republicans thought they would achieve a better result than last time, then they are the victims of magical thinking.

    But then again, it is no secret that rationality is not a notable element in the make up of the GOP of 2013.

  24. Brian @ 29 and all:
    One of the many permanent self-inflicted wounds the Americans (not just the Tea Party) have given themselves lately is the downgrading of the U.S.-Australian alliance.

    The Americans have shown that – with the exception of using existing nuclear weapons – they now simply cannot afford to come to our aid if we are attacked …. no matter how much they might wish to and how much they might bluster.

    Australian decision-makers, no matter how much they might deny it in public, are probably wondering which big uncle they can turn to now defend them (Darwin, Perth and Shoalwater Bay as PLA or JSDF bases perhaps?). This Tea Party lunacy has happened at a time when there are people here who are wondering what’s in it for us to remain tangled up with a bunch of consistent losers: Viet-Nam, Iraq, Afghanistan, various currency and financial crises, crash of their space program, impotent reactions to Hurricane Katrina. Yes, there have been brave and determined American individuals whose responses to these challenges has been truly inspiring …. but it is the American systems, not great American individuals, that keep on failing.

    Australian decision-makers avoid the idea of self-reliance in defence and diplomacy like the plague …. so it will be “So long, Uncle Sam” and “Respectful Greeting from your humble servants, Bi Xia or Tenno”.

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