Default, Debt And The Moral Deficit
I know what would happen if I didn’t pay my electricity bill next week. I might get a warning, a nasty letter or two. Then, at a certain point, I would just no longer have electricity. Not to stretch a metaphor to breaking point, but the world economy could suffer a similar level of shock should the US not come to a deal by August 2 regarding the debt crisis. Here’s what a brief snapshot of the whole debacle.
Pay Your Bills
That the whole world functions in an increasingly interdependent network of debt is not something that helps me sleep easily at night. It’s nothing new, and I don’t (as a maths drop-out, economically naive person) see much of a way out of it. But if the Global Financial Crisis reminded us of anything, it is that nowhere is the cataclysmic consequences of the butterfly effect more evident than economies. Some experts are predicting the only way of rescuing Europe from its state of default- Greece being the obvious example- is perhaps to revert to national currency, a thought unimaginable ten years ago. If Greece wasn’t bad enough, the United States is currently caught in a stalemate over the management of their debt and, from what I can tell, their policies on how they will borrow over the next couple of years. If this plan isn’t hammered out by August 2nd- as in next week- the US will default on their bills. So what? Well, it means that- as a nation- they wouldn’t be able to pay all their debts, and interest rates could go haywire for anyone trying for a loan. Corporate contracts wouldn’t be fulfilled and it’s been suggested that some Social Security checks wouldn’t get paid. And if we think that’s an over-dramatisation, think of the concern US officials must have for the state of the stock market. If anything, they’re downplaying the extent of the crisis to avoid massive investor panic. On top of everything else, the US dollar is the reserve around the world- so a country like China would suffer major losses should a deal not be struck by August 2, and that could send the whole world party into a pretty unthinkable spiral.
Playing Politics
Anyone alive in 1975 will remember a similar crisis for the Whitlam Government- the Senate blocked supply, leaving the government at a standstill and eventually precipitating the events that lead to the Dismissal. Anyone who has watched the West Wing would be tempted to ask whether Aaron Sorkin can actually see into the future, and why he isn’t on staff at the White House to predict these kind of things. The Obama Administration has accepted massive cuts to their programs- $2.7 trillion if you want to get picky- and wants to raise the debt limit to the point that it will see the government through until after the 2012 elections. For obvious reasons, the Republicans would prefer to raise the debt limit to a point where it would need to be debated again in the middle of the 2012 election campaign. Not surprising, but enough to make your blood boil, that the alleged political leaders of one of the largest economies of the world could threaten the global economic order in this way to try and gain some extra point for the next election. Beyond anything, there seems an amazing disregard for the practical wellbeing of the citizens of the country they lead. A moral deficit indeed.
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