Crikey



US creditors wait, Obama thundered, but Republicans didn’t listen

Barack Obama needs to pull a rabbit out of his hat quickly before the game of debt brinkmanship in Washington damages more than just his own legacy.

The president, after months of parrying, pleading, and golfing green diplomacy, finally drew upon the full stature of his office to call Republicans back to the negotiating table over the debt ceiling crisis. In reply, Republican house speaker John Boehner said no.

The polarising events of Obama’s 12th solo presidential press conference on Wednesday reveal a great deal about the weakness of his presidency, but very little about the crisis the US faces if the debt deadlock continues.

The US government owes more than $US14.294 trillion, the current limit imposed by Congress. It hit that mark  in May, and since then Treasury has suspended investments in federal retirement funds to keep within the law. Debt to its own workers isn’t included in that debt ceiling, so that’s the first liability to go unpaid.

The last time these extraordinary measures were taken it accompanied a government shutdown during the budget crisis between president Bill Clinton and then speaker Newt Gingrich. That’s not to say the debt ceiling has not been hit; it gets hit with every budget and increased accordingly. However, this time the Congress isn’t even leaving the administration sufficient funds to pay all its interest obligations.

The US Treasury has estimated that all extraordinary measures will run out on August 2, and the US will default, but exactly what happens then isn’t clear.

The stalemate sparked the IMF to break a tradition of not rebuking its host country, saying the US risks global repercussions and “severe shock” to the US economy: “These could take the form of a sudden increase in interest rates and/or a sovereign downgrade if an agreement on consolidation does not materialise or the debt ceiling is not raised soon enough.”

Current turmoil was undermining the recovery of the US financial system, the IMF warned, concluding that deficit reduction should begin next year and include spending cuts and tax increases through the elimination of special incentives and deductions. Essentially mirroring the plan the White House had hoped Republicans would accept.

The recklessness of this fight and the indifference Washington shows to the expected global impacts should give every country — and creditor — cause for concern. Confidence in US bonds was an effective definition of a AAA rating, but the petty dysfunction of Washington has a strangle on that golden goose. Yesterday’s US Treasury bond auction was the weakest it has been in a year, and continues a streak of disappointing bond auctions.

But US politicians are playing this game as if it has no impact beyond just 2012 campaign talking points and electoral fortunes of the marginal districts in the mid-western states.

Restoring confidence from this point won’t be easy, analysts are saying, and politicians on both sides have quite different ideas about how to do that. The only common ground is austerity measures, although the Democrats aren’t entirely happy at cutting scholarships, medical research and food-safety programs. Republican house leader Eric Cantor walked out of Vice-President Joe Biden’s talks last week saying the only way to show the world the US is serious about its deficit is to not raise taxes. After the talks collapsed, Obama made calls to congressional leaders on both sides hoping to find a centrist third way, as has become a hallmark of the president’s negotiating style. He expected leaders would rise to the occasion, given the stakes. Neither side gave ground. Instead the threats got worse.

Obama’s press conference, which carries much weight due to its relative infrequency, was what liberals had been asking him to do for the entire length of his presidency: use the office and its pulpit to call out the Republican Party on its unworkable position. Filled with barbs about the GOP wanting to keep tax breaks on “corporate jets for millionaires and billionaires”, it harked back to the language Obama used on the disastrous 2010 mid-term campaign trail. It offered no additional compromise, no new solution. It was the hail Mary play nobody expected, and it missed.

Speaker Boehner didn’t blink, issuing a statement calling Obama “AWOL” and sorely mistaken if he thinks any bill to raise the debt limit and raise taxes would pass. The American people, Boehner said, wanted the spending binge stopped before raising debt limit. All Obama did was upset the other side even more.

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Categories: Economy, Markets, United States

9 Responses

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  1. Yes, the Republicans’ behaviour seems beyond their normal irresponsibility. Last time Obama laid off federal workers and Congress staffers but continued paying Congress representatives. I would stop paying Congress representatives.

    by Gavin Moodie on Jun 30, 2011 at 1:31 pm

  2. oh good idea Gavin Moodie. I was going to say it is interesting how Greece was told to raise their taxes to stave off debt and the Republicans (strange economic ludites) are totally apposed to it in their case. I wonder how the GOP see the USA getting out of debt.

    by Delerious on Jun 30, 2011 at 2:06 pm

  3. The Republicans in the states seem to be behaving a bit like our Conservative opposition here! Both can smell electoral success and both are prepared to oppose everything they can to force a crisis.

    Both are utterly irresponsible - they are willing to hurt the nation (in the USA case they are prepared to hurt much of the trading world!) for short term political gain… and what will they gain?…

    They might win the next election, even force an early one, but then they will have to do the very things they are opposing now. Great hypocrisy from power hungry people.

    Conservatives who are prepared to hurt their fellow countrymen and women, for their own short term gain are a very nasty lot. Both here and in the USA.

    by Jim Reiher on Jun 30, 2011 at 5:44 pm

  4. Thing is, if Obama calls the Rethugs’ bluff and they send the world’s economy into chaos, Obama will cop the blame. Just like he folded last year before the budget deadline, he’ll fold now and give the Rethugs what they want. My sympathy with the American middle class will be non-existent - they brought this on themselves.

    by gregb on Jun 30, 2011 at 7:16 pm

  5. Bill Clinton had a similar stand off in his first term. He started closing down the federal administration and federal services. After some initial annoyance with Clinton, public sentiment turned strongly against the obstructionist Republicans, the Republicans caved, the economy recovered and Clinton comfortably won a second term.

    by Gavin Moodie on Jun 30, 2011 at 8:10 pm

  6. As pointed out previously here, it is very difficult to deal with people who dont give a f..k if they destroy everything, something which the US Republicans have had a lot of esperience in.

    by michael crook on Jun 30, 2011 at 8:36 pm

  7. Ever since G W Bush decided to give the wealthy huge tax cuts, (and then expand military spending with a couple of wars), the American middle class has been shouldering a heavier burden. Then came the big recession as a result of Wall Street’s excesses and that same middle class has been pole axed to its knees.

    Now that they are utterly beholden to the Tea Party, the Republicans have to decide whether they incur their wrath or that of the majority of Americans who know who it is that have crushed them (while exempting the rich).

    Obama should hold his nerve and stare them down.

    by CHRISTOPHER DUNNE on Jun 30, 2011 at 10:10 pm

  8. A couple of years ago it was confidently said that amerikans wouldn’t continue paying more than $2 a gallon (US gallon=3.6 litres) for petrol - it is currently in excess of $4 (still less than we pay here - approx A$1.06 a litre given our supa-dupa exchange rate) yet there is little blood on the street, yet.
    Wouldn’t it be a hoot (I’d happily buy tickets to watch) were the IMF to step in with its usual noxious nostrums, for lesser countries, tax rises, welfare cuts, privatise everything in sight.. oh, wait…

    by AR on Jul 1, 2011 at 7:32 am

  9. President Obama has a lot of questions to be answered. Moreover, lots of problems are needed to be solved by his administration. One of these is the country’s blooming debt. President Obama addressed the debt ceiling in a White House press conference Wednesday. He was especially critical of House republicans not willing to increase the debt ceiling if taxes are elevated. “Get it done,” Obama said, counseling congress to “take on their sacred cows.”. Responses to the press conference seem predictably to be split along party lines. Without a debt ceiling boost, the federal government won’t be able to get a payday loan whenever they want to.

    by Tracey D on Jul 4, 2011 at 4:46 pm

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