The Republican Congressmen and Senators are playing an extremely dangerous game with their nation's finances. In their desire to defeat Barack Obama in 2012, they are pushing the issue of National Debt Ceiling to the brink.
If Congress does not approve an increase in country's debt ceiling by August 2,2011, United States Government will default on its debt obligations at the rate of $4 billion a day. The will result in lowering of US credit rating from AAA and no one will be willing to lend money to US Government unless there is a substantial increase in interest rates.
The interest rate hike will hit the already weak economy hard, pushing unemployment to double digits, the housing market will suffer a down turn like it has never been seen before. Already some 29 million homes are under water i.e. their mortgages are higher than market values, increase in mortgage defaults will bankrupt many US banks and unlike 2008, Uncle Sam will not be able to save them this time as Uncle Sam will itself be bankrupt.
Are the Republicans really this desperate to defeat Obama that they will sink the entire US ship? Many think they are playing brinkmanship and will come good at the last minute to avoid default. I hope they are right, because otherwise they have to be extremely despondent to do this to their own country.
The US default will also impact the World economy. The already suffering European economies of Greece, Ireland, Portugal and others will sink even further, resulting in a possible breakup of EU or the Euro as a single EU currency.
And why are Republicans not willing to increase the debt ceiling even once in Obama's three years, when they raised it no less than seven times in Bush's eight years? Apparently they want more tax cuts for the wealthy and oppose closing tax loopholes for big Corporations. They want to eliminate Medicare and cut Social Security for the poor. The American public knows well that the high debt is a Republican legacy from George Bush's ill planned wars and tax cuts cuts for the rich.
If a default occurs, Obama will probably take the high road and heap entire blame on Republicans and rather than winning the White House in 2012, Republicans could end up losing majority in the House and many Senate seats too.
In case of default, US voters have only themselves to blame for giving Republicans and Tea Party candidates a majority in the The House in 2010 despite George Bush's disastrous eight year Presidency.
Showing posts with label Euro. Show all posts
Showing posts with label Euro. Show all posts
Monday, July 18, 2011
Tuesday, September 23, 2008
The Financial Bailout and its Implications
Enough has been said already about greed, big salary and bonus payouts to senior executives of banks. The situation is where it is - precarious and needs to be addressed urgently. Treasury Secretary Henry Paulson has been running around for the last couple of weeks trying to avoid a 1929/30 style financial meltdown and all credit to him for his deft handling of the situation so far.
The current proposal before the Congress is to approve an emergency fund of $800 billion (with no apparent upper limit) to be managed by Treasury Department to buy toxic mortgages and exotic paper from banks for cash in order to provide liquidity to financial institutions. Despite the loud protests of Congress, almost everyone knows that this bill will pass and funds will be made available.
Congress may wish to place an upper limit, so this does not become an open ended commitment. Paulson himself suggested in the weekend talk show interviews that amount needed could exceed $1 trillion. This is almost equal to the amount spent on Iraq war to date. So wither plans of ending the war to save money to spend on social programs.
The Congress should also consider putting a mechanism in place that any bank benefiting from this fund will agree to freeze the salaries and bonuses of top 5% executives until such time as the treasury holds their toxic paper. Once the paper is sold, the restriction is lifted. Also, Congress should consider setting up a three member committee of reputable citizens with financial experience who will approve any bonus payments to top 5% executives of banks and financial institutions benefiting from this fund. This may seem draconian, but it is important to give a sense to tax payers that bankers will not start paying themselves huge bonuses until such time as their money is tied up in toxic assets.
The wider implications of the bailout are much greater. The national debt already ballooning out of control will exceed $11 trillion. No one knows how this will ever be paid down or how many decades it will take to bring it down to the level it was eight years ago. Treasury will probably end up printing more money and that could cause serious inflation, erosion in value of dollar and a possible shift from Dollar to Euro as the world currency. High inflation will result in high wage demands by unions, resulting in even greater inflation, mortgage foreclosures and credit card debt defaults.
I hope Paulson and Bernanke are considering all those eventualities and are ready to tackle what is to follow.
The current proposal before the Congress is to approve an emergency fund of $800 billion (with no apparent upper limit) to be managed by Treasury Department to buy toxic mortgages and exotic paper from banks for cash in order to provide liquidity to financial institutions. Despite the loud protests of Congress, almost everyone knows that this bill will pass and funds will be made available.
Congress may wish to place an upper limit, so this does not become an open ended commitment. Paulson himself suggested in the weekend talk show interviews that amount needed could exceed $1 trillion. This is almost equal to the amount spent on Iraq war to date. So wither plans of ending the war to save money to spend on social programs.
The Congress should also consider putting a mechanism in place that any bank benefiting from this fund will agree to freeze the salaries and bonuses of top 5% executives until such time as the treasury holds their toxic paper. Once the paper is sold, the restriction is lifted. Also, Congress should consider setting up a three member committee of reputable citizens with financial experience who will approve any bonus payments to top 5% executives of banks and financial institutions benefiting from this fund. This may seem draconian, but it is important to give a sense to tax payers that bankers will not start paying themselves huge bonuses until such time as their money is tied up in toxic assets.
The wider implications of the bailout are much greater. The national debt already ballooning out of control will exceed $11 trillion. No one knows how this will ever be paid down or how many decades it will take to bring it down to the level it was eight years ago. Treasury will probably end up printing more money and that could cause serious inflation, erosion in value of dollar and a possible shift from Dollar to Euro as the world currency. High inflation will result in high wage demands by unions, resulting in even greater inflation, mortgage foreclosures and credit card debt defaults.
I hope Paulson and Bernanke are considering all those eventualities and are ready to tackle what is to follow.
Subscribe to:
Posts (Atom)