News / USA

Uncertainties Abound If US Debt Ceiling is Not Raised

FILE - A euro coin sits atop US one-dollar notes in Gelsenkirchen, Germany.
FILE - A euro coin sits atop US one-dollar notes in Gelsenkirchen, Germany.
Ken Bredemeier
The United States faces a world of uncertainty and a possible default on its debts within days if Congress does not increase the country's $16.7 trillion borrowing limit by Thursday.

If debt payments are missed, financial analysts say it would cause widespread turmoil on international financial markets because investors' faith in the safety of U.S. securities would be broken.

Financial analyst Steve Bell of the Washington-based Bipartisan Policy Center tells VOA the importance of a possible U.S. debt default should not be underestimated.

“This is, I think, historically unprecedented," he said. "This is not a game. This is not like a government shutdown, which is a completely separate subject. This is really playing with nitroglycerin [unstable explosives].”  

Some congressional critics of government spending, mostly Republican opponents of President Barack Obama, say the government should set priorities on which payments to make first.  But Bell says the government does not want to have make decisions on who gets paid first, such as China or Japan with their vast holdings of U.S. securities, or older Americans entitled to pension and health care benefits.

“The fact of the matter is probably Treasury cannot prioritize. Two, they probably would tell you they’ve never done it before, so we don’t know how it would work," said Bell. "But the most important thing is that markets, well before we started prioritizing, would have gone into a spasm. You’re going to see the stock market, you’re going to see peoples’ retirements, really seriously injured if we push this to the brink.”

At some point, he says the government would run out of cash, and then most likely would delay, day by day, paying bills until it had enough cash on hand to make all the payments it should have made days earlier. But that, he says, can only last so long.

“Now obviously you can’t keep doing this very long because what’s going to happen is you’ll be waiting to December to pay November bills," said Bell. "So it’s really a stopgap measure.”

U.S. Treasury Secretary Jack Lew says come Thursday the government will only have about $30 billion on hand and some revenue coming in from various sources.  He says after that, as interest bills come due on government securities and large pension and health care payments are owed to older Americans on November 1, the government could quickly run out of cash.
 
Washington leaders are continuing discussions in an effort to end the federal government's two-week-old partial shutdown and increase the debt cap so it can continue to borrow enough money to pay its bills.

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by: Mrs.Yellen from: FED
October 14, 2013 11:01 PM
The news that Janet Yellen was nominated to become the next Chairman of the Board of Governors of the Federal Reserve System was greeted with joy by financial markets and the financial press. Wall Street saw Yellen’s nomination as a harbinger of continued easy money. Contrast this with the hand-wringing that took place when Larry Summers’ name was still in the running. Pundits worried that Summers would be too cautious, too hawkish on inflation, or too close to big banks.

The reality is that there wouldn’t have been a dime’s worth of difference between Yellen’s and Summers’ monetary policy. No matter who is at the top, the conduct of monetary policy will be largely unchanged: large-scale money printing to bail out big banks. There may be some fiddling around the edges, but any monetary policy changes will be in style only, not in substance.

Yellen, like Bernanke, Summers, and everyone else within the Fed’s orbit, believes in Keynesian economics. To economists of Yellen’s persuasion, the solution to recession is to stimulate spending by creating more money. Wall Street need not worry about tapering of the Fed’s massive program of quantitative easing under Yellen’s reign. If anything, the Fed’s trillion dollars of yearly money creation may even increase.

What is obvious to most people not captured by the system is that the Fed’s loose monetary policy was the root cause of the current financial crisis. Just like the Great Depression, the stagflation of the 1970s, and every other recession of the past century, the current crisis resulted from the creation of money and credit by the Federal Reserve, which led to unsustainable economic booms.

Rather than allowing the malinvestments and bad debts caused by its money creation to liquidate, the Fed continually tries to prop them up. It pumps more and more money into the system, piling debt on top of debt on top of debt. Yellen will continue along those lines, and she might even end up being Ben Bernanke on steroids.

To Yellen, the booms and bust of the business cycle are random, unforeseen events that take place just because. The possibility that the Fed itself could be responsible for the booms and busts of the business cycle would never enter her head. Nor would such thoughts cross the minds of the hundreds of economists employed by the Fed. They will continue to think the same way they have for decades, interpreting economic data and market performance through the same distorted Keynesian lens, and advocating for the same flawed policies over and over.

As a result, the American people will continue to suffer decreases in the purchasing power of the dollar and a diminished standard of living. The phony recovery we find ourselves in is only due to the Fed’s easy money policies. But the Fed cannot continue to purchase trillions of dollars of assets forever. Quantitative easing must end sometime, and at that point the economy will face the prospect of rising interest rates, mountains of bad debt and malinvested resources, and a Federal Reserve which holds several trillion dollars of worthless bonds.

The future of the US economy with Chairman Yellen at the helm is grim indeed, which provides all the more reason to end our system of central economic planning by getting rid of the Federal Reserve entirely. Ripping off the bandage may hurt some in the short run, but in the long term everyone will be better off. Anyway, most of this pain will be borne by the politicians, big banks, and other special interests who profit from the current system. Ending this current system of crony capitalism and moving to sound money and free markets is the only way to return to economic prosperity and a vibrant middle class.


by: Anonymous
October 14, 2013 8:20 PM
U.S. Treasury Secretary Jack Lew says come Thursday the government will .....

"come" =slip of pen or a new way of express?

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