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Wednesday, August 3, 2011
Saturday, July 30, 2011
Speaking of Tea
WRITING a post when you haven't done so in a while is always difficult. Day to-day I am a journalist, so the thought of writing reportage, which I do for a living, does not appeal at all. Writing about myself won’t do either. Not because I’m not interesting, although people will probably say I amn’t, but because everyone on the ‘net seems to be writing about themself.
No, the first post in a while has to be something different. And for different, let’s have a look at the impending doom that appears to be getting ready to envelop the world on Tuesday, namely a default on its debts by the United States of America.
The debt ceiling is an interesting one. From an outsider’s standpoint (I’m Irish), it’s difficult to understand the logic of even having a ceiling to the national debt [More on this in a later post].
Yes a country needs to be fiscally responsible. If they aren’t you end up with a situation like Greece, Portugal or Ireland. But, unlike the European periphery, The US is the biggest economy in the world. It has natural resources that dwarf most countries on this planet. It has the world’s reserve currency. And it is the single most important plank in the global economy. People talk about China overtaking the States and how it now holds such a huge proportion of Treasuries. That is true, but the Chinese do not hold all the cards. There is an old saying: if someone owes you a million dollars, you own them, if they owe you a billion dollars, they own you. That is precisely the position China is in now. It holds so much US debt, it has no choice but to keep financing American spending, otherwise the value of its Treasuries would collapse overnight. Is it America’s creditor? Yes. Would it be as screwed as America if it called in its debts? Yes.
Which brings me back to the ceiling. Unfortunately it’s not just China that would be screwed if the US defaults on Tuesday. Every institutional investor in the world -you’re pension fund, my pension fund – carrys T-Bills as a matter of course. If a default comes then goodbye pensions.
And for Americans, once they default, they can kiss goodbye to services they take for granted. With nobody willing to buy American debt, the government runs out of money, and the subway, the buses, social security, all grind to a shuddering halt.
The 2.65m (estimated) federal workers will find themselves without paychecks, so they wont make their rent or mortgages, the local shop that lives off selling newspapers and coffee to workers in the morning is put out of business because his customers arent going to work, and so on.
In short, what happened in the credit markets in September 2008, happens in the everyday market of life. And all this when the US economy is barely avoiding a double dip recession as it is.
Shockingly, it seems one group will be pleased with this. The Tea Party appear to be placing intellectual and political purity above the future of their country. Through ignorance or something more sinister, they’re actions are the exact opposite of the patriotism they claim to represent.
No, the first post in a while has to be something different. And for different, let’s have a look at the impending doom that appears to be getting ready to envelop the world on Tuesday, namely a default on its debts by the United States of America.
The debt ceiling is an interesting one. From an outsider’s standpoint (I’m Irish), it’s difficult to understand the logic of even having a ceiling to the national debt [More on this in a later post].
Yes a country needs to be fiscally responsible. If they aren’t you end up with a situation like Greece, Portugal or Ireland. But, unlike the European periphery, The US is the biggest economy in the world. It has natural resources that dwarf most countries on this planet. It has the world’s reserve currency. And it is the single most important plank in the global economy. People talk about China overtaking the States and how it now holds such a huge proportion of Treasuries. That is true, but the Chinese do not hold all the cards. There is an old saying: if someone owes you a million dollars, you own them, if they owe you a billion dollars, they own you. That is precisely the position China is in now. It holds so much US debt, it has no choice but to keep financing American spending, otherwise the value of its Treasuries would collapse overnight. Is it America’s creditor? Yes. Would it be as screwed as America if it called in its debts? Yes.
Which brings me back to the ceiling. Unfortunately it’s not just China that would be screwed if the US defaults on Tuesday. Every institutional investor in the world -you’re pension fund, my pension fund – carrys T-Bills as a matter of course. If a default comes then goodbye pensions.
And for Americans, once they default, they can kiss goodbye to services they take for granted. With nobody willing to buy American debt, the government runs out of money, and the subway, the buses, social security, all grind to a shuddering halt.
The 2.65m (estimated) federal workers will find themselves without paychecks, so they wont make their rent or mortgages, the local shop that lives off selling newspapers and coffee to workers in the morning is put out of business because his customers arent going to work, and so on.
In short, what happened in the credit markets in September 2008, happens in the everyday market of life. And all this when the US economy is barely avoiding a double dip recession as it is.
Shockingly, it seems one group will be pleased with this. The Tea Party appear to be placing intellectual and political purity above the future of their country. Through ignorance or something more sinister, they’re actions are the exact opposite of the patriotism they claim to represent.
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