US mind-boggling politicians: stop rocking the boat, China Daily said

Furloughed federal employees, along with their family members, protest the government shutdown outside the US Capitol in Washington DC, USA, 08 October 2013. The federal shutdown in the US is in its second week - EPA Photo.

The prospect of dimmer global growth predicted by the International Monetary Fund should make it a matter of urgency for US politicians to stop manufacturing crises.

Five years after the start of the global financial meltdown triggered by the bankruptcy of Lehman Brothers, it is pitiful that the US is now putting the fragile global recovery under renewed threat with its mind-boggling political infighting.

The IMF on Tuesday cut its global growth forecast to 2.9 percent this year and 3.6 percent for next year. This year's growth forecast is 0.3 percentage points lower, and next year's 0.2 percentage points down, than the July projection.

Indeed, the growth slowdown in major emerging economies, as the Washington-based global lender identified, will contribute to a global growth fall in the coming years. Both cyclical and structural problems in these economies are demanding immediate and bold reforms to make growth more sustainable.

However, when financial ministers and central bankers gather in Washington later this week to discuss global growth issues, they will be lucky if their attention is not too distracted by the US government shutdown.

The inconvenience caused by the shutdown may be the least of their worries. The elephant in the room, the once inconceivable notion of the US defaulting on its debt and ensuing dollar upheavals will have to be acknowledged.

As the world's largest economy and the home of the global reserve currency, the US surely has the wherewithal to fund its government and avoid a catastrophic default by raising its self-imposed debt ceiling.

Yet the astonishing failure of the US Congress to put national needs before their partisan interests has sparked fears among investors and governments around the world that maybe it is time to think about the unthinkable.

That may explain why the biggest US creditors, China and Japan, have expressed concern over developments in Washington which could affect their several-trillion-dollar investments in US Treasury bonds.

US politicians can discuss, bicker and argue over government spending and economic growth. Kicking cans is one thing, but throwing caution to the wind is not a course of action worthy of the world's leading economy.

-  China Daily

Related posts:
Time for crucial fiscal reforms: Malaysia Budget 2014 
USA government shutdown !

IMF, China, Japan warn USA's debts on default! Demystifying the US debt ceiling

UNITED States (U.S.) President Barack Obama Tuesday declared that he was willing to negotiate with Republicans in passing at least a short-term budget that opens up the government at current funding levels.

But Obama, during a media briefing Tuesday, said his offer to negotiate with Republicans on the issues would “absolutely” stand if Congress passes even short-term clean spending and debt ceiling bills.

However, he declared that “the only thing that I will say is, we’re not going to pay ransom for” America paying its bills.

This came as it was revealed yesterday that there are no talks going on at any level to resolve differences over the government shutdown and the debt ceiling deadline.

But Washington’s march toward self-inflicted financial calamity is setting off alarm bells around the world as general bewilderment turns into genuine concern over a possible default by the world’s lone superpower.

The International Monetary Fund (IMF) as well as China and Japan – which hold a combined $2.4 trillion in U.S. debt – have called for a quick resolution to the crisis and expressed worries over the economic consequences of a default.

Meanwhile, Obama said U.S. credit-worthiness will be affected if markets see that “we’re not paying all our bills on time.”

Noting that he missed a major conference in Asia this week because of the government shutdown issues, said the president said: “whenever we do these things, it hurts our credibility around the world. Makes it look like we don’t have our act together.”

He warned that if Congress doesn’t raise the debt ceiling, “every American could see their 401Ks and home values fall,” and the country would see a “very significant risk” of a deep recession.

Obama said that Congress has to vote to raise the debt ceiling as soon as it votes to reopen the government. Failing to raise the debt ceiling “would be dramatically worse” than a government shutdown, he said.

He criticised House Republican tactics in dealing with the government shutdown and a debt ceiling increase. “Let’s lift these threats from our families and our businesses and let’s get down to work,” he told reporters yesterday.

Obama spoke after Republicans reportedly offered a new approach yesterday to resolve the U.S. fiscal standoff, proposing creation of a bipartisan panel to work on deficit reduction and find ways to end the government shutdown and make recommendations on a debt-limit increase.

The proposal, which was quickly dismissed by Democrats, came as House of Representatives Speaker John Boehner and President Barack Obama spoke by telephone shortly after Boehner adopted a slightly more conciliatory tone in comments to reporters.

“There are no boundaries here. There’s nothing on the table, there’s nothing off the table,” Boehner said after a meeting with House Republicans, making no mention of his recent demands to delay parts of Obama’s healthcare law in return for approving funds to end the government shutdown.

In the first official response by China, Vice Finance Minister Zhu Guangyao said that a solution must be found quickly in order to “ensure the safety of Chinese investments” and provide stability for economies around the globe.

“We ask that the United States earnestly take steps to resolve in a timely way the political issues around the debt ceiling and prevent a debt default,” he said. “This is the United States’ responsibility.”

The International Monetary Fund (IMF) has trimmed its forecast for global economic growth at the same time as lifting its UK growth projection.

It now expects global growth of 2.9% this year, a cut of 0.3% from July’s estimate. In 2014 it expects global growth of 3.6%, down 0.2%.

It cited weakness in emerging economies for the cut.

But it warns that the political standoff over raising the US government’s borrowing limit, if it results in the US defaulting on its debt payments, “could seriously damage the global economy”.

It expects growth of 1.6% in the US this year and 2.6% next year, down 0.1% and 0.2% from its July forecast.

Economists have predicted that a default would do great harm to economies around the world.
Obama recounted to reporters his telephone discussion yesterday morning with House Speaker John Boehner:

He was happy to eventually talk with Republicans about issues they care about, but that “shouldn’t require threats of a government shutdown” or economic chaos over the heads of the American people.

Yesterday, there were news conferences and a high-level phone call between Obama and the House Speaker, but no immediate sign of progress on reopening the government a week into a partial shutdown or reaching a deal to avoid the first-ever U.S. default next week.

Obama called Boehner yesterday morning, and the White House then announced the president would make a statement and take some questions from reporters at 2 p.m. ET.

Earlier, Boehner demanded that Obama and Democrats negotiate with Republicans on steps needed to end the shutdown that began on October 1 and raise the nation’s debt ceiling before the deadline for default on October 17.

“Americans expect us to work out our differences, but refusing to negotiate is an untenable position,” Boehner said, adding that Obama and Senate Majority Leader Harry Reid are “putting our country on a pretty dangerous path” by rejecting GOP calls for talks

- The Guardian

Demystifying the US debt ceiling: 5 things you should know

As the US government is about to hit its so-called debt ceiling of $16.7 trillion on Oct. 17, the frightening prospect of the world’s biggest economy running out of cash is dominating headlines around the globe.

So, in an effort to shine some light on what exactly the debt ceiling means to all of us, Business RT spoke to leading Moscow financial expert Chris Weafer, a senior partner at Macro-Advisory.com.

1  What exactly is the “debt ceiling?”
 
The US debt ceiling has existed for almost a century, and describes the maximum amount of money the US can legally borrow. The country introduced the legislative limit on its debt back in 1917, and since then it has stipulated the affordable amount of national debt that can be issued by the US Treasury. As of September 25, the US Treasury reported federal government debt at just shy of $16.7 trillion
($16,699,396,000,000.00, to be exact) in its daily statement, a figure which has been reported for 130 days straight. This is about $25 billion shy of the precise legal limit – $16,699,421,095,673.60. When the US approaches this debt limit, it can take some “extraordinary measures” to buy some time before Congress agrees to raise the ceiling. In its entire history, the US has so far never reached the point of default, where Treasury can’t pay its debt obligations.

2  Who holds the US debt?
 

The US owes about two-thirds of its debt to US-based creditors, with almost 66 percent of the country’s debt held domestically. US individuals and financial institutions hold around 31.7 percent of US Treasuries, with the US central bank, the Federal Reserve, which holds some 12 percent of the debt. Foreign creditors, including China and Japan, own an estimated 34 percent of total US government debt. These two 'big lender' countries have recently urged the US to take decisive steps to avoid a default.

3 What does the US borrow the money for?
 
In the US, often referred to as a 'big-spending' country, both individuals and the government have habitually spent more than they earn, pushing the economy deeper into debt.

“Just like any ordinary individual, the choice is either to cut back on spending or to borrow money to bridge the gap,” Weafer says.

In 2012, 22 percent of total government expenditures went to social security (means-tested payments to the poor and unemployed), while 21 percent was spent on healthcare, again mostly for poor Americans who cannot afford private health insurance. The third largest expenditure item is defense at 19 percent. In recent decades, the US defense bill has ballooned, mainly due to costly wars in Iraq, Afghanistan and elsewhere. The so-called War on Terror has also added greatly to the debt burden, while the Department of Homeland Security, created after the September 11, 2001, attacks on the US, has cost taxpayers more than a cumulative $800 billion.

The biggest contributory factor to the fast-growing debt mountain in recent years, however, has been the economic crisis that began in 2008. Apart from hundreds of billions of dollars paid out to rescue failing Wall Street banks that had made too many toxic loans, the US government has also paid out large amounts on vital social programs to aid the growing 'army of the unemployed'. Coupled with the Bush-era tax cuts to the rich and big business, lower average incomes and greater unemployment have hit government tax revenues hard, sending federal government debt sky-high.

4  Why can’t they simply print more dollars and pay their debt?
 

No economy in the world can simply turn on its printing presses and create as much cash as it wishes, as this would make its currency worthless.

“If the amount of currency in issue is not sensibly related to the strength of the economy, then foreign trade partners will … devalue the currency quickly,” Weafer explains. “If you have one asset and income source which allows you to issue one dollar, and then you print one more dollar, everybody else will see what you have done and will value your one dollar at only 50 cents. Some countries have done that in the past, but in those cases people soon had to use suitcases just to carry enough currency to buy a loaf of bread.”
 
Under the Bretton Woods financial system, established in 1944, the amount of currency in circulation was linked to gold reserves. But in 1971, the US abandoned this system and started to include a number of other economic factors, based on a recognized ability to service debt and prevent inflation, and maintain orderly trade with the rest of the world.

5 How would a US default affect people around the world, on a macro and personal level?
 
If the US defaulted, then the world’s financial system “would start to freeze up,” Weafer says. “Banks would pull back from risk and lending. The US economy would slide towards recession and the global economy would quickly be affected.” A prolonged US default would lead to job losses everywhere and much tougher borrowing conditions for companies and individuals, he adds.

“A short period of default would also have a bad effect in that it would hurt confidence in the world’s financial system,” he says. “Bankers and investors would assume that a short-term fix in the US would mean it would only be a matter of time before the same issue arises again in 2014. The resulting caution would make life that much tougher for all of us.”
 
- RT news

Related post:
 USA government shutdown !

USA government shutdown !

The mood was grim at the Capitol Monday as Democrats and Republicans couldn't get it together for the good of the nation. 

OUT OF SERVICE: Federal government enters first shutdown in 17 years; lawmakers remain divided over Obamacare

The U.S. government has shut down as Democrats and Republicans refuse to negotiate on Capitol Hill. GOP leaders remain determined that key aspects of Obamacare must be delayed, while President Obama insists that the demand 'is the height of irresponsibility.'

WASHINGTON — The first shutdown of the U.S. government in 17 years began early Tuesday as Congress bickered and bungled an effort to fund federal agencies due to a bitter ideological standoff over Obamacare.

The embarrassing disruption that an angry President Obama said was “entirely preventable” and would “throw a wrench into the gears” of the country’s recovering economy was triggered as a midnight deadline passed without agreement between the Republican-controlled House and Democrat-run Senate.

Senate Majority Leader Harry Reid (D-Nev.) disclosed at midnight that the White House budget office had directed agencies to start closing up shop. He then called a recess until 9:30 a.m., meaning that there would be no House-Senate deal in the wee hours Tuesday.

Susan Walsh/AP

President Obama criticized Republicans' efforts to delay key aspects of the Affordable Care Act.

The shutdown would keep 800,000 federal workers at home on Tuesday and inconvenience millions of people who rely on federal services or are drawn to the nation’s parks and other attractions. Critical workers, from the Border Patrol to air-traffic controllers, would remain on the job, unpaid.

Legislation was passed, however, to fund the armed services during the shutdown.

Chip Somodevilla/Getty Images

House Speaker John Boehner said Obamacare 'is having a devastating impact.'

Despite the drama, members of Congress faced no threat to their own pay, because the 27th Amendment to the Constitution bars their salaries from being subjected to the annual appropriations process. Obama, too, will still be paid.

PHOTOS: GOVERNMENT SHUTDOWN FURLOUGHS THOUSANDS OF FEDERAL EMPLOYEES

Conservative firebrand Sen. Ted Cruz (R-Tex.), who made himself the face of the GOP effort to block Obamacare through the funding bill, pledged Monday to donate his salary to charity during the shutdown.

Photos by AP, Debbie Egan-Chin/New York Daily News

 

Many Americans will be inconvenienced by a shutdown.

Repeatedly Monday, amid all the political posturing and rhetoric, the House amended a Senate resolution to fund the government to add a one-year delay in Obamacare, and other alterations. Repeatedly the Senate rejected those conservative-backed changes.

The House was expected to pass the latest health-care law changes in an early morning vote. The Senate was set to reject those additions when they return Tuesday.

RELATED: WARREN: NOT MUCH COURAGE ON CAPITOL HILL AS SHUTDOWN LOOMS

Win McNamee/Getty Images

 

Senate Majority Leader Harry Reid (D-Nev.) arrives at the Capitol Monday. The Senate voted Monday to defeat a House bill that links keeping the government funded to delaying 'Obamacare' for one year.

As the nearly ridiculous legislative tit-for-tat played out, Obama went to the White House briefing room to insist that Republicans give up their demand to tie new money for the government to scuttling or delaying his health care law.

“One faction of one party in one house of Congress in one branch of government doesn’t get to shut down the entire government just to refight the results of an election,” Obama said.

“You don’t get to extract a ransom for doing your job, for doing what you’re supposed to be doing anyway, or just because there’s a law there that you don’t like.”

The front page of the NY Daily News on October 1, 2013. 

 

RELATED: MEADOWS PUT GOVERNMENT ON ROAD TO SHUTDOWN

House Speaker John Boehner (R-Ohio) responded a few hours later on the House floor. “The American people don’t want a shutdown, and neither do I,” he said. Yet, he added, the new health care law “is having a devastating impact. . . . Something has to be done.”

Even more troubling than the shutdown was that the partisan stalemate that caused it sets the stage for an even more high-stakes clash, as Congress must soon deal with raising the debt limit by Oct. 17 — a matter in which both sides concede that failure would be perilous for the U.S. economy and economies worldwide. Republicans also want to attach conditions to that vote. Democrats said giving ground now would encourage Republicans to take a harder line in that fight.

Win McNamee/Getty Images

 

Congress remained gridlocked Monday over legislation to continue funding the federal government. The federal government shut down after both chambers failed to pass a resolution before midnight.

“You know with a bully you can’t let them slap you around because they slap you around today, they slap you five or six times tomorrow,” Reid said.

RELATED: PANDA-MONIUM: NATIONAL ZOO’S BELOVED PANDA CAM WILL SHUTTER IF FEDERAL GOVERNMENT SHUTS DOWN

Monday’s failure on Capitol Hill caused the stock market to drop on fears that gridlock would continue and Congress would shoot the recovering economy in the foot. The Dow Jones slipped 128 points, or 0.8%.

Photo by AP

 

The last shutdown happened during President Clinton's time in office.

The fight also sent Congress’ already abysmal approval plunging to a new low. A CNN poll released late Monday found that just 10% of Americans approve of the job Congress is doing, while a record 87% disapprove. And Americans are blaming the Tea Party and its no-holds-barred-against-Obama stance for the crisis — the party had its lowest favorable rating in its five-year history, at 31%.

At times Monday, Washington seemed like a real-life “House of Cards,” the Netflix drama in which D.C. power players are motivated by dark self-interest rather than the national interest.

RELATED: US LAWMAKERS TRADE BARBS AS GOVERNMENT SHUTDOWN LOOMS

JONATHAN ERNST/REUTERS 

Boehner arrives with his security detail at the Capitol on Monday, remained adamant that 'Obamacare' be delayed. 'This law is not ready for prime time,' he said.

Congress, and the government, needed to act because there was no authorization for the government to spend any money as of 12:01 a.m. on Tuesday, the start of the new budget year.

Monday’s maneuvering began in the Democrat-controlled Senate, which voted, 54 to 46, to kill a House-passed bill that would keep the government funded but delay Obamacare for a year.

The Senate then sent the House a so-called “clean” bill — one that would simply keep government running through Nov. 15. With the ball back in their court, House Republicans sought different concessions in exchange for keeping the government funded. They called for a one-year delay in the Obamacare requirement for individuals to buy coverage.

Charles Dharapak/AP 
 
Only 36% of Americans blame President Obama for the shutdown, a poll released Monday showed. 46% blame Republicans. 

Sources: NEW YORK DAILY NEWS

Shutdown effects ripple across US

A string of cancellations and delays caused by the federal government shutdown is rippling across the United States, ruining dream vacations, upending carefully laid wedding plans and complicating the lives of millions of people.

From blood drives to daycare programs, musical performances to research projects, the disruptions caused by the political stalemate in Washington sparked growing frustrations and left people scrambling to make alternative plans.

Scores of weddings planned at national parks and monuments around the country were moved or postponed, and vacationers hustled to change their itineraries after finding iconic sites from the Statue of Liberty to the Lincoln Memorial closed.

"We're really disappointed. We spent a lot of days waiting for tickets so we just want to go inside the statue," said Gaelle Masse, a tourist from Paris who was startled to discover the Statue of Liberty was closed.
Thousands of tourists with prepaid tickets to visit Alcatraz Island, the famed prison site in San Francisco Bay, were unable to tour the former penitentiary.

In Boston, Italian tourist Federico Paliero and his girlfriend Claudia Costato peered through a closed metal gate to catch a glimpse of the USS Constitution, a wooden, three-masted US Navy ship from the 18th century docked in Boston Harbor that serves as one of the city's major attractions.

Normally buzzing with tourists, the site was nearly abandoned on Wednesday, except for a handful of people looking lost and dismayed as they gawked at a sign explaining the closure.

"Italy is not the only state with money problems," Paliero said, rubbing his thumb and forefingers together.

At Great Smoky Mountains National Park in Tennessee, park staff said nearly 30 weddings scheduled for the next two weeks are threatened by the shutdown, which also sent hundreds of campers packing.

'WORRIED ABOUT RAIN'

Two dozen weddings planned at monuments on the Washington mall in October also were threatened, a park service spokeswoman said.

"I wasn't worried about the government shutting down. I was worried about rain," said bride-to-be MaiLien Le, who was planning to walk down the aisle at the Jefferson Memorial on Saturday.

Having to possibly change venues just days before her wedding is "really upsetting," she said on NBC's "Today" show.

In northern Virginia, officials canceled blood drives that would have provided transfusions for up to 900 area patients.

The Library of Congress in Washington closed its doors, disrupting research projects and canceling a musical performance by Randy Newman.

About one-fifth of the classes at the Naval Academy in Annapolis, Maryland, were scrapped, and science laboratories at the school were shut down as furloughs for civilian Defense Department employees took hold.

The Smithsonian, which shuttered all of its museums and the National Zoo, also had to close its early childhood center even though many parents had already paid between $300 and $400 in tuition for the week, according to local radio station WTOP.

"When you have to sit down and explain to a 5-year-old why he can't go to school, it's a difficult conversation," Virginia resident Brian Katz, whose two children attend the Smithsonian Early Enrichment Center housed in the Natural History Museum, told a local Fox television station.

Juleon Rabbani, 28, got a call from the National Park Service informing him that his scientific research in national parks would be shut down for now, compounding funding issues he was already facing.

"I wanted to graduate in the fall of 2014, but with my funding being held up and since my research sites are national parks, it will be well into 2015 before I am done," he said. "The funding I need won't come through, and who knows how long this shutdown will be."

Some Washington businesses faced growing uncertainty as the shutdown continued, keeping government events away from hotels and federal workers out of their usual restaurants.

David Hill, general manager for two area hotels, said two dozen events at the hotels have been canceled in the coming weeks, including one large government group that triggered a $45,000 loss.

"What I've told my team is: for us, it's business as usual ... but everything in the future is in limbo," said Hill, who manages the Phoenix Park Hotel just blocks from the US Capitol and the Four Points by Sheraton near the White House.

Grain traders in Chicago were preparing to cope without weekly US Department of Agriculture data on export sales typically released on Thursdays. The data, covering sales the previous week, can roil prices for crops like corn and wheat if demand is unexpectedly strong or weak.

"For now, we'll go with our best guesses," said Sterling Smith, futures specialist for Citigroup.

Traders and analysts were frustrated that USDA websites went dark as a result of the federal shutdown. They mine the sites for data on crop supplies and demand to project price trends.

Terry Reilly, analyst for Futures International, said he could not complete presentations on the grain markets for clients because USDA data was unavailable.

"It makes no sense to me that they would shut down their websites," he said.

Sources: Reuters