{"id":11265,"date":"2011-08-01T10:13:50","date_gmt":"2011-08-01T09:13:50","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=11265"},"modified":"2011-08-01T10:13:50","modified_gmt":"2011-08-01T09:13:50","slug":"the-usa-default-deferred","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2011\/08\/01\/the-usa-default-deferred\/","title":{"rendered":"The USA: default deferred"},"content":{"rendered":"

So the USA has a deal on debt<\/a>. \u00a0In exchange for increasing the federal borrowing limit cuts of maybe $2 trillion in spending have been agreed, and it seems likely that the vast majority \u00a0of these cuts will be borne by those least able to suffer the burden amongst the American poor.<\/p>\n

This is as a result a day when all who campaign against injustice should rightly be angry.<\/p>\n

And let's remember this deal is not a solution to a real problem: \u00a0this deal is a solution to a crisis \u00a0deliberately created by far right politicians in the USA \u00a0who were determined to increase the wealth of the wealthiest Americans at cost to the vast majority of the rest of the population of that country. \u00a0It looks very likely that they have achieved their goal. \u00a0It's hard to celebrate a victory that will bring increased unemployment, an economic downturn, mass hardship \u00a0and even a return to destitution \u00a0for many Americans \u00a0when that outcome has been deliberately planned and imposed by the country's own politicians.<\/p>\n

But there's something even worse than that \u00a0at the core of this deal which would be all too easy to ignore. \u00a0The fact is that this deal is not going to solve the US debt crisis. \u00a0By putting millions out of work, as I'm sure it will, US tax revenues will decline. Its fiscal position will deteriorate. \u00a0And the Tea Party's contempt for US debt repayment has now undermined the prospect of the US maintaining its debt position into the future. \u00a0All things considered the US is now viewed in a very different way from three months ago, \u00a0and its prospects are much the worse as a result of this deal.<\/p>\n

All that though is exacerbated by another consequence of this deal: \u00a0US states and municipalities were already near the tipping point with regard to bankruptcy before this deal. Forty states could face insolvency already, and with the increase in social deprivation this deal will cause increasing demand on their budgets the likelihood of there being major municipal or state default in the USA is now very high indeed. \u00a0With over $3 trillion of municipal debt in the US economy, much of it owned, paradoxically, by those who support the Tea Party, \u00a0the artificial crisis on federal debt may transfer into a real meltdown for municipal and state level debt in the near future. And that will have enormous impact: this debt underpins the\u00a0pensions\u00a0of what is called 'Mom and Pop' America.<\/p>\n

The fact is that as a result of this deal the Tea Party are getting close to delivering what they want, which is a failure of US democracy and the collapse of government in that country. \u00a0Of course, they think that such an outcome would be benign; \u00a0that the end of effective government would enhance well-being, but there is no evidence from anywhere in the world this has ever been true. There is, however, ample that the opposite is the case.<\/p>\n

There are, therefore, lessons in what we are seeing, and good reason why progressive thinkers and activists in the UK should take\u00a0serious\u00a0note. First, this crisis could have been averted if the impasse on the debt had been referred to the US people in an election. But, the US system of fixed term elections prevented that. Democracy could not, therefore, prevail, and nor could the common sense of the people, who are, I'm sure, over all revolted by the process that has been ongoing in Washington. \u00a0The best possible outcome of that situation, that Obama would have walked away, gone to the people, called an election and sought of mandate for his policy, was not available. \u00a0This electoral deficit is, however, precisely the scenario that the coalition government is trying to introduce to the UK by introducing fixed term parliaments. It is vital \u00a0on occasion that an election can be called to ensure that sound policies \u00a0can be put in place. \u00a0The Conservatives \u00a0want to prevent that in the UK so that they can exploit the same type of situation \u00a0as the Tea Party did in the USA.<\/p>\n

Secondly, \u00a0this whole arrangement, whether with regard to the federal debt limit or with regard to state budgets which are required by law to be balanced shows the absurdity of imposing a legal structure on economic management in a time of crisis. Economic management requires the government have flexibility to deal with the situations that it faces and yet dogma \u00a0wants to constrain that option. \u00a0Any attempt to impose a balanced budget requirement in the UK would be catastrophic \u00a0for our well-being.<\/p>\n

Third, \u00a0as is all too clear, we need courageous governments \u00a0to stand up against the \u00a0evil politics, based on contempt for the poor, that the right wing are promoting in both the USA and the UK. \u00a0 Belief in the duty of the state to ensure the well-being of everyone who lives in a country has to be restored if we are to hold our heads up high again. \u00a0That is why I am working on a book on this issue at the moment.<\/p>\n

Finally, and most importantly, the lesson of Keynes has to be noted: during good times you should not borrow. But that is exactly what George W Bush did. He took a good situation that he inherited from Bill Clinton, \u00a0decided to fight two wars, refused to pay for them, \u00a0gave tax breaks to wealthy America at the same time and in the process \u00a0completely trashed on US economy, at cost to the ordinary people of that country, and ultimately to the world at large. \u00a0Keynes was right: borrowing to stimulator demand during a time of deficit is essential, but repaying debt during a time of strong market activity is also vital. \u00a0To \u00a0argue, as some are, that the current crisis is a result of the failure of the Keynesian policies put in place to save the USA from a worse recession is completely false: \u00a0this crisis is the result of George W Bush failing to heed Keynes during the good times, \u00a0and in fairness, due to Bill Clinton letting the banks abuse their situation when he repealed the Glass Steagall Act.<\/p>\n

There is much to learn from this current crisis, \u00a0and much to fear, including the prospect of the Democrats losing the White House. \u00a0But what we can do is make sure that \u00a0the right wing of the Conservative party in the UK, \u00a0that adores what the Tea Party \u00a0is doing in the USA, does not wreak the same havoc upon our economy as the Tea Party are going to unleash in the USA<\/p>\n","protected":false},"excerpt":{"rendered":"

So the USA has a deal on debt. \u00a0In exchange for increasing the federal borrowing limit cuts of maybe $2 trillion in spending have been
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