Posted by AzBlueMeanie:
Shorter version of the G-20, World Bank and International Monetary Fund (IMF) to the U.S.: "Stop the insanity!"
The rest of the world cannot believe that America has a dysfunctional government that is actually threatening the security and stability of the U.S. financial system, and thereby threatening the global financial system and economy as well. World Leaders Urge U.S. to Resolve Debt Limit Crisis:
Leaders
at World Bank and International Monetary Fund meetings on Sunday
pleaded, warned and cajoled: the United States must raise its debt
ceiling and reopen its government or risk “massive disruption the world
over,” as Christine Lagarde, the fund’s managing director, put it.
* * *
Many
leaders at the World Bank and I.M.F. meetings said they believed the
impasse would be resolved before Thursday, when the government would be
at severe risk of not having enough money to pay all its bills on any
given day going forward.
But
they pressed Treasury Secretary Jacob J. Lew and the Federal Reserve
chairman, Ben S. Bernanke — who were both at the I.M.F. meeting — on the
issue, predicting that even a near-default would lead to higher
borrowing costs and a slowdown of the global economy.
“This
cannot happen, and this shall not happen,” Baudouin Prot, chairman of
the French bank BNP Paribas, said at a meeting of the Institute of
International Finance also being held in Washington. “The consequences
of this would be absolutely disastrous.”
Mr.
Lew acknowledged the threat. “Our work begins at home,” he said. “We
recognize that the United States is the anchor of the international
financial system. With the deepest and most liquid financial markets,
when risk rises, the flight to safety and to quality brings investors to
U.S. markets. But the United States cannot take this hard-earned
reputation for granted.”
Participants
at the meetings remained on edge, given the gravity of the threat. Ms.
Lagarde said “that lack of certainty, that lack of trust in the U.S.
signature” would disrupt the world economy.
As Ezra Klein writes today, The rest of the world can’t understand why we’re doing this to ourselves:
To the rest of the world, the United States looks insane right now.
They're dealing with real problems that their political systems are
struggling to solve. The United States' political system is creating
fake problems that it may choose to leave unsolved.
"The United States was the one bright spot in the world recovery," says
OECD Secretary General Angel Gurria. "It was leading the recovery!
Leading the creation of jobs! This unfortunate situation with the budget
and debt happens at the moment it was looking good."
* * *
That global perspective drives Gurria's admiration of the U.S.
economy. Look around, he says. "The U.S. is growing at 2-3 percent while
Europe is only starting to rise from negative growth, and Japan is
struggling to get prices up to 2 percent inflation. The U.S. is growing
with very low inflation, and you are creating jobs. Perhaps you’d like
it to be at a brisker speed, but you’ve created more than 7 million jobs
in the last few years. These are just facts. You look even better
compared to Europe, but even by themselves these numbers are objectively
positive."
The United States' fiscal situation is also much improved.
"Sequestration was not desired," Gurria says. "But it has the effect
that now the deficit is going below 4 percent. Not long ago you were
near double digits. So you have a fiscal consolidation; some might say
it was too fast, but the deficit today in the United States is much
lower than in the European countries. Everyone at home has a lot of
doubts in their own economy and their own economic leadership and their
own performance, but the fact of the matter is the U.S. has been doing a
good job."
At least, it was doing a good job. But then the government shut down.
And then U.S. leaders began fighting over default. Consumer confidence
is plummeting as a result.
At best, the United States is slowing its recovery — and that of the
rest of the world. At worst, it's going to trigger another global
crisis. That's why, Gurria says, his concern isn't that the United States' economy is weak, but that its political system is.
"More than any number of GDP or growth or debt, the question is
whether the U.S. will has the institutions to move forward on the issues
it has to deal with internally and then play the leadership role it
plays for the global economy," he said.
In other words, the question is whether we'll stop being insane.
Even if the United States does not default on its debt, a debt-ceiling
crisis could still lead to economic havoc and delayed Social Security
checks. Hitting the debt ceiling would be terrible even if we didn’t default. A
Debt-ceiling
breach would push economy into free fall.
Since 2002, real GDP has increased by about 20%. So, in order to keep spending at the same level in real dollars as it was in 2002, we’d need to reduce spending as a percent of GDP by almost 17%. But a considerable portion of the budget is fixed, so discretionary spending, as a percent of GDP would have to be reduced far more than 17%.
And you think this is simple?
Simple? Did you consider the fact that our population has increased 10% since that time? And our elderly population has increaesd by more than 10% since that time? And the unemployment rate is higher now than it was at that time, thus increasing the need for safety net payments?
No, it’s not quite that simple.
According to the Government’s own budget documents, the government expects to take in about $2.26 trillion (in dollars of 2005 purchasing power)in fiscal 2013. So to avoid the necessity of raising the debt limit, the government need only reduce its expenditures to that amount. Such a reduction can hardly be described as draconian, because expenditures of this inflation-adjusted amount would bring the government back only to the government’s average spending in 2002 and 2003. Thus, the government can resolve its present impasse simply by cutting spending to the real level it spent just 10 years ago. Quite simple, isn’t it?
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