Will U.S. Default on Debt; Does Recession Loom?

Will U.S. Default on Debt; Does Recession Loom?

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WASHINGTON (FinalCall.com) - As the countdown until the United States of America defaults, for the first time in its history on its debts goes from days to hours, Republican leaders in Congress—which must agree to an increase in the national debt above its current $14.3 trillion level—engaged in a series of mostly symbolic votes which Democratic leader Nancy Pelosi said in a statement only advance the GOP “… ideological agenda instead of ensuring the economic security seniors, small businesses, and middle class families.”
Republican leaders are insisting that President Obama concede to their demand that government spending be cut, with no new revenue sources, including maintaining Bush-era tax cuts for the wealthiest Americans, and billions of dollars in subsidies to oil and gas companies—the most profitable corporations in the history of corporate profits.

Some Republicans are actually hoping for the worst, in order to guarantee that President Obama is not re-elected in 2012. When asked during a television interview if she thought higher unemployment, for example, would increase her chance of winning the presidency, candidate Rep. Michele Bachmann (R-Minn.) said, “I hope so.”

Conservatives—fueled by extremist Tea Party ideology and more than 80 new Tea Party-backed GOP House members in 2010—have been waging a battle to dismantle most social services provided by the federal, as well as state governments. That is why the only solution to the debt-limit problem in the minds of Republicans is for the government to cut more spending, with no new revenue.

Republican candidates have used their attacks on “Washington” and on government itself to effectively win elections, a former chief of staff to a retired member of the House Republican leadership told The Final Call, “but they have not been able to translate that into a policy of governing effectively,” the aide said on background.

Rep. Bachmann's recent remarks are illustrative. “This is a misnomer that I believe the president and the Treasury secretary have been trying to pass off on the American people, and it's this,” Ms. Bachmann said according to an account in The Washington Post, “that if somehow the United States fails to raise the debt ceiling by $2.5 trillion, that somehow the United States will go into default and we will lose the full faith and credit of the United States. That simply is not true,” said the presidential candidate, now serving in only her third term in the House of Representatives.

In the event of a default, what will likely happen, credit-rating services Moody's and Standard and Poors have predicted, is that their ratings of U.S. bonds will be downgraded from “AAA,” which will mean an increase in interest rates, and that will add billions more to the cost of paying the U.S. debt.

Failure to increase the debt ceiling could also send shockwaves through global financial markets and may plunge the United States into another recession, economists have warned.

“What they're proposing is to manipulate the Constitution and use it to impose the Republican budget plan,” Rep. Chris Van Hollen (D-Md.), Ranking Member of the House Budget Committee said in a statement July 17. “It does end the Medicare guarantee, and it protects tax breaks for special interests. Under their proposal, it would be easier to cut Medicare than it would be to cut subsidies for oil and gas companies,” said Mr. Van Hollen.

“I think this (GOP) ideology, which I begin to explain in Age of Greed, became so fundamental in the 1970s, basically an anti-government ideology, which is not consistent with American history—certainly wasn't consistent with the Progressive period, that didn't only begin in the New Deal, but in the late 1800s—has turned America into a place that is very close to the precipice, very close to serious decline,” Jeff Madrick, author of “Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present,” a regular contributor to the New York Review of Books and fellow at the Roosevelt Institute and head of policy research at the Schwartz Center for Economic Policy at The New School told Pacifica Radio's “Democracy Now!”

“Nations do decline. We have a long history of declining nations in the history of humanity. America is not immune to that decline. And unless it deals with its problems, it will be in trouble. I think we are in trouble, frankly. Sorry to sound alarmist, but I think alarm is probably the best message I can send the American people. We won't just muddle through. Our future is not guaranteed. We've got to take it in our hands,” said Mr. Madrick. “We developed an anti-tax ideology, an anti-government ideology, in the 1970s. I never believed it would have staying power. It's partly had staying power because business and powerful vested interests have supported it through lobbying and through well-financed think tanks. It's somewhat tragic.”

Ironically, most voters support Mr. Obama's so-called “balanced” approach to resolving the U.S. debt crisis, but Republican leaders refuse to yield.

A Gallup poll released July 13 found that only 20 percent of Americans support a deal that only includes spending cuts. Another 30 percent wanted a deal that was “mostly” spending cuts, and 32 percent wanted a deal split equally between spending cuts and tax increases. Eleven percent favored a deal that was mostly or all tax increases.

“The clear majority of Republican voters think that any deficit reduction package should have a balanced approach and should include some revenues,” Mr. Obama told reporters July 15. “That's not just Democrats. That's the majority of Republicans.”

In addition, according to a new Quinnipiac poll, voters still blame former President George W. Bush for the economy and not President Obama two and half years in to his first term.

According to the Quinnipiac poll, 54 percent of those surveyed say Mr. Bush is responsible for the “current condition” of the economy, compared to just 27 percent who blame Mr. Obama. Among self-described independent voters, the number shifts slightly: 49 percent point the finger at the former GOP president, while 24 percent blame Mr. Obama. The Quinnipiac poll also finds major support for one of the concessions Mr. Obama has called for in the debt deal: 67 percent say any deal on the deficit should also include tax increases on the wealthy and corporations, in addition to spending cuts.

With less than one week before the July 22 deadline set by the White House for an agreement, which would allow enough time for House and Senate leaders to craft formal legislation, White House budget director Jack Lew expressed optimism.

“As we approach it, more and more (members of Congress) seem to be coming to it,” Mr. Lew told CNN July 17. “There will be a fringe that believe that playing with Armageddon is a good idea. But I don't think that's where a majority will be.” Mr. Obama held White House talks with congressional leaders for five straight days ending July 15. But no White House talks were listed on the president's official schedule at Final Call press time, in the days before the scheduled votes on the various Republican proposals.

Treasury Secretary Timothy Geithner was optimistic, saying top Republicans had taken “default off the table.”

“Despite what you hear, people are moving closer together,” Mr. Geithner, who met with top House Republicans after the White House sessions ended, told CNBC television. “You have seen the leadership of the Republican Party ... take default off the table. That's encouraging.”

Republican congressional leaders all have agreed they want to avoid default but some members in the conservative Tea Party movement say it would sacrifice their chance for big spending cuts and may continue to oppose any agreement that does not simply slash government spending.

House Speaker John Boehner, the top Republican in Congress, who has moved more and more to the right in the face of belligerent comments by House Majority Leader Eric Cantor (R-Va.), scheduled a vote on his “cut, cap and balance” plan, which would condition an increase in the debt limit on passage of a constitutional amendment to require the federal government to balance its books each year. That bill stands little chance of passing the Senate but it might buy some goodwill with conservatives to eventually allow for passage of a compromise, according to financial observers.

“While Republicans have focused on the big problems we face, this White House has focused on protecting the status quo,” Mr. Boehner said at one of several dueling press conferences. “The same holds true for entitlement spending, where the White House has been talking in terms of nickels and dimes at a time when trillions of dollars in serious reforms are needed to preserve the programs and put them on a sustainable path.”

“This is not some abstract issue,” Mr. Obama said at his press conference. “These are obligations that the United States has taken on in the past. The Congress has run up the credit card, and we now have an obligation to pay our bills. If we do not, it could have a whole set of adverse consequences. We could end up with a situation, for example, where interest rates rise for everybody all throughout the country—effectively, a tax increase on everybody—because suddenly, whether you're using your credit card, you're trying to get a loan for a car or a student loan, businesses that are trying to make payroll, all of them could end up being impacted as a consequence of a default.”