From: Judy Miriga

Folks,

The Legislative Electoral Leaders must understand better not to engage playing self-style tactics of self interest by building escape tunnels for business-loopholes through compromised politicians, who perform activities those that do not benefit the community or public who voted them to office. Playing the chase-card of special-interest can be dangerous and disastrous, where CEOs and Lobbyist play political cards in the gallery, deviate and arm-twist to have their way for their special vested interests, and in the event extend achievements to benefits those in their circle of links and connections, compromising public mandate of those who voted them to public office. These manoeuvres as a matter of fact, eventually causes Government operations to halt and collapse, specifically so, those activities central to National economic development, security, education, health and other programs for Social Security Welfare under sustainable planning for community expansion and growth.

This makes Legislatures of Special Interest subject to the debate as totally wrong about Government spending. Consequently, it is staged to drag the Nations credit worthy ratings to go down. This causes the Nation to default on its financial obligations and therefore threatens the future of America against China and India, and as well altogether. It greatly causes and hampers Middle Class Society – – causes it to bear the brunt of the effect over Debt Deficit.

While Free Trading Enterprise is to some extend competitive, Government must have structures to regulate business operation investments for checks and balances, against corruption and to some degree, reduce exploitation and Crime against Humanity. Indians and Chinese-Led Business Mission in this case, are engaged on illegal and illegitimate investment scramble to Africa, has expounded poverty in many parts, with extreme situation in the lack of food with other basic needs for survival is slowly biting. The number of Refugees flooding like animals of the beast, the destruction of Human lives in Africa, is growing to an alarming state……..as a result of “Intellectual Property Thieving”.

The Department of Finance and Treasury is duty bound to promote activities of economic Development and growth through Government’s Treasury Bills, Bonds, Grants and Loans policies that are structured to support sustainability, job creation, small business loans, school loans, Health and Medical programs, as well as investment in Emerging Markets for economic stability.

Treasury also oversees the production of coins and currency, revenue collection, the disbursement of payments to the public and Community program funding, and the funds to run the federal government operations and salaries.

With a good standardized procedure structure, if Revenue Collection distribution for Social Security balance is not spend during the Budget year, it should be taken back to “Trust Fund” where the pool of money is made available for facilitating in addition unforeseeable programs such as acts of draught and other natural disaster or emergencies, which are made available at short notice to the community and also help with other stabilizing activities of self-employment opportunities under community’s development Agenda programs, or are made to improve Education, health facility and medical research and extensions.

Social Security as a Trust Fund, is supposed to make face lift Community’s Welfare programs for sustainability and improve other activities in the community at an edge of competitiveness in meeting challenges for progress and growth. It is these Funds that are normally included with retirements contributions translated into Treasury Bonds for (IOU) that are intended to build financial capitals through interests gained from the Loans.

Treasury Bonds aside from the risk free nature of treasury securities, they offer tax advantages as well. Treasuries are only taxable at the federal level and this gives it another distinct advantage over other bond securities when performing your total return analysis. In an ever increasing world of risk, treasury securities offer you a safe-haven with a decent return as well. Treasury bonds cannot be passed up when you are looking for a long term debt security.

Treasury Direct is established to allow individual or start-ups to be on the same page with institutions. There are no transaction fees and you will get the same rates that the institutional investors will get depending on the program agenda stated.

Due to the riskless nature of these securities, Traders and investors go for T-Bonds when Finance Markets are shaky and unstable in the Bank credit market and equity markets. This is called a “flight to quality”. One key advantage of treasury securities is the embedded call protection that exists in them.

When Special Business Interest Legislatures make Budget Revenue controversial a Big Deal, local ordinary consumers, Seniors, students, those with disability and Middle Class are put at risk of Global Economic Collapse, in which case, Special Interest Business Corporate Community achieve their Agenda in a skewed Conspiracy of Global Money Power in the Control of Free Trading Enterprising of the World’s “Intellectual Property Thieving”……. where National Debt is pushed to be owned by ordinary Citizens who pay Debts in their rising of Taxes in the high cost of living, from income and in meeting fundamental basic needs and demands for survival…….where cost of living steadily rises to unprecedented level, income is lowered which eventually pushes the country to collapse like was seen in Greece and now slowly taking hue in Greater Africa from Chinese and Indian invasion. In the absence of reform, the financial markets will eventually respond by withdrawing capital, pushing up interest rates, and demanding immediate budget reforms—much like Greece and other Economic strapped Nations are currently experiencing.

In Quote……”Those talks in the Debate of over spending, cuts and tax increases have grown acrimoniously alarming, where the GOP as Special interest Legislatures in the Republic side, “Must have their way, or No Highway” sticking for their self-interest, “Not to CUT” from Business Providers Interests who make big money, is becoming too jittery and worrisome…….This is because, they would rather Tax-Free for the Rich Business Providers than Free Public Social Security programs which in exception they are willing to lay on table for cut. The People’s Social Security and Welfare Programs, are the only vein that could sustain the Country from collapse, and steady Revenue Collection for distribution, otherwise and without which, their action will block affordable health-care, student Loans, improving infrastructure, Small Business Start-ups and New Frontier on Individual Job Creation to take off and grow as the country if coming out of the recession.

As Government Debts in the Ceiling keeps rising without broad- structure for tax-cut from the Big and Rich is made, the Nation’s security and stability can in effect be seriously compromised and consequently, can slide into jeopardy. Broad-based Ratio in Cuts and Balances must therefore be urgently considered, and also, there must be put in place, take-off Public Programs for those who graduate and has completed their Degree study, be included in start-up job creation in a non-restrictive release of funds to college graduates in Federal Contract Job opportunity funding, established under Social Service Welfare for school-leavers Programs for sustainable growth in Development.

Weighing Budget deficit and tax-cut between the Public and the Business Community, there is need for a responsible way to balance the “Cut” in a manner to avoid over-burdening the public, but must be put in a well planned shared-cost-effective paid in ratio of a balanced statistics.

CEOs and Lobbyists are paid huge sums of money to do illegal non-legitimate under-cutting activities, and these are the reasons for Government’s Debt Deficit are going up the ceiling. The big Oil Companies who are given Tax Break, make enough profit, they should in essence pay their share of taxes as they do make huge profits in the sale of Global Oil Sale…

The battle between Social Security Cuts and the Rich Tax-break-relief, is the bone of contention……Budget deficit and Tax-cuts is therefore drawn between the Public and the Special Business Interest, who are avoiding Tax-shared liability in paying off the Debt to save this Great Nation.

If Domestic spending for Social Programs are frozen for lack of availability of funds, the community will not access Healthcare program for seniors or people with disability, student loans will be a problem, standard of education performance will go down. In the past, Debt-Ceiling was allowed to remove the recession and steady the country, without which, the country cannot meet its program obligations, especially so, when the country was just saved from collapse. On the same vain, the country is steal weak and need a responsible broad-based structure, that which will allow to pay bills and avoid interest rates from rising, so that it can provide a booster that are able to sustain stability of the country in the path to prosperity and growth. Serious leaders will for sure not allow consequences of default as it will impact progress.

Shared sacrifice by all will offer good balancing and will stabilize the Government system and this require Revenue consideration and Tax Cut between both the Rich and the Poor…….

As President Obama puts it in his Frieday speech, “Voters require that the Republicans, the Tea partiers, the Democrats and the Independent jointly put the house in order to avoid consequences of default, as there indications that without compromising, things are about to turn catastrophic if right approach is not commonly agreed upon in a Shared-Sacrifice.

This means, No Tax Break for the Rich………

The Obama’s chance to calm and stabilize falling economy with “Something Big” will be an opportunity to avoid default that can impact smooth operation of the Government, and which he says, will not allow fall-back in debt which can affect the Public. The system will remain sustainable revitalizing cities progressive Agenda for Development, catering to Programs and growth in a long-time structure……….This, we all believe, is an opportunity he will not loose sight from……since he believes in the hope to achieve……….he has proved himself as an achiever of other campaign promises, he can do it again for the sake of the people of this Great Nation…………..and with this, he will gain more in acquiring Emerging Markets prospects of the G20 for Economic Partnership for Foreign Policy Agenda.

The Tag-Of-War in the present outlook on Global Economic Power is between boosting investments for Business Corporate Soviet Union (Asiatic) power through India and Chinese-Led Missions, against the Europe and America in the scramble for Africa.

Offshore business trading, pirating, drug baron & peddlers, money laundering, human trafficking, human organs trafficking, crime and Human Rights Abuse, denying the poor to live in a dignified and responsible manner through man-made poverty and under exploding Refugees and human displacements in Somalia and elsewhere in most African Regions, are all conspiracies that were schemed and maneuvered, the reason there are mass scramble for Africa by Chinese-led invasion to Africa now followed by Indian. …..Connect the Dots and open your eyes……!

Wake-up people……..We cannot afford to have America’s super-power replaced by Soviet interest, through India/Chinese-Let Business Mission investment transfers………in the scramble to Africa.

Thank you all,

Judy Miriga
Diaspora Spokesperson
Executive Director
Confederation Council Foundation for Africa Inc.,
USA
http://socioeconomicforum50.blogspot.com

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Obama: Chance for ‘something big’ to calm economy

July 15, 2011 (WASHINGTON) — President Barack Obama declared Friday Congress has a “unique opportunity to do something big” and stabilize the U.S. economy for decades by cutting deficits even as it raises the national debt limit ahead of a critical Aug. 2 deadline. He said was willing to make tough decisions himself, including trimming Medicare benefits for wealthy beneficiaries, but said, “We’re running out of time.”

Obama challenged Republican lawmakers to make tough calls, too. He attempted to turn their opposition to any tax increases back against them, warning starkly that failure to raise the debt ceiling would mean “effectively a tax increase for everybody” if the government defaults, sending up interest rates.

Still, Obama said that “it’s hard to do a big package” in deadlocked Washington. He said of the Republicans: “If they show me a serious plan I’m ready to move.”

The president spoke at the White House Friday after five days straight of meetings with congressional leaders failed to yield compromise — amid increasingly urgent warnings from credit agencies and the financial sector about the risks of failing to raise the government’s borrowing limit.

Administration officials and private economists say that if the U.S. fails to raise its borrowing limit and begins to stop paying its bills as a result, the fragile U.S. economy could be cast into a crisis that would reverberate around the globe. Democratic and Republican congressional leaders agree on the need to avert that outcome, but that hasn’t been enough to get Republicans to agree to the tax hikes on corporations and the wealthy sought by Obama — or to convince Obama and Democrats to sign onto the steep entitlement cuts without new revenue that Republicans favor.

In a light moment on a day heavy with economic concern, Obama was asked why he still had hopes that the White House negotiations would provide any results, given the lack of success so far.

“I always have hope,” he said with a smile. “Don’t you remember my campaign?”

It was his third news conference in two weeks on an issue that is increasingly consuming Washington and his presidency.

The president said he was ready to make tough decisions such as restructuring Medicare so that very wealthy recipients would have to pay slightly more. “Things like that would be appropriate,” he said. “That could make a difference.”

He said he had stressed to Republicans that anything they looked at should not affect current beneficiaries, and he said providers such as drug companies could be targeted for cuts. The president wouldn’t comment when asked whether he would support raising the Social Security retirement age.

On Capitol Hill, meanwhile, Democrats and Republicans in the House emerged from closed-door meetings to reiterate their hardened stances. Republicans announced plans to call a vote next week on a balanced budget constitutional amendment that would force the government to balance its books.

Obama dismissed the idea, saying, “We don’t need a constitutional amendment to do that. What we need to do is do our jobs.”

Failure to reach compromise has focused attention on a fallback plan under discussion by Senate Republican leader Mitch McConnell and Senate Majority Leader Harry Reid. That plan would give Obama greater authority to raise the debt ceiling while setting procedures in motion that could lead to federal spending cuts.

Obama insisted the public was on his side in wanting a “balanced approach” that would mix spending cuts and the tax increases opposed by Republicans.

“The American people are sold,” he said. “The problem is that members of Congress are dug in ideologically.”

He renewed his pitch for a major package of some $4 trillion, about three-quarters of which would be spending cuts along with about $1 trillion in new revenue.

“We have a chance to stabilize America’s finances for a decade or 15 years or 20 years if we’re willing to seize the moment,” the president said, adding later that everyone must be “willing to compromise.”

“We don’t need more studies, we don’t need a balanced budget amendment,” Obama said. He said lawmakers simply needed to be able to make tough decisions and stand up to their political bases.

Meanwhile the administration dispatched Treasury Secretary Tim Geithner and Budget director Jacob Lew to meet with House Speaker John Boehner and Majority Leader Eric Cantor at the Capitol.

Even as he prodded Republicans, Obama also issued a challenge to his liberal base, saying progressives should be just as interested in solving the country’s debt and deficit woes as conservatives.

“It would be very helpful for us to be able to say to the American people, `Our fiscal house is in order and now the question is what should we be doing to win the future?”‘ the president said, saying that otherwise investments such as more spending on community colleges could be dismissed as “more big spending, more government.”

“The American people do not want to see a bunch of posturing. They don’t to hear a bunch of sound bites. What they want is for us to solve problems. And we all have to remember that. That’s why we were sent here.”

The outline of the McConnell plan was winning unusual bipartisan support even as some conservatives voiced misgivings.

Under the plan, which would require approval by the House and Senate, Obama would have the power to order an increase in the debt limit of up to $2.5 trillion over the coming year unless both the House and Senate voted by two-thirds margins to deny him. Reid and McConnell were trying to work out ways to guarantee that Congress would also get to vote on sizable deficit reductions. The plan also could be linked to immediate spending cuts already identified by White House and congressional negotiators.

Obama offered measured praise: “It is constructive to say that if Washington operates as usual and can’t get something done let’s at least avert Armageddon.”

But the president said that McConnell’s approach only addressed the pressing issue of the debt ceiling, not the country’s longer-term deficit woes, and he wanted to handle that as well.

Obama Losing Patience as Republicans Panic
Joe Conason’s column is released once a week.
By Joe Conason | Joe Conason – 13 hrs ago 07/15/2011

At long last, President Obama seems to have run out of patience with the truculent Republicans who have rejected all of his overtures for a budget deal — just as Moody’s and other economic authorities again warned of the potentially catastrophic consequences of a debt default.

On Wednesday afternoon, Obama finally stood up at the bargaining table and walked out of the stalemated budget talks, telling House Majority Leader Eric Cantor, R-Va., that he will “take this to the American people” unless the Republicans showed a real inclination to compromise. Exactly what the president meant by that remark is not yet clear, but some leading Republicans have now realized that pandering to their party’s hard-line base could have serious consequences for them as well as for the country.

Political schizophrenia broke out among the Republicans on Capitol Hill even as Obama confronted them in the White House. In the Senate, Minority Leader Mitch McConnell, R-Ky., proposed a near-complete surrender, with a three-step maneuver that would allow the debt ceiling to rise while still permitting the Republicans to pretend that they disapprove.

Seeking to justify this panicky abandonment of his own tough-sounding rhetoric a week ago, McConnell told right-wing radio host Laura Ingraham that blowing the Aug. 2 debt ceiling deadline could lead to the same political result as the government shutdowns of the Clinton era — only perhaps worse.

A faithful servant of big money, McConnell appears to have realized that a Treasury default — unprecedented in our history — could cause permanent damage not only to the nation’s credit and the world economy, but might well ruin the Republican Party, too.

Noting that President Clinton easily won re-election the year after he faced down a Republican caucus in a budget debate that led to two government shutdowns, McConnell predicted that Obama “will say Republicans are making the economy worse. … It is an argument that he could have a good chance of winning, and all of a sudden we have co-ownership of the economy. That is a very bad position going into the election.” Letting America default is a bad idea, he said, because it “destroys the GOP brand.”

In other words, American voters might blame Republican candidates for a worsened recession, caused by their ideological obsession and partisan selfishness. Voters might finally express their disgust with Republican legislators who worry more about the mindless raving of Michele Bachmann than the expert opinion of Ben Bernanke, the Federal Reserve chairman who outlined the consequences of default in Congress on Wednesday. As outlined by Bernanke, whose own Republican credentials are impeccable, the ominous storyline should not be difficult to follow even for the average politician.

Bernanke told the House Financial Services Committee that default would cast grave doubt on the value of the Treasury bond, which “is viewed as the safest and most liquid security in the world, and the notion it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system.”

While Bachmann may disparage such warnings as “scare tactics,” the threat that default portends for everyone from grandmothers depending on Social Security checks to the struggling economies of Europe and Japan is real. Indeed, its effects are already being felt.

Where the president’s mounting frustration will lead remains to be seen. What did he mean when he told the Republicans not to “call my bluff”? Although Obama, the constitutional law professor, would prefer not to invoke a controversial 14th Amendment power to overrule Congress and raise the debt by fiat, he can now cite McConnell (and many other conservatives) in his defense. Should the Republicans in the House someday seek to impeach him over such a move, he could honestly reply that he was responding to a clear and present danger to the nation and the world — and that the leaders of their own party in the Senate had agreed with him.

Americans who broadly oppose default, and who overwhelmingly favor increasing taxes on the rich to avoid it, might well be persuaded by that argument.

To find out more about Joe Conason, visit the Creators Syndicate website at www.creators.com

Cantor emerges as player and a pain in debt talks

Associated Press | Posted: Thursday, July 14, 2011 6:33 pm

Susan Walsh

House Speaker John Boehner of Ohio, right, stands with House Majority Leader Eric Cantor of Va., during a news conference on Capitol Hill in Washington, Thursday, July 14, 2011. (AP Photo/Susan Walsh)

House Majority Leader Eric Cantor has become both a key player and big pain to more seasoned negotiators in the White House talks over how to keep the government paying its bills after next month.

“Eric, don’t call my bluff,” President Barack Obama warned late Wednesday after a dramatic back-and-forth with the Virginia Republican that made some in Cantor’s party wince. “Enough is enough.”

Not for Cantor, second-in-command to Speaker John Boehner who is widely assumed to aspire to the House’s top job. The testy exchange with Obama left Washington bubbling with speculation about whether the self-styled “young gun” had shot his own credibility in a roomful of political veterans.

“I try to be as respectful as I can,” Cantor said in a telephone interview Thursday, explaining that he was only trying to understand a difference in spending cut proposals.

In contrast to Wednesday’s tiff, the White House meeting Thursday was described as “composed and polite” by a Republican aide familiar with the session. Cantor did not speak during the day’s session, according to an official.

The 48-year-old lawyer and father of three has made a career of confrontation with a brash Southern style that chafes opponents and to some extent has strained his relationship with Boehner. However unseasoned his style, Cantor is building support among the no-compromise faction of Republicans who want big spending cuts and an end to Obama’s health care law.

Cantor grew up amid Republicans in Richmond, Va., where his father owned a real estate firm and served as the state treasurer for Ronald Reagan’s 1980 presidential campaign. The future congressman entered politics his freshman year at George Washington University when he interned for former Rep. Thomas Bliley. After law school and nearly a decade in the Virginia House of Delegates, he was elected to Bliley’s House seat in 2000.

His penchant for persuasion and fierce partisanship started early.

Democrats are fond of touting his quote from a high school yearbook: “I want what I want when I want it.”

During four terms in the statehouse, Cantor’s advocacy for business and corporate interests earned him the nickname “Overdog.”

By all accounts, he has almost no hobbies and few interests outside elections, policy and his family: wife Diana, also a lawyer, two sons and a daughter.

Cantor does like James Bond movies, and like Agent 007, clearly thrives on the rush of a good fight.

There have been many.

His tough partisanship in the 2004 campaign led the state Democratic party chairman to call Cantor an “attack dog” for President George W. Bush, who was running for re-election.

In 2007, it was Cantor who offered an amendment to draw attention to then-Speaker Nancy Pelosi’s request for a “luxury jetliner,” an effort to brand the San Francisco congresswoman as extravagant. Pelosi’s staff staunchly denied that, saying the House sergeant-at-arms had requested that she fly in the same military aircraft as her predecessor, former Speaker Dennis Hastert. Still, the image was hard to shake.

Cantor’s relationship with Boehner, too, has been delicate. The Virginia Republican won favor with senior members of his party as the House GOP’s vote-counting whip. In one cherished victory, Cantor headed the whip team that ensured no Republicans voted for the $800 billion-plus stimulus bill in 2009.

But their styles are very different, and their staffs are not close. Boehner is a cigarette-smoking, golf-playing dealmaker from a blue-collar background who is regarded with deep affection by members on both sides of the aisle. He is well aware that Cantor, Republican Whip Kevin McCarthy and Budget Committee Chairman Paul Ryan view themselves as a new generation of GOP leaders.

That was the theme of a book they authored about how they would run the House in the future, titled “Young Guns.” At the book party last year, Boehner wove some trademark charm into a reality check.

“The three of them know that my job is to make sure that they’re well-qualified and ready to take my place,” Boehner said with a semiserious grin, “at the appropriate moment.”

That moment is not yet at hand. Pressed by Cantor this week for details, Obama said he had given them to Boehner.

Boehner has sought to show he’s not threatened.

Putting an arm around his protege Thursday, Boehner cast them as a team.

“We have been in this fight together,” the Ohio Republican said at a news conference. “We’re in the foxhole.”

But Cantor’s building up to it. He’s using the debt talks to raise his profile, holding briefings with reporters on the daily sessions and recounting the provocative comments he made during them.

Senate Majority Leader Harry Reid, initially impressed with Cantor’s honesty but now “disappointed” by his behavior, said in a Senate speech Thursday that Cantor shouldn’t be at the bargaining table. In a statement later, Reid said through a spokesman that Cantor had been “nothing but a disruptive force over the course of these negotiations.”

“Well I’m sorry he feels that way,” Cantor said Thursday a few hours before the group was to convene again at the White House. “I am trying to work with Speaker Boehner to get the best possible policy for this country.”

Posted in Govt-and-politics on Thursday, July 14, 2011 6:33 pm Updated: 8:03 pm. | Tags:

Debt ceiling negotiators are ‘playing with fire’
From Wall Street to Beijing, investors fearful about Washington stalemate

By John W. Schoen Senior producer
msnbc.com msnbc.com
updated 7/14/2011 2:35:00 PM ET

As the clock ticks down on a possible default by the U.S. government, investors from Wall Street to Beijing are getting increasingly jittery about the rancorous stalemate in Washington.

The stakes involved were brought into sharp focus after two bond credit rating agencies warned that the government’s pristine debt rating is in jeopardy unless Congress and the White House make meaningful progress on budget talks before the Treasury runs out of borrowing authority in early August.

“It’s a very serious warning,” said Roger Altman, founder of Evercore Partners and a former Deputy Treasury Secretary in the Clinton administration. “I think it’s a helpful warning because it sends a message to the negotiators in Washington that they are playing with fire. And they better be really careful.”

As talks became increasingly acrimonious, the largest buyer of U.S. Treasury debt expressed concerns that inaction in Washington was putting its holdings at risk.

Chinese Foreign Ministry spokesman Hong Lei told reporters Thursday: “We hope that the U.S. government adopts a responsible policy to ensure the interests of the investors.”

The U.S. economy “has been doing worse than expected” and Beijing needs to “seriously assess” possible risks to its vast holdings of American debt, Yu Bin, a Chinese government economist, said Thursday.

Story: China urges US to be ‘responsible’ on debts

Without congressional approval, the Treasury can no longer sell fresh debt to pay off existing bond holders and finance the $1.4 trillion budget deficit. To keep the government funded through the end of 2012, Congress would have to raise the current debt limit by about $2.4 trillion.

Republicans, in control of the House of Representatives in part because of the support of Tea Party activists, say they will not vote to raise the limit if Obama doesn’t agree to at least an equal amount of deficit reductions over 10 years.

A $2.4 trillion package would provide a substantial down payment toward a solution. But it would be substantially less than the $4 trillion needed to get the government back on a sound financial footing. After years of failure to balance the budget, a more modest package may not go far enough to satisfy investors and credit agencies.

One proposal getting traction on Thursday would grant the White House authority to raise the debt ceiling without congressional approval, giving Republicans political cover by not having to vote to increase borrowing. Despite its political appeal in Washington, Wall Street gave it a thumbs down.

“We’ve gone from this notion of a grand bargain to a notion of a mini-deal, and now we’re heading towards just a stop gap,” said Mohamed El-Erian, CEO of PIMCO, an investment fund with large holdings of Treasury debt. “A stop gap is the worst possible thing for both parties because it means that every three to six months we’re going to have this issue again.”

So far, interest rates on U.S. debt have held steady largely because investors have few other places to stash their money. With Europe’s debt crisis widening, Treasuries have been seen as something of a safe haven.

But the ongoing budget stalemate has eroded that confidence. By withholding borrowing authority, Congress has increased the risk of a default.

For now, the odds of a default still seem remote. So long as the Treasury makes a top priority of paying interest on the debt, there is enough cash coming in to cover those payments. But there’s little debate that the impact of such a default could be catastrophic.

First Thoughts: Always darkest before the deal

Federal Reserve Chairman Ben Bernanke, addressing lawmakers, warned that not increasing the nation’s debt ceiling and allowing the nation to default on its debt would send “shock waves through the entire financial system.”

“No one can tell me with certainty that a U.S. default wouldn’t cause catastrophe and wouldn’t severely damage the U.S. or global economy,” Jamie Dimon, CEO of JPMorgan Chase, told reporters Thursday. “And it would be irresponsible to take that chance.”

Even if the Treasury can afford to make those interest payments, the budget stalemate still poses big risks to the financial markets and economy. Both Moody’s and Standard & Poor’s warned that the government need not actually default to imperil its AAA rating. Moody’s said that if a deal can’t be reached to raise the government’s borrowing authority in time to pay its bills, maintaining its top-notch credit rating “would likely no longer be appropriate.”

Story: U.S. may lose top credit rating soon

Such a downgrade would likely force interest rates higher, as investors demand a bigger return on what would then be a riskier investment. Many investment funds could no longer hold Treasuries in their portfolios, cutting demand for fresh debt and increasing the supply on the open market.

That would force interest rates higher. Higher borrowing costs, for companies hoping to expand or consumers buying a new car, would throw cold water on an economy that is already showing ominous signs of slowing.

“The higher interest rates would add to the deficit but also a slowdown in economic activity, by reducing revenues, would also add to the deficit, so it really is going in the wrong direction in terms of fiscal stability,” Bernanke told lawmakers on Thursday.

Default deniers

The United States hit its current $14.3 trillion debt ceiling in May and the Obama administration says the government will default on its obligations if the debt limit is not increased by August 2. Some Republicans argue that the administration is overstating the odds of default, noting that the Treasury has enough cash to service the debt beyond the August 2 deadline.

The issue is complicated by the complexities of government spending and receipts, which don’t flow in a steady stream week-in, week-out like a household paying regular monthly bills with a fixed weekly paycheck. The government’s cash flow varies widely, with irregular, and sometimes unpredictible, peaks and troughs on both the income and payment sides of the ledger.

It’s also not clear exactly how the Treasury will prioritize payments when it finally runs out of cash: there is no precedent for the process. The government could also face legal challenges if it fails to meet certain contractual obligations.

Even if investors continue to buy Treasury bonds at current interest rates, a shutdown of government borrowing could add further headwinds to a weakening economy. Much as state budget cutbacks gave forced widening layoffs, a sharp cut in federal government spending would be felt relatively quickly. Without Social Security checks, retirees would be forced to cut spending. Unpaid government contractors would be forced to lay off workers.

The stalled debt talks “pose a significant risk to the economy and markets,” said Jay Powell a visiting scholar at the Bipartisan Policy Center and Treasury undersecretary in the George H.W. Bush administration. “We’re on the verge of a national crisis here and it’s time to get this done one way or another.”

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