Third Party & Independents Archives

China warns U.S. against debt default; GOP scoffs

Note to Republicans: Now is not the time to see if Chinese banks feel like playing a game of “chicken.”

According to reports from Reuters, Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.

The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republican “our way or no way” extremists who see it as a price worth paying (especially when someone ELSE is paying) if it forces the White House to cave to their pro-rich/screw-the-poor spending slashing agenda.

But Chinese government officials and investors warn that any form of default could very quickly destabilize the already tenuous global economy and sour already tense relations with big U.S. creditors such as China – which as America’s largest foreign creditor holds a $1.26 Trillion I.O.U. from Uncle Sam.

Republicans, apparently, feel that now is a good time to play a game of 13-digit chicken with America’s foremost banker, and believe that solving our financial problems from within through such “ludicrous” and “preposterous” means as … say … raising taxes slightly and asking *ALL* Americans to sacrifice a small slice instead of defaulting on the entire pie … aren’t even worth considering.

Li Daokui, an adviser to the People’s Bank of China, said a default would swiftly undermine the already weak U.S. dollar, and Beijing is strongly advising Washington against pursuing this course of action.

“I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire. I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar’s value.”

Ratings agency Fitch warned Wednesday that the United States could lose its sterling credit rating if it fails to raise its debt ceiling to avoid defaulting on loans. The third of the three big ratings houses to issue such a warning, Fitch said the country needed to beat the Aug. 2 deadline for raising its $14.29 trillion borrowing ceiling to avoid seeing its bonds lose Fitch’s top-grade AAA rating.

Think about that in its most-basic terms: American bonds … worth less … You don’t need an advanced degree in Finance to understand the rippling effect that would have on you – not “them,” but “YOU.”

Leading economists (those who aren’t on either party’s payroll) nearly unanimously agree that shredding the current 28,000-page tax code and implementing a blanket flat tax of 10-14 percent nationwide would immediately generate $1.22 Trillion in revenue within the year that the flat tax is enacted. But that would require wiping out all loopholes, shelters, deferments, extended deductions and offshore accounting – and that’s something that Republicans and their corporate whore-masters simply won’t accept. A recent study by the Beacon Hill Institute shows that implementing a 12% flat tax across the board to all American taxpayers while still retaining the current individual personal exemption and the home mortgage interest deduction would generate $217 Billion immediately and $912 Billion within the first 12-months of the tax enactment. And a flat tax would put a long-overdue end to the ridiculous argument over what counts as “income” and what doesn’t.

Nearly all independent studies show that a flat tax of 10% enacted in 2012 with the corresponding elimination of the conditional garbage in the current tax code would generate more than $8 Trillion in new revenue by the end of 2020.

How is that worse than the ballyhooed and equally bloated Paul Ryan plan which claims it can generate $2.6 Trillion by the year 2024 by only slashing domestic (i.e., helping the poor and middle class) programs and refusing to increase taxes in any way? (And we’ll put aside the discussion of how the same economists I’ve referenced have declared that Ryan’s plan is riddled with inaccuracies, gross suppositions based on unrealistic expectations, and just-plain Republican fuzzy math.)

When you consider that the primary reason that Republicans give for being against raising taxes is that “the rich already pay far too much, upwards of 38 percent in most cases,” then *WHY* would they object to implementing a 10-to-14 percent flat tax – which would immediately reduce taxes on the rich by two-thirds? Could it be that the actual tax *RATE* isn’t their concern, but the trillions of dollars in loopholes, shelters and other shell games they get to play which enable the country’s wealthiest people to pay a net rate of 5 percent or less, sometimes even nothing?

Even economist/actor Ben Stein, who was a financial advisor to Republican demigod and future saint Ronald Reagan, says the current system is stupid, ineffective and self-destructive. “At some point,” Stein said, “the debt will be so large relative to the national output that our U.S. Treasury securities will be downgraded in terms of credit quality. The Republicans – who started the problem with excessive tax cuts in the Bush years – will have to agree to raise taxes, at least upon the truly rich (of whom there are plenty). The Democrats will have to agree to major spending cuts. Social Security and Medicare will have to be changed … a lot. Basically, we have to kill Voodoo Economics.”

But Republicans refuse to hear that. From the same hymnal, they chant the right-wing mantra: “A flat tax is unfair to the poor.” I want someone to explain how. If you erase all exemptions, deductions, loopholes and shelters – most of which “the poor” don’t qualify for because they don’t make enough to engage in them – you have a level playing field. With a flat tax of 10 percent for ease of calculation for example, if you make $10,000 a year, you pay $1,000. If you make $10 Billion, you pay $1 Billion. Ten percent is 10 percent. Where, how and why is that unfair to anyone?

So here’s China, holding more of America’s debt than anyone else, telling the United States Congress that it would be very unwise to allow the country to default on its debt. And Republicans stand rigid and say – quite ignorantly and arrogantly, “You’re bluffing!”

By all means, let’s not only bite the hand that’s feeding us, let’s take a crap in it first.

Posted by Gary St. Lawrence at June 9, 2011 10:50 AM
Comments
Comment #324243

When congress is capable of passing a budget in a timely fashion, perhaps more will be willing to believe they are serious about taxes and spending.

The ubiquitous raising of the debt ceiling is evidence enough for me that congress doesn’t wish to live within a budget, spending what they will, and relying on ever-increasing debt limits to pay for their vote buying pork and pandering.

Posted by: Royal Flush at June 9, 2011 1:29 PM
Comment #324247

Royal, the Corpocracy has the working folks exactly where they want. All they need to do now is just sit it out for a while longer, sort of sop up the loose change laying around, and wait for wages to fall.
Gary, the Corpocracy has no plans to give up the status quo or limit their power to manipulate the system by implementing a flat tax policy. Asking for a flat tax is right up there with asking the Coropocracy to start recognizing Article V Convention. They simply have no interest in reducing or limiting their ability to control and manipulate.
We have a democracy that has, as all democracies are prone to do, advanced to the stage where a small vocal minority (money is free speech) controls the majority.
IMO, it will take a 3rd party with a different political attitude to carry out needed reform and remove the money influence from politics/gov’t.
Otherwise - - -

Posted by: Roy Ellis at June 9, 2011 2:44 PM
Comment #324248

Gary,
The entire discussion about the debt ceiling is a ploy, a crass negotiating ploy. Each side has used the ceiling vote for partisan purposes in the past. It’s a chance to grandstand and pretend to be opposed to deficit, rather than address the actual revenues and expenditures.

I would hope the Democrats recognize this crass behavior for what it is, and ignore the entire ploy. I hope they completely ignore the GOP threats, which essentially argue that deficits will eventually result in a depression, so we are going to induce one right now. It’s stupid. Refusing to pay our debt would have the effect of an immediate across-the-board interest rate hike, and discourage lenders from investing in the US dollar.

Of course, there is a certain appropriateness to all this. Thanks to the Bush tax cuts and the wars in Iraq and Afghanistan, the conservatives turned a budget surplus projected to be $5 trillion into one recession, then a second bigger one. The conservatives might as well finish off the country, jack up interest rates, and undermine the currency while they are at it.

Posted by: phx8 at June 9, 2011 2:49 PM
Comment #324252


When it comes to deficits, debt and balanced budgets, the conservatives and the Republican party have no credibility.

We The People almost had that balanced budget, they we made the unfortunately terrible mistake of turning the government over to the self-pronounced fiscally responsible Republicans.

Now they are trying to pull off the second half of their great conservative revolution and the people aren’t buying it.

I feel I owe the baby boomers an apology. I thought they would sell out to the conservative revolution because they were being exempted from many of the cuts. They did not do that. Even many Republican baby boomers have rejected their party’s proposals.

Doom and gloomers has been a part of the human experience throughout history. It is utilized in both politics and religion.

Posted by: jlw at June 9, 2011 3:51 PM
Comment #324267

“I thought they would sell out to the conservative revolution because they were being exempted from many of the cuts.”

If seniors understand anything, it is the necessity of affordable health care. They recognized the crass ploy of exempting them from cuts for what it was. If your going to screw the next generation, you probably have no qualms about screwing me at some point.

Posted by: Rich at June 9, 2011 8:23 PM
Comment #324270

A “game of chicken” requires that BOTH drivers refuse to turn off the path. If they collide, it is because BOTH failed to made a necessary adjustment.

If we come perilously close to default, it will be because Republicans failed to compromise on cuts AND because Democrats failed to compromise on cuts. Both sides are holding on to their respective steering wheels and applying the gas. Most Americans (according to a recent poll) feel that raising the limit w/o getting some fiscal discipline will just result in more spending and more limit raising. If the Democrats want to follow the will and wisdom of the people, perhaps they should turn from their error and compromise on cutting this – the largest deficit in human history.

Re the Chinese - our debt gives them leverage. We need to cut our debt to cut their leverage. The Chinese are not benign.

Posted by: C&J at June 9, 2011 8:34 PM
Comment #324322


C&J, Democrats have shown much willingness to compromise, some on the left would argue far to willing during the Bush Administration. It is the Republicans who all to often, see compromise as capitulation.

IMO, the Analogy is more like painting yourself into a corner.

While similar to the Gingrich led political miscalculation, in this situation, the Republican party has allowed itself to be painted into a corner by the very vocal and politically active right wing conservatives currently labeling themselves as the tea party.

A number of Republicans would compromise the Ryan/conservative dream budget, but to do so invites a tea party challenger in their next primary.

Posted by: jlw at June 11, 2011 4:09 PM
Comment #324327

jlw

Some on the right see that Republicans compromise too much.

All that I am trying to tell you (and Stephen) is that it takes two sides not to compromise. You feel Democrats have given up too much or enough and/or they cannot compromise on their principles. Republicans feel the same about their side.

The Democrats are now in the “look what you made me do” mode. If they refuse to make enough cuts and Republicans refuse to compromise about debt, both sides have made their choices.

Sometimes neither side thinks there is room for compromise; then somebody just needs to win. We may be there.

But consider how much Obama is NOT trying to compromise. He doesn’t make proposals of his own about what cuts he is willing to take. He just give speeches about what we cannot cut. Does he not see the problem?

And we worry that the Chinese are making threats. Consider what the Chinese want. In the short term, they want to make sure they make money on their investments in the U.S. In the long term, they want to replace the U.S. as the world’s major power. So their advice is not always the best for us.

Posted by: C&J at June 11, 2011 6:21 PM
Comment #324335

C&J-
No, it only takes one side to not compromise, and your side always seems to have the party line votes to fail to compromise with.

Let me tell you something: that isn’t for the best. It’s not merely that Democrats don’t want your medicare compromise, in its substance. A majority of Americans don’t want it either.

The Democrats feel that it is best for them to stand firm on it. They would hardly benefit at all from giving in. The Ryan plan was unpopular before it even got out of the gate, and the Republicans quite deliberately made that unforced error. Now Republicans want to hold the country’s full faith and credit hostage to force that on them.

I think the more people understand about what the Republicans are attempting right now, the worse it gets for them.

Posted by: Stephen Daugherty at June 11, 2011 8:46 PM
Comment #324367


Stephen, the liberals spoiled the conservatives. Their compromises on deregulation and tax breaks for the wealthy could and is considered capitulation by many on the left.

Conservatives got so used to getting their way that capitulation by liberals is their definition of compromise.

C&J, Obama’s pledge to not cut is hollow rhetoric. Many on the left know that he will put his signature on any compromise that the Congress comes up with.

What are Republicans not only refusing to cut but are actually increasing spending for in the Ryan budget?

Republicans produced the Ryan budget. They did not say now let’s compromise. They said we are shoving this down the countries throats whether they like it or not. Well, the people aren’t buying it. Now, Republicans have to find a way to compromise while trying to save face with the far right reactionaries. That is going to be a tough sell because those guys think they are some kind of not so silent majority despite the poll that says otherwise.

Posted by: jlw at June 12, 2011 10:49 AM
Comment #324406

Boys, pissing contests will get you nowhere.

Both parties are lying, self-serving, gutless, corporate-owned political shills who don’t give a rat’s anus about you or your problems.

Continuing to point the blame finger just makes you look naive and ignorant of reality.

Posted by: Gary St. Lawrence at June 13, 2011 11:48 AM
Comment #324413


Gary, as a Democrat, if I had the power, I would replace every Democrat in Congress. But, you seem to be rather naive and ignorant of the political reality yourself.

The people know their government is not representing them as it should be, but they are either two ignorant, selfish, scared, partisan, etc., to do anything meaningful about it. The two parties have a virtual lock on the election process and the political power, while capital and it’s corporations have a virtual lock on the two parties.

The rise of capital to a position of power over our government coincides with the introduction of the IRA and the 401K among other factors such as the demise of union power and financialization of the economy.

People who are scared can easily be manipulated by the propagandists of both parties.

Posted by: jlw at June 13, 2011 2:16 PM
Comment #324451
jlw wrote: “… as a Democrat, if I had the power, I would replace every Democrat in Congress. But, you seem to be rather naive and ignorant of the political reality yourself.”


You wouldn’t replace the Republicans as well, and you call *ME* naive and ignorant?

I think you need to read up on the political affiliation of those who created and implemented IRAs and the 401K.

Posted by: Gary St. Lawrence at June 14, 2011 3:31 PM
Post a comment