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| Greg Jericho answers your questions on the US debt default crisis | Greg Jericho answers your questions on the US debt default crisis |
| (35 minutes later) | |
| For weeks, the world's most powerful economy has been teetering on the brink of 'financial Armageddon' as politicians wrangled over the US debt ceiling. Now, at the 11th hour, a deal has finally been thrashed out and, barring any last minute hiccups, will be approved by Congress. | For weeks, the world's most powerful economy has been teetering on the brink of 'financial Armageddon' as politicians wrangled over the US debt ceiling. Now, at the 11th hour, a deal has finally been thrashed out and, barring any last minute hiccups, will be approved by Congress. |
| But the US government has been paralysed during a 16-day shutdown that is so far estimated to have cost US$24bn - US$1.5bn a day. | But the US government has been paralysed during a 16-day shutdown that is so far estimated to have cost US$24bn - US$1.5bn a day. |
| The US government will soon reopen and America may have avoided a catastrophic default, but has the problem simply been kicked down the road? And what will be the lasting impact not only on the US, but on Australia and the rest of the global economy? | The US government will soon reopen and America may have avoided a catastrophic default, but has the problem simply been kicked down the road? And what will be the lasting impact not only on the US, but on Australia and the rest of the global economy? |
| Greg Jericho writes the Grogonomics blog for Guardian Australia. While working as a public servant he wrote the blog Grog’s Gamut which came to prominence during the 2010 federal election. | Greg Jericho writes the Grogonomics blog for Guardian Australia. While working as a public servant he wrote the blog Grog’s Gamut which came to prominence during the 2010 federal election. |
| He left the public service in 2011 to write the book, “The Rise of the Fifth Estate” on social media and blogging in Australian politics. He has also worked as a researched on The Chaser series Hamster Wheel and also for the ABC’s Planet America. | He left the public service in 2011 to write the book, “The Rise of the Fifth Estate” on social media and blogging in Australian politics. He has also worked as a researched on The Chaser series Hamster Wheel and also for the ABC’s Planet America. |
| Post your questions on the US debt default debacle for Greg below; he'll be answering them here from 12.30 AEST. | Post your questions on the US debt default debacle for Greg below; he'll be answering them here from 12.30 AEST. |
| US Corporates seem to be in great shape, generating huge profits. They don't appear to doing enough to grow employment and are very lean since the crisis. | US Corporates seem to be in great shape, generating huge profits. They don't appear to doing enough to grow employment and are very lean since the crisis. |
| Is the long-term solution a higher corporate tax rate? | Is the long-term solution a higher corporate tax rate? |
| Answer: | Answer: |
| Interestingly the IMF came out last week with a report that suggested some countries should increase taxes on the wealthy to help pay off their deficits. On corporate tax though they are more concerned about getting the tax owed by multinational who are shuffling around their affairs so well that they are avoiding paying tax. | Interestingly the IMF came out last week with a report that suggested some countries should increase taxes on the wealthy to help pay off their deficits. On corporate tax though they are more concerned about getting the tax owed by multinational who are shuffling around their affairs so well that they are avoiding paying tax. |
| That will be a tougher thing to fix, and will require nations like Ireland to get on board | That will be a tougher thing to fix, and will require nations like Ireland to get on board |
| Why don't the left in the US argue that debt is out of control, but its military expenditure that needs to be controlled, not healthcare spending? | Why don't the left in the US argue that debt is out of control, but its military expenditure that needs to be controlled, not healthcare spending? |
| Answer: | Answer: |
| For much the same reason as the entire debt limit crisis - politics. Defence spending is going to play a big role in the next round. The deal done today really just kicks the can down the road till Jan 15 re the Govt shutdown and mid February for the debt ceiling. Not coincidentally Jan 15 is when the next round of sequestration cut kick in, and they are suggested to have a much larger impact than the ones which were somewhat watered down this year. | For much the same reason as the entire debt limit crisis - politics. Defence spending is going to play a big role in the next round. The deal done today really just kicks the can down the road till Jan 15 re the Govt shutdown and mid February for the debt ceiling. Not coincidentally Jan 15 is when the next round of sequestration cut kick in, and they are suggested to have a much larger impact than the ones which were somewhat watered down this year. |
| The big issue is defence spending. One report has suggested that if the sequester cuts continue then by 2021, "ground divisions will drop from 20 to six, Air Force fighter and attack planes will drop by 1,632 aircraft, and Navy ships will drop by 338, with the aircraft carrier force declining from 15 carriers to seven in 2021." | The big issue is defence spending. One report has suggested that if the sequester cuts continue then by 2021, "ground divisions will drop from 20 to six, Air Force fighter and attack planes will drop by 1,632 aircraft, and Navy ships will drop by 338, with the aircraft carrier force declining from 15 carriers to seven in 2021." |
| Normally Republicans would be getting quite antsy about this, but the political situation regarding the Tea Party and govt spending cuts is such that they have recently toned down their rhetoric on this because they the Tea Party want across the board spending cuts to come in | Normally Republicans would be getting quite antsy about this, but the political situation regarding the Tea Party and govt spending cuts is such that they have recently toned down their rhetoric on this because they the Tea Party want across the board spending cuts to come in |
| Should the US debt ceiling be abolished and does Australia have anything similar as Joe Hockey seemed to imply while in opposition? | Should the US debt ceiling be abolished and does Australia have anything similar as Joe Hockey seemed to imply while in opposition? |
| Answer: | Answer: |
| Yep it should be abolished. It serves absolutely no purpose. It is supposedly there to limit spending, and yet it doesn't (as we have seen time and time again). All that happens is it becomes a political weapon for whichever side is not the President. | Yep it should be abolished. It serves absolutely no purpose. It is supposedly there to limit spending, and yet it doesn't (as we have seen time and time again). All that happens is it becomes a political weapon for whichever side is not the President. |
| IN Asutralia we have one. Oddly last year, Joe Hockey was making Tea Party-esque noises about blocking the debt ceiling. Now that he is in Govt he is making raising the debt ceiling it a first order of business when parliament returns next month | IN Asutralia we have one. Oddly last year, Joe Hockey was making Tea Party-esque noises about blocking the debt ceiling. Now that he is in Govt he is making raising the debt ceiling it a first order of business when parliament returns next month |
| Hi Greg, Speaking in Washington the other day, Joe Hockey said Australia had "back-pocket plans" to deal with the fallout of a default. While that now looks to have been averted, I'm intrigued to know what those plans might have been. Is it possible for Australia - or any country - to insulate itself from America? | Hi Greg, Speaking in Washington the other day, Joe Hockey said Australia had "back-pocket plans" to deal with the fallout of a default. While that now looks to have been averted, I'm intrigued to know what those plans might have been. Is it possible for Australia - or any country - to insulate itself from America? |
| Answer: | Answer: |
| Long term - no. Short term, yes. I'd suggest Hockey was talking more about the financial markets aspect rather than any plans re fiscal stimulus to counter any decline in economic growth. So it might have been about the Govt/RBA taking a more active position in the market should there have been any currency ructions. | Long term - no. Short term, yes. I'd suggest Hockey was talking more about the financial markets aspect rather than any plans re fiscal stimulus to counter any decline in economic growth. So it might have been about the Govt/RBA taking a more active position in the market should there have been any currency ructions. |
| Greg | Greg |
| When the markets failed and there was a global financial crisis the solution was to put the banks on taxpayer funded welfare while simultaneously calling for an austerity cut back on everyone else's safety net welfare?! | When the markets failed and there was a global financial crisis the solution was to put the banks on taxpayer funded welfare while simultaneously calling for an austerity cut back on everyone else's safety net welfare?! |
| What is the economic principle involved here? | What is the economic principle involved here? |
| Is it the Tea Party Principle? | Is it the Tea Party Principle? |
| Answer: | Answer: |
| Pretty much. It's often forgotten that the Tea Party, despite supposedly being this great grass roots movement was in favour of the Wall St bailout. There was some aspect of that at first, but once the Koch Brothers and others co-opted the movement, it pretty much became about protecting the rich under the guise of "pro-capitalism, pro-America" policies. | Pretty much. It's often forgotten that the Tea Party, despite supposedly being this great grass roots movement was in favour of the Wall St bailout. There was some aspect of that at first, but once the Koch Brothers and others co-opted the movement, it pretty much became about protecting the rich under the guise of "pro-capitalism, pro-America" policies. |
| What if anything does the failure to win any meaningful concessions mean for the Tea Party? | |
| Answer: | |
| You would think it would hurt it, and clearly some moderate Republicans are pretty angry about this, but I saw one GOP congressman being interviewed on CNN an hour ago saying he still thought today's debt ceiling limit was just a "soft deadline". It suggested there are still some who think the deadlines should be pushed again. | |
| They will also be watching to see how Obamacare rolls out. It has certainly has had some issues. If these are just teasing problems then they won't have much to complain about, but if the issues continue, then the popularity of Obamacare will decline and the Tea Party will think they can have another go at getting rid of it. | |
| Also on the sequester cuts, the Tea Party and other GOP members are using the same language on them as Obama and the Democrats have been about Obamacare - that it is the law and it should be allowed to occur. This of course ignores that then sequester cuts when proposed in 2011 were done so as a threat to ensure congress would agree on a budget - so it was hoped the law would not come into effect! | |
| And all of this is coupled with the fact that Ted Cruz will no doubt have raised heaps of money from all of this, and the Tea Party are still targeting "moderate" GOP senators and congress members. | |
| So my view is that while you would think this logically should see the Tea Party weakened, that only works if you are dealing with an organisation that responds to logic. | |
| As far as I understand it, the positive view from some Tea-Partiers (Rand Paul) is that a default would be a good thing as it would essentially decouple the US financially from world money markets therefore leading to a drastically smaller Government. Has any serious work been done by radical economists projecting what the US Government would look like if this would happen, or is it running on ideology and "the audacity of (Libertarian) hope"? | |
| Answer: | |
| You are right that some think that would be a good thing. Most studies I have seen however suggest that the journey to get to that position - ie through a default would be pretty awful. I haven't read any studies by "radical economists". | |
| Hi Greg. Do you think there's any way to avoid this kind of situation happening again? Would it be possible for the US to extricate itself from the political system that makes such brinkmanship possible? Or would it be possible for the global financial system to adjust so that the risk from such an event is smaller? | |
| Answer: | |
| The main thing that needs to be done is just abolish the debt ceiling. The market doesn't give a stuff about it being raised - the bond yields never go up because it is raised, they only go up when Congress threatens to block move for it to be raised. | |
| But I can't see it happening, purely because there are those who view it as a weapon in their arsenal that they can use to force spending cuts etc. But what today has really shown is that if the other side refuses to budge the threat to allow a default up being empty. | |
| So logically there is no reason to keep it even politically, but again I think logic isn't much in play. It;s worth noting that Ted Cruz, Marco Rubio and Rand Paul still voted against the Bill that just went through the Senate. Now maybe they did so only because they knew it would pass, but it does show that the belief that there is political benefit from forcing a default still remains. | |
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