Time Is Running Out

The U.S. Senate and House of Representatives have until the 2nd of August to come up with a deal to extend U.S. debt ceiling beyond $14.3 trillion and avoid the very real possibility of default.

President Obama, the Republicans in the House of Representatives and the Democrats in the Senate have been arguing at length over how to make $3 to $4 trillion in savings over the next ten years. So far the Republicans have ruled out supporting Obama’s tax increases, with Reuters suggesting that revenue is the main sticking point between the two sides.

Much like the crisis economies of the Euro zone, the United States will be on the brink of default in just over a week. This is scary stuff. Alister Bull and Richard Cowan at Reuters remark:

With the world’s biggest economy set to run out of money to pay all of its bills on August 2, the window was closing fast for a “grand bargain” of spending cuts and tax increases in exchange for Congress raising the debt ceiling.

Financial markets are growing more edgy and U.S. banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.

If the United States goes to the wall, it will be for the first time in its history and will also mean the loss of its prized triple A credit rating, with far reaching consequences for the world economy.

The US, like so many Western economies, has run up vast debts in past decades, due in no small part to the ever increasing financial burden of a bloated welfare state. It is not as though this problem has happened overnight either. George Bush, that supposedly evil, nasty, right-wing zealot was a prolific borrower and spender at the expense of the American taxpayer. Likewise, Barack Obama, who has been in office for a number of years now, has had plenty of time to get to grips with U.S. domestic spending – and yet here we are, only weeks away from a massive default and suddenly there’s a mad panic to rearrange the deckchairs on the Titanic.

A Rude Awakening

I’ve just arrived back from the blazingly hot island of Malta where I’ve spent this past week trying to forget about the realities of the present and instead learn a little more about the not so recent past.

Even so, I’ve managed to keep a few tabs on the news (if you could really call it that) in the evenings via Sky News in my hotel room (it was a choice between that, CNN and a selection of rather dubious foreign comedy channels).

Amusingly, I also caught a late night news round-up on the BBC World Service with Richard North as a panellist. Amazing really; you go abroad to get away from the work, the blogs, Richard North et all, and yet the man still manages to find a way through!

No doubt parts of our beloved national media are being overcome with similar feelings. As much as the press try to ignore the current economic realities, they just keep cropping back up to divert their attention from the vital task of endlessly discussing themselves.

Just before my return, it seemed that, all of a sudden, the broadcast and newspaper media had finally woken up to the fact that, yes, the hacking affair was not perhaps the most important item of news on the current, reality-based agenda. The Euro zone economies are collapsing under a mountain of self-inflicted debt, and there is a very real possibility that this could destroy the single currency.

This collapse has been on the cards for some time now, and yet if you listen to large sections of the media then it would appear that they have only recently uncovered this crisis, such is the wide-eyed wonderment with which it is breathlessly reported.

It strikes me that the treatment of the financial crisis by the media is in many ways similar to the famine in Somalia. It wasn’t until this week when the United Nations publically declared that there was a famine in Somalia that the media suddenly took interest. Before the announcement, it was if the famine had not existed, such was the miniscule level of reporting. Similarly, now that the European Union, in the form of our dear leader, José Manuel Barroso, has spoken of the severity of the European economic situation then suddenly, guess what, it’s a crisis! Who would have thought it..?

It seems, in the collective eyes of the media establishment, that for something to exist or become fact then it must be acknowledged by the U.N. or receive other supposedly ‘expert’ approval. And it’s not just any old ‘expert’ that will do either, but ones carefully selected from ‘accepted’ groups and organisations who have a monopoly on officially and legitimately being allowed to care about suffering, starvation or our old favourite, climate change. If anyone outside of the bubble expresses an opinion, however valid or important, then nothing is done. It is ignored, until suddenly, an oik at the BBC or Guardian decides that, you know what, the European economies might actually be on the verge of hitting the fan because José told us so. Only then, apparently, is it worthy of being ‘news’…

Only A Matter Of Time

Reports from Reuters suggest that Moody’s rating’s agency has significantly cut Portugal’s credit rating and claims that the country will require a second round of bailouts to secure its finances.

Negotiations over the latest Greek bailout seem to be running into great difficulties, making Portugal’s financial outlook appear far from certain. At the moment the target seems to be the avoidance of default – but as each day passes and the crisis grows deeper then the outcome seems increasingly certain. Once again, it is not a question of if, but when.

Indeed, it could be even sooner than we expect. As the BBC reports, the legitimacy of the bailouts is being called into questions at the German Constitutional Court which will be examining their legality under German law. As Daniel Hannan observes, their legal standing is hardly difficult to ascertain though:

Let me give the judges a hint. All they have to do is look at Article 125 of the Treaty:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State.”

Pretty open and shut, no? Indeed, no one in Brussels seriously tries to claim that the bailouts are within the rules. It is precisely because the bailouts are illicit that the the Treaty is being changed: rather than amending its behaviour to comply with the law, the EU proposes to amend the law to comply with its behaviour.

In reality, the likelihood of the German Courts upholding the letter of the Constitution is rather slim. Their record in this department is not exactly exemplary, given their relatively recent and enlightened decision on German compatibility with the Lisbon Treaty.

As for the Portuguese, like Greece and probably this country too, their days are numbered. Eventually the money is going to run out and even the EU elites will have to give up on the bailouts. It is at that point that we enter a very dangerous period of history.

The Economic Divide

‘Two-thirds of British people think the economy is getting worse’ say Reuters, based on data from an ICM poll for yesterday’s News of the World. But are we really surprised?

If we believe that the Greek state is on the edge of collapse then we are not all that far behind. It is not a question of if, but when. It was only last week that Christopher Booker in his Sunday Telegraph column highlighted:

More than most people realise, we in Britain are approaching a financial abyss almost as great as that into which Greece has been falling. Last week, the deficit on our Government’s annual spending widened yet again, to £143 billion, which means that we are having to borrow nearly £3 billion a week. That equates to £5,700 a year for every household.

Far from riding into Westminster as our economic saviours, George and Dave have presided over yet further borrowing and spending at our expense. Government debt continues to climb as the Bank of England persists in its policy of ‘Quantitative Easing’ – or in other words, printing more money – and in contrast to the apoplectic fits the Unions are having over the not-the-cuts, the gulf between the stalled private economy and the parasitic public sector has widened.