Tuesday, August 02, 2011

Politics and right-wing Tea Party holds United States and the world hostage

The budget negotiations just about to conclude in the United States is another example on how Western democracies are failing.

Essentially, the right wing Tea Party faction of the Republicans adopted an ideological position and refused to support any increase in the debt ceiling for the United States government.  They locked the entire Republican party into a position where they were basically not negotiating.

In doing so, the held a metaphorical gun at President Obama, the United States economy and the global economy.  This was a very dangerous game of brinkmanship with potentially very serious consequences.

Who were they "democratically representing" with their actions?  Clearly not a majority of Americans, and clearly not the rest of the world.  To me this is more evidence of the end of the world as we know it.

The deal is not yet done, but here is my take on the current positions:

Spending cuts (first round):  Immediately spending cuts of $US917 billion dollars between 2012 and 2021, in the form of caps on discretionary spending. These cuts come from funding authorised at will by Congress - not from entitlements such as Social Security and the Medicare health care program for the elderly.  

If this means the homeless are not disadvantaged, and unemployment benefits are not affected, this appear to be reasonable.

Spending cuts (second round): A special committee in Congress is established - evenly divided between Obama's Democratic Party and Boehner's Republican Party - to find $US1.5 trillion in further cuts from all areas.   The committee is required to come up with proposals by November 23. Both the House of Representatives and Senate would then vote on those proposals by December 23, in up-or-down decisions in which lawmakers would not be able to make amendments.  If the committee process fails, then cuts of $US1.2 trillion would automatically come into force -- divided evenly between military and non-military spending, but not touching Medicare and Social Security.  The Congressional Budget Office said that the total package would result in at least $US2.1 trillion in deficit reduction by 2021 compared with March 2011.

No amendments to proposals is not democratic.  The special committee has extraordinary powers.

Debt ceiling: An increase in the debt limit by between $US2.1 and $US2.4 trillion is authorised. The United States hit its current ceiling of $US14.3 trillion on May 16 and will start running short of cash at midnight Tuesday (2pm AEST on Wednesday).   This covers US debt until the start of 2013 - a key goal for Obama who wants to avoid a similar showdown with Congress during his re-election bid next year.

This represents a win for Obama.

Defence spending:  Cut $US350 billion in defense spending over the next 10 years as part of the first batch of cuts. The special committee would look at further cuts.  The US military budget last year was around $US700 billion, by far the largest in the world, but the figure is certain to come down as the United States winds down commitments in Iraq and Afghanistan. Some Republicans have argued against steep defense cuts, saying there is insufficient thought on the strategic implications.  Republicans have vowed to resist steep defense cuts in the special committee. The White House hopes the threat of the automatic cuts if the committee fails - which would amount to $US600 billion - would serve as leverage to press Republicans on the panel.

This is the first major battleground.  Essentially, there will be some reduction in the extremely high defense expenditure - which is the most signficant budget item - but Republicans want it maintained.

Taxes: The package would not increase taxes, a key Republican demand. Liberal Democrats have been strongly critical, saying that the United States should not consider major spending cuts at a time of a weak economy without also raising revenue.  The White House said that Obama could still fight to restore tax rates on wealthy Americans - bringing in nearly $US1 trillion in revenue. Obama's Republican predecessor George W. Bush lowered the taxes on the wealthy but the cuts are set to expire at the end of 2012.  Democrats have also said that the special committee could propose to raise revenue by cutting subsidies to the oil and gas industries, but Republicans have rejected the idea.

This is the second major battleground.  Essentially, Republicans want to protect wealthy people from tax increases, while the Democrats want to be increase their taxes.  Quite clearly, wealthy people can afford to pay more tax.

Constitutional amendment. The package calls for Congress to vote by the end of the year on an amendment to the US Constitution that requires a balanced budget, a long standing proposal of conservative Republicans who say the country must keep its finances in order. If Congress approves the amendment, Obama would be authorised to seek another $US1.5 trillion hike in the debt ceiling.  Many Democrats argue that the amendment is a gimmick that would not make sense in a future crisis. Amending the founding US document is an arduous process, requiring two-thirds votes by both the House of Representatives and Senate and ratification from legislatures of at least 38 of the 50 states.

A constitutional amendment for dealing with budgets?  Surely there are more pressing issues?

Education: The bill preserves President Barack Obama's initiative to help needy students. So-called Pell Grants provide up to $US5550 to students who would not otherwise be able to afford university attendance.  The plan provides $US17 billion for the program in the 2012 and 2013 fiscal years. But the blueprint also cuts $US21.6 billion between 2012 to 2021 from student loans, in part by eliminating a subsidy that allows graduate students to defer payment while still in school.

Hitting students with more financial imposts is surely not a good thing.  Its amazing how the lowest paid and most vulnerable and needy people in America are neglected for targeted for "spending cuts" yet the wealthy sail on regardless.

In conclusion.

This deal looks certain to further increase the divide between the wealthy and lower income sections of American society, with little or no input from the American public.

Borrowing costs will go up when the United States looses its AAA credit rating, and share markets around the world have fallen and are in turmoil due to the uncertainty this process has caused.

The Republicans are playing a game of Russian roulette with the entire world.

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