Monday, 25 July 2011

Obama, Republicans keep playing Chicken with U.S. Economy as August 2nd approaches

House Republicans ended discussions on raising the debt ceiling on U.S. government debt in a move that could very soon land the nation in a pretty sticky situation contemplating how to put a spin on defaulting on its sovereign debt.

The debt ceiling is a cap enforced by the Congress to keep a check on Congressional borrowing (and spending) in the same manner a degenerate gambler sets a maximum loss limit for his trip to the poker table. In keeping with the analogy, Congress has the power to arbitrarily increase the debt ceiling when it feels that it should borrow more to stay in the game and ride past its dry spell.

The Obama administration last increased the self enforced cap to 14.3 trillion dollars in February 2010 and had been fiscally responsible enough to ensure that they could ride through for over a year on the increase. However, the losing streak finally caught up with the administration and despite their best efforts (such as implementing policies that increased spending and barely increased tax revenues) found themselves staring at a realistically depressing situation of contemplating defaulting on its interest obligations for its existing debt by August 2nd.

In a bid to avert the situation, the administration, along with House and Senate Democrats, suggested borrowing more to pay for the interest obligations (that met with a collective "Oh shit, why didn't we think of that?" response by the multitude of the nation's former homeowners).

House Republicans however, have had other ideas. In a move that was certainly entirely based on concern over the fiscal responsibility of the nation and in no way influenced by the fact that it makes the President look like a powerless wimp with no control over the Country and the Economy, House Republicans strongly opposed the plans with House Speaker John Boehner ending negotiations on raising the debt ceiling earlier this week.

With the debt standoff as it stands, come August 2nd, the U.S. would have to face some serious problems in offering excuses when the Repo men arrive. Thankfully for the nation, they do not have much in terms of assets other than a powerful (albeit sure to be unstable) currency, a ravenous (though bankrupt and heavily indebted) consumer, and possibly most importantly the power of being able to devalue its debts further by having the Federal Reserve "fund" the nation's obligations through a smartly named acronym that in no way amounts to printing money to meet sovereign obligations.


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