$158.00 donated in past month
Heiner Flassbeck on the US Budget Conflict
The current ceiling of $16.7 trillion (12.4 trillion Euros) will be reached on October 17. If the political camps cannot agree on a new upper limit, the largest economy of the world will be insolvent – with possibly disastrous consequences for the world economy. This October 2013 interview is translated from the German on the Internet, http://www.taz.de/!124909/.]
HEINER FLASSBECK ON THE US BUDGET CONFLICT
Economies will be paralyzed with a bankruptcy of the US, economist Heiner Flassbeck warns. The Republican blockade policy could trigger a new global recession.
Interview with Heiner Flassbeck
[“A global financial panic will break out if the American government cannot manage its debts.” Heiner Flassbeck was the chief economist of Unctad in Geneva and is now active with the blog flassbeck-economics.]
[Shutdown in the US. Budget crisis: Democrats and Republicans cannot agree on the 2014 budget. Conservatives will only approve the budget if the health reform (the law of the land) is delayed one year. Therefore hundreds of thousands of government workers are now on unpaid leave.
Debt limit: Congress sets a debt ceiling at irregular intervals. The current ceiling of $16.7 trillion (12.4 trillion Euros) will be reached on October 17. If the political camps cannot agree on a new upper limit, the largest economy of the world will be insolvent – with possibly disastrous consequences for the world economy. This October 2013 interview is translated from the German on the Internet, http://www.taz.de/!124909/.]
taz: Mr. Flassbeck, will the US soon be bankrupt? Republicans refuse to raise the debt ceiling.
Heiner Flassbeck: I do not expect a US bankruptcy. Americans cannot risk that. The whole world would immediately be bankrupt.
Every bank in this world has US government bonds in its balances. A global financial panic will break out if the American government does not service its debts any more. Moreover the inter-bank market would collapse since banks only lend money to each other when these credits can be guaranteed with state bonds. It would be the absolute catastrophe.
How can the US government avert a bankruptcy if the republicans do not relent?
President Obama must radically slash spending, cut salaries and economize with the infrastructure. This would obviously not be good news for the world economy. The US would immediately slip into a recession which would also paralyze the economy in Europe.
But aren’t the Republicans right that increasing debts are dangerous?
Higher debts are not a problem when the economy is growing. The US could handle its credits with ease.
There is an additional trillion dollars in debts. In the US, there is discussion whether government should resort to a trick: it could mint a one-trillion-dollar coin, deposit it with the central bank, the Fed – and exchange it for normal money.
This sleight of hand would accomplish nothing. The trick would reinforce the public’s impression that the money system is insecure. With that, the panic would be caused that was to be averted.
Will the crisis be over if the Republicans soften their tone?
No. The uncertainty remains that this absurd conflict could be repeated.
Will investors withdraw their money from the US?
That will not happen. The market for US government bonds is so great that there is no substitute. Investors cannot invest their money on Mars. The problem will appear in the real economy. The unpredictable politics of Republicans leads firms and private parties to rely on security. They save instead of invest or consume. The economy will suffer – which we in Europe will also feel.
VIDEO: Jon Stewart tries to end the government shutdown: The Daily Show on October 8, 2013
and VIDEO: "97% Owned" - Economic Truth documentary, 59 min or 2hr 10 min
"We can't grow without debt and yet debt brings down the economy... Private banks create money out of nothing and lend it to us. Printing money has gone digital... Bailing out banks perpetuates a system that will never work anyway... Money is gambled on the financial markets... Banks caused the crisis and we are called to pay for this. Private banks can't be trusted... Money supply doubled in seven years 2000-2007 in the UK... Houses could be seen as places to live instead of places to invest... Money should only be used for productive purposes to control inflation... The system redistributes from poor to rich, from small businesses to the financial system... The bank sector is becoming more inefficient and parasitic to the whole economy..."