Thursday, 28 July 2011

Staring at the ceiling

It's something I never particularly cared to get dragged into. It's something that my husband refuses to talk to me about. It's purely political not economical (for now), and I mean politics with a small 'p'(for now), despite what the media would seem to imply.

Is it a Shakespearian farce?
Is it a Greek comedy?
Is it an episode of Monty Python?
No, siree, it's the DC beltway tussle over the US debt ceiling.

I only mention it now, and selfishly so, because it's coming very close to the time that I thought a 'midnight hour' deal would have been achieved. I do still truly believe that they'll pull a ragged looking, beaten ol' rabbit puppet out of their magicians' hat by August 2 and the world will be saved and the DC belt can keep on turning. It does make me very nervous however, and like I said, Mr won't talk about it. He is nervous too.

His government is having a huge, embarrassing domestic at the supermarket checkout.

The best basic description of this housekeeping argument can be found in genuine 'house keeping' terms courtesy of the fantastic pop-economist Tim Harford. He explains what happens if mummy can't find a job and keeps on buying handbags when the family still need to pay the mortgage.

Propublica offers a more extensive discussion which boils down to this: The US Constitution says that Congress has 'power of the purse' and decides what can be spent where. The US Government is into its overdraft, but also has high-interest loans to pay and a number of pre-agreed direct debits coming out of its account. Congress needs to decide whether or not to increase its overdraft limit, even though Congress knew (by tracking their interest-rates and expenditure) they'd reach the limit of their overdraft in August. Congress has increased its overdraft before, but not without a huge, rancourous tiff about household expenditure and income.

But this tiff is not about the US Government deciding to spend more than it has already agreed. As the US Treasury Secretary Timothy Geithner explained back in April: Increasing the limit “does not increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations that Congress has already established.” Ignore all the potential deals and tax-rates and budgets for now, because they aren't really part of the short-term issue and nor should they be if a budget has already been agreed.

Poynter published some super background details on the subject, in its article "Seven mistakes journalists make when covering the debt ceiling debate." This article provides some important additional details to Tim Harford's simplified depiction of dinner table arguments.

If, after that, you want even more background reading, here's a handy reading list of some of the media's attempts to explain this very political crisis.

Pay special attention to the section of the reading list on what happens if the debt limit isn't raised. This is where the politics ends and the speculation begins. The Financial Times put it best last week, envisioning a scenario as the Treasury reaches the dregs of the overdraft and receives a call from the Fed: "would you like to put more money into your account or stop the payments going out?"

It is widely predicted that if the debt ceiling is reached next week, then the US government will have to stop paying for 'non-essential' items, stuff that it had already commmited to paying such as staff members (including military staff), social security, unemployment benefits, etc. This wouldn't happen immediately, as I understand; only when the Treasury is unable to balance revenue (tax) versus expenditure (spending plus debt interest) will things get halted, cut back, prioritised.

This ABC news article from April, when the US Government was close to shutdown over budget negotiations, has a list of offices and functions that would cease operation. I shall be explicit that this is not the same situation as in April, but it's worth looking at for an idea of what could be cut back on if the US sees 'no deal' in the coming weeks.

The reason I said I was selfish in mentioning this issue is because one of the functions that would likely halt is, of course, visa processing. Visa applications and petitions would pile up on empty desks, creating bureaucratic backlogs for when the budget situation was solved. If it came to this, though, at least we could wait, and we're certainly good at waiting.

Unfortunately I'm not sure those who await pay packets or benefit cheques could wait as long as us. I hope those taking part in this check-out conveyor-belt barney do realise that it's not just the stock markets that are anxiously following this tussle, but that ordinary peoples' lives are affected too.

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