Capitol shaken and stirred
Financial markets around the world are in a state of alarm over the ongoing developments in the US Congress — failure of politics with a divided government when law-makers cannot agree on spending even for the first six weeks of the new fiscal year already on from 1 October. There is equally apparent unconcern over the US Treasury exhausting its borrowing authority within two weeks (17 October). Meanwhile, the shutdown has weakened the dollar, a reserve currency for the world.
Unless the debt ceiling currently at 16.7 trillion dollars is raised in time by the Republicans in control of the House of Representatives without re-enacting another drama as in 2011, the US Government would be unable to honour its obligations to investors, contractors and the rest of the world. Any such failure would not only downgrade America’s credit rating and reverse emerging economic recovery but also bring into question the faith and credibility in the world’s principal financial market and global economic powerhouse.
At the heart of the fiscal crisis is the determination of Republicans to condition a short-term spending with provisions to de-fund or defer for a year parts of the 2010 Affordable Healthcare Act, a signature reform of President Obama, a legislation which came into effect from 1 October. It opens the way to cover uninsured millions with affordable costs and the law, when challenged two years back, was upheld by the Supreme Court.
An ultra-conservative wing (Tea Party) of Republicans has been stepping up its resistance to the Act calling it a ‘train wreck’ and ‘Federal enlargement’ and goading all Conservatives to seek ways of undermining the Healthcare legislation which it nicknamed as ‘Obamacare’.
Accordingly, over the last two weeks, the Republican majority in the House had been repeatedly voting for an expenditure continuing resolution (CR) with provisions to de-fund Obamacare in different ways. The Democrat majority in the Senate had been returning it every time to the House deleting the proviso. The disagreement till midnight of September 30 triggered the Federal Shutdown, the second in 17 years.
The first attempt to end the shutdown was made on 2 October, when President Obama called leaders of both parties in the Congress to the White House but Republicans ‘were not agreeable to end the shutdown by voting a ‘clean’ budget or signal willingness to raise the US debt ceiling without conditions in regard to the Healthcare Act.
The President told them to pass the budget and end the shutdown and also pay the bills run up by the Congress by raising the US debt ceiling. He said it would set the stage for reviving bi-partisan talks toward a long-term budget deal and other relevant issues. These include, according to the President, the growing costs of Medicare and Medicaid, and inadequacy of federal revenues. The President has firmly ruled out any discussion on Healthcare enactment while he was open to suggestions from Republicans for any improvements in its operation.
Republicans have ignored warnings from international institutions about US fiscal issues, especially the sequester impeding the economy’s early recovery nor have been persuaded by appeals from US business or Wall Street concerns about an unprecedented debt default getting precipitated.
Chairman of the Senate Foreign Relations Committee, Bob Menendez said the shutdown gave the United States a black eye. ‘It is a dangerous message to the world,’ he said. ‘We tell other nations that we believe that they have to have certain disciplines. And yet we cannot ultimately keep our own budget open and the nation and its government functioning’.
In the midst of U.S. fiscal challenges, the IMF Chief Christine Lagarde said on 3 October that the ongoing political uncertainty over the budget and the debt ceiling does not help. ‘The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy,’ she warned.
Treasury Secretary Jacob J Lew said on 3 October that Treasury would not be able to borrow any more money beyond 17 October though it had managed between May, when the present debt ceiling was reached, and now. The Treasury bonds have become the bedrock of the global financial system. Once investors come to doubt the ability of United States to pay its debt, the dollar would lose its special status as the most widely used currency in the world. When investors believe a default is likely, the stock market will almost certainly plunge, he said.
President Obama said there was no financial crisis to warrant the shutdown but it is a ‘reckless’ device of Republicans designed to advance their own agenda, and the Speaker John Boehner under pressure from Republican conservative and Tea Party groups outside, has not put a clean continuing resolution to vote which, he knew, a growing section of his own party would approve and it can get passed with Democrat votes.
Boehner said after the meeting in White House that all that they had sought was a discussion and ‘fairness for the American people under Obamacare’. But, he contended, the President said he would not negotiate on that issue. Instead, he has set two conditions for talks on budget issues — Republicans to pass funding and ending the shutdown and, secondly, raising the debt ceiling. IPA