11/16/2011 6:37 PM ET|
Will DC wreck the economy again?
We've seen politicians in Europe roil the market, and now the congressional supercommittee is running out of time. Will members make the hard decisions we need?
As the kids were gearing up for Halloween just a few weeks ago, everything seemed right in the financial world -- or at least, back on the right track.
Europe had hammered out an against-the-odds agreement to save Greece and bolster its bailout fund. The U.S. economy was revving up again with a solid third-quarter report on the gross domestic product. And central banks around the world were opening the floodgates, washing the financial markets in more cheap cash.
Then it all went wrong. It went wrong because of politicians. It went wrong because of democracy. And it's about to go wrong again if the bipartisan "supercommittee" in Congress fails to agree on at least $1.2 trillion in budget savings over the next 10 years through tax hikes and cuts to popular programs like Medicare and defense spending.
The committee's deadline is Nov. 23 -- a week from now. And hopes are not running high.
It's worth remembering that the economy looked ready to rev up in late June and early July, before the debt and deficit mess in Washington in August. And it looks like the politicians are ready to derail the nascent recovery. Again.
The European example
To put all the political wrangling in context, let's start in Europe.
On Oct. 31, then-Prime Minister George Papandreou of Greece, frustrated by a lack of political support and violent popular protests, shocked the world by announcing he would put the latest bailout plan -- the so-called "Oct. 26 agreement" -- to a binding vote by his people. The measure likely would have failed, in an act of democracy the financial world clearly feared.
Papandreou has since left office, and the shock waves of this move have reverberated through the world economy.
The European bond market has come under fresh attacks, pushing Italian bond yields to unsustainable levels -- a much more serious economic threat than Greece represents. Spanish, Belgian, Austrian and even French borrowing costs over German equivalents have also climbed as doubts grow over the financial health of all these countries. The eurozone's bailout fund, the vehicle that's supposed to put an end to the crisis once and for all, is having trouble raising cash. What was once unspeakable -- the removal of countries like Greece from the European Monetary Union -- is now being discussed in Berlin and Paris.
All this uncertainty and volatility comes with the eurozone rapidly falling into a deep, new recession. Eurozone industrial production dropped 2% in September from August. Worst hit was the capital goods sector. The latest eurozone purchasing managers survey points to a "sharp contraction" in economic output in the current quarter according to Capital Economics.
Recession will only worsen the debt crisis by deepening the deficits of Greece, Italy and others. America could meet a similar fate unless it acts swiftly to enact short-term stimulus and sensible medium-term measures to close the deficit focused, mainly, on out-of-control health care costs.
Politically impossible bills to pay
The reason the fallout was so swift and so severe is that Papandreou's gambit struck right at the point of weakness for the rich world's post-bubble economic reality: After years of living well off of cheap credit, the bill has come due in the form of harsh austerity -- something that's politically unpalatable.
Elected officials, who promised voters the world during the boom times, don't have the guts to do what's necessary now, in a time of tepid, post-crisis growth. Popular protests and fringe political movements, from deadly clashes in Athens to Spain's indignados and the rise of nationalist, euro-skeptic parties in places like Finland and Slovakia, only make it worse.
This is why the governments of both Greece and Italy have been replaced with unelected technocrats tasked with implementing painful spending cuts and tax increases before new elections are held. Free of the demands of democracy, these new leaders can do what elected leaders would not.
And they need to do it quickly. Unless Greece can secure its next batch of European Union/International Monetary Fund bailout cash, it will be bankrupt in a matter of weeks. In Italy, borrowing costs are on the same trajectory that doomed Greece, Ireland and Portugal. And now, the focus of the market's fury is shifting to other "core Europe" countries like Spain and France.
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Will Washington D.C. wreck the economy again?
Is the Pope Catholic? Are politicians engaged in insider trading?
Lets start with pay cuts for congress and the president, all of them , not just the active ones, but the retired ones too!
Stop wasting money on "the war on drugs", it's not working! Drug use has to be eliminated on the demand side, not the supply side. There will always be a supply as long as there is a demand for it. You can't stop it. Focus on prevention ,education ,and rehab!!!
Cut other wasteful grants to the rich and spending on "rich man's follies".
Stop acting as the world's police. It's not our job, and we do not have the right to tell other nations how to live.
This country will not be righted until we remove ALL of the current politicians and we start from scratch again. Our "trusted servants" have been bought and paid for by private interests.
It is treasonous that a congressman or senator would sign a pledge to ANYTHING OTHER THAN THE UNITED STATES OF AMERICA.
How could we let them proudly tout that they signed a pledge to Grover Norquist?!?!?!
Seems like there is a conflict of interest to me. NO politician to go into office that way. It should be the American People's interest they are there to serve, no matter what. If it's best for the country to raise taxes, then so be it. If it's for the best of the country to lower taxes, then so be it. The issue should dictate the resolution, not some treasonous pledge to Grover Norquist.
Simply stated, the problem is: Too many politicians making too many promises, and spending too much money that they don't have.....with no way to pay it back.
That's the European problem in a nutshell. And the American problem as well.
I especially loved the line in the story about austerity being "politically unpalatable". Translation: The politicians are more concerned about saving their jobs than solving the problem.
When you spend over 800 billion dollars perpetuating a lie it does the economy no good.The wars in Iraq and Afghanistan are the major causes of our debts. that and run amok spending by Congress and their entitlements. We had no reason to go into Iraq and Afghanistan other than the idiots in Congress were duped by Bush and his band of idiots. We spend/handout billions to foreign countries to help with their infrastructure, education and socila programs while here at home we have returning verteran unemployment at 12%. We have people living on the streets, our roads and bridges are crumbling, our education system is worse than that of some third world countries. I say "AMERICA FIRST"!!!! We need to stop being the worlds policeman, we need to stop being the social conscience of the world. When we have every citizen here fed, EMPLOYED, housed and all our needs met here for our country and people then maybe we might look at helping the rest of the world. Until we reach that point we need not to hand out money to help out foreign countries. And if Congress cannot do the wishes of the people then they need to be replaced. We hired them, WE CAN FIRE THEM! But the American people`s needs must come first before some foreign country plain and simple. I myself don`t care what the rest of the world thinks about us. Do you?? I served my country in the military and have seen some of this. It is time for a change!!
Until this administration understands the following, nothing will change. It will only continue to deteriorate.
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody, anything that the government does, takes first from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they worked for, that is the beginning of the end of any nation.
This scenario is being played out in Greece, Italy, Spain and France. If we don't get our own house in order quickly it will soon becoming to a theater near you.
Vote the bums out in 2012!!!!
I am willing to accept a cut in my Medicare when Washington eliminates their pension plan and increases their benefits contribution to at least 40% of the premium we taxpayers are stuck with!!
That will never happen because of their greed! They believe they are entitled to as much of our hard earned wages as they want!
Rigs1950....good points...I totally agree that an uneducated electorate put us in the mess we are in voting on promises made by lying politicians.
The politicians in DC have not just wrecked the economy, they have wrecked this country and we the people better wake up and stop what is going on before it is too late.
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