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article imageOp-Ed: GOP Economic Creationism, funding, and a future of ugly options

By Paul Wallis     Sep 20, 2013 in Politics
Washington - The free range concentration camp sometimes known as unaffordable healthcare in the US is back in its familiar, shabby political form as a form of social and political blackmail.
The GOP has passed a bill in the House which ties America’s ability to pay its debts to a purely political agenda.
The New York Times:
In a searing criticism of lawmakers who are threatening to refuse to raise the debt ceiling next month, which would cause the United States to default on its debts, Mr. Obama called the potential action “profoundly destructive.” If it happens, he said, “America becomes a deadbeat.”
The House vote on Friday set up another bitter fiscal showdown just 10 days before much of the federal government is set to run out of money.
“Deadbeat” means “owes the rest of the word a hell of a lot of money”, and the instant cascade of financial chaos likely to follow from any American default would be a global effect, hitting world financial markets. It could make the 2008 crash look relatively mild, forcing up interest rates and starting a massive escalation of defaults.
“Economic Creationism”
The GOP’s bill is pure dogma. The motif is based on selective funding, like “mandatory construction of the Keystone XL oil pipeline” and predictably backs tax reform/rich pay less tax. What a surprise.
President Obama described the situation bluntly:
“This is not abstract,” Mr. Obama said. “Hundreds of thousands of Americans will not be allowed to go to work. Our men and women in uniform, even those deployed overseas, won’t get their paychecks on time.”
That’s not to mention the fact that people who would otherwise have health insurance and access to health care won’t have it under the House bill. Exactly why the GOP is so focused on depriving Americans of health care standards which are basic in all other Western countries is debatable.
Enforcing all aspects of poverty in America through any means available seems to be the consistent working logic behind GOP policies. It also opposed, through its media outlets, the idea of raising minimum wage, which has been declining in real terms for decades, while simultaneously demanding lower taxes for the rich.
There are no good outcomes in this scenario for anyone. The least impressive result so far is that it’s now quite obvious that the GOP has absolutely no free will of its own. “Thou shalt have no other policies than our lobbies” is the net result.
Ironically, the most likely scenario is that the US government won’t be able to afford major spending, which will also do unbelievable damage to GOP corporate supporters. Spending will inevitably have to be cut, probably severely, if revenue drops according to the “no taxes” dogma. That will equally inevitably transfer to things like defence, government purchasing, and other big ticket expenditure.
The foreign perspective
Economically, the GOP bill makes no sense at all, in economic theory. Politically, outside America, it makes less than no sense. It does, however, make a very ugly type of economic sense in one case:
1. Holders of American assets may or may not appreciate an absolutely unreliable environment for investment and dump them in a meltdown. This is what happened during the GFC, so it's a proven method.
2. They may decide to withdraw cash, rather than risk it getting stuck in a cycle of devaluation of assets. This accelerates devaluation of assets, meaning the effect can be almost hair trigger. That's great if you'd like to buy a lot of things at rock bottom prices and don't want to wait.
This is a capitalist version of what I’ve been calling the “Russian scenario” for years. In Russia, assets dropped to rock bottom, the currency became worthless, and a few people and organizations, some criminal, snapped up major interests at bargain prices, creating the post-Soviet “tide of billionaires”.
Cute as this is, the trick won’t work this time. The Soviet economy was never as big as the US economy. 60% of the world’s capital is in the US. “Too big to fail” doesn’t apply in this case. “Too big to get up again” is the more likely scenario.
The US economy is over-weighted to very high asset values. Everything from derivatives to stocks and physical property is valued on a range of margins which progressively upvalue assets. If those values change drastically, catastrophic damage is inevitable.
Real losses will be real losses. Even the 1% isn’t particularly immune in an economic meltdown of the sort which could be triggered by a US default. They’d just go broke a bit slower than everyone else. Money will become a lot more expensive. Existing assets will be hit, hard, and have to be sold. The higher asset values go now, the further they have to fall, and the bigger the losses for those holding those assets.
The disposable GOP
Sadly, there’s some confirmation of this theory. There are now two GOPs. The GOP rump, the old party, and the Tea Party, which is basically a bloc working for external parties. In both cases, GOP members are confined to what are basically immovable positions. They come and go, and have no effect whatsoever on the overriding agendas.
They also have no real status. They’re instantly replaceable. They’re commuters between bills. They’re little guys in more ways than one. None of them, including the longtime career politicians, has any muscle or clout in terms of policy management. The Tea Party is comprised of small time backwoods nobodies, just pushing dogma into which they have no input. The old GOP has eroded into a pet shop of older guys hanging on to office.
In this era of compulsory nonentity, party members are as out of their depth in macroeconomic matters as they are in terms of actual clout. Elected members have to push the right buttons to get their feed pellets. Even the billionaires, who may be experts in their own fields, are unlikely to understand the risks to themselves and their assets in various policies. Being a billionaire is no defence at all, when your assets can become worthless overnight. They’re doing what makes sense to them, but unfortunately not watching the road ahead at all.
Note the GOP standard practices:
• Minutiae ad nauseam, always at the expense of the big picture.
• No mention of obvious risks. Cause and effect are not mentioned.
• No if/then logic: Everything is simple, based on faith, not facts.
• No strong personalities. The typical GOP “stalwart” is either a yes-man or out of the loop.
This pattern has been consistent for at least 30 years. The dumbed-down version of the GOP is basically a hick operation, getting a pat on the head and the odd dog biscuit.
The current problem is that this hillbilly hoedown is hitting the US self-destruct button on a regular basis. A fiscal meltdown will instantly trigger the Russian scenario. No winners and they Good Old Peasants go back to a-chewin’ hay for a living.
While watching this obscenity, you may want to count those 50 states. A few may have already been sold. The new owners will be people you’ve never heard of.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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