There is a risk right now of the US defaulting on its debts on the 2nd of August. Why? Because congress needs to raise the debt ceiling but seeing as how the whole death panels, gay marriage and light bulb bagging pitches the Republicans had been throwing at the public didnt seem to be biting, they opted instead to raise the spectre of US federal debt…ignoring totally of course that its generally been Republican presidents such as Bush (both of em) and Reagan who have pushed up the national debt, but lets not let pesky little facts get in the way of a good sales pitch.
Did I hear you say its all Obamas fault? (his Stimulus package, Obama care, etc.) actually no (see here) only 6% of the current US debt run up since 2001 is a consequence of Obamas Stimulus package. Bushs tax cuts are to blame for 13%, the wars 15% and his two recessions 28%. Obamacare is scheduled to be revenue neutral indeed it may even run a slight surplus.
Anyway the downside of the blame it on the black guy sales pitch is that the Tea Party/Republican policies are such that they now cant raise the debt ceiling. This raises the risk of a default. Of course strictly speaking the US is already in default as thats essentially what the quantative easing policy they are engaged in amounts to (as it makes the value of the dollar drop essentially devaluing the scale of their debts). But now theres a risk of an actual no-shit default and thats the worry. If that happens, the rating agencies will have to cut the US ratings and unleash the same debt spiral beast that they did on the Europeans, which would almost certainly either bankrupt the US or force a major default by it.
This means the US government has to do one of two things, cut the deficit, which means spending cuts or raising taxes. The Libertarians will come out with various theories about cutting spending and taxes and how this will stimulate the economy and magically whisk the debt away to laalaa land, but even if we accept such Underpants gnomes school of economics notions, its not going to solve the US debt crisis in 2-3 weeks, i.e. before August the 2nd.
Neither of the other options (cuts or more taxes) is palatable to either Obama or the Republicans. Firstly tax rises. If America wants to continue its levels of European style public spending (see United States of France here) it will need to raise taxes to compensate (to European levels). But as the poor in the US are mostly mortgaged up to the balls they simply cant afford to pay any excessive tax rises. The only options for tax hikes are with corporate tax rates and wealthier individuals either directly via income tax rises or by taxing property, high death taxes or higher VAT rates (which hit everyone but hit the wealthy the most). Of course to many wealthy Americans this is out of the question.
What I dont think many Republicans realise that the alternative, spending cuts, will hit them and their political base even harder than it will the democrats. Whats the largest piece of discretionary spending in the US budget? ……The Military budget (18% of the total US federal budget!)…..yet thats the one thing that as far as the Tea party (or Republican party) are concerned cannot and will not be cut, ever, not least because the military tend to strongly vote (by a 75% margin) Republican.
While the government here in the UK hummed and hawed over 2 aircraft carriers the US has 11 of them (theyve never used more than 5 at one time since WW2)! And the US Marines have a fleet of 20 or so smaller helicopter carriers & assault ships too! (the last Amphibious assault the US launched was in the Korean war). One has to question the need for these carriers given that the Chinese and Russians now possess long range carrier killing ballistic missiles, plus nuclear submarines (which can potentially sneak up on and torpedo a Carrier*), which greatly limits the usefulness of carriers in a conflict. As for the USMC fleet of naval assault ships (around 30-45,000 ton range sort of like mini aircraft carriers), they are only useful if the US plans to mount a major amphibious assault against a well prepared and hostile enemy. Think Inchon or Omaha beach. Given that such operations tend to be very costly in terms of lives, 10-30% casualties being typical (on the first day!), Id question whether the US has the stomach for such enormous combat losses. If so, then you dont need a vast fleet of such ships. Hence the US could get by perfectly well with maybe half or a quarter of the above forces.
* funny story, I recall a game of Harpoon (a naval simulation war game) at a Con I once sat in on, where a bunch of amateurs whod never played it before took on a load of US navy sailors (from a visiting warship) and succeeded in sinking theyre entire carrier task force using but a single Alfa Class sub :>>! To add insult to injury to the US navy, the winners were themselves blown out of the water in the next round by a team of 12 year olds :DD!
The US also has a vast surplus of fighters and way too many military bases. Indeed many of those military bases are dispersed right across the middle of the country. This was a sensible cold war strategy when the US faced attack from soviet nuclear missiles. Now youd question the need for all these bases. While some critical bases in the middle of the country are needed (NORAD, Whiteman AFB (where the B-2s operate out of) or SAC) the rested could be closed down and forces concentrated in a few superbases by the coasts. And indeed youd have to question whether the US still needs a vast army to defend the country.
Finally there are various ridiculous boondoogle military research projects. The F-22, Comanche, Crusader (artillery piece), Missile defence, Osprey and recent Tanker aircraft debacles all stand as stark examples of political pork barrel projects and the reckless waste of public money. A serious constraining of such projects, forcing the major US defence contractors to actually compete in a free market for contracts (again see the Tanker aircraft program for an example of how free and fair competition for military contracts is in the US) all of this would serve to further reign in the military budget.
Furthermore one of my criticism of such projects as missile defence and airborne lasers is nevermind the development costs, can the US military afford the deployment costs? The US has a nasty habit of developing high tech weapons which it then cant afford to deploy in a significant quantity. The original plan for the B-2 was to have 175 of them (they got 20!) and 750 F-22s(they got 180 odd!). I already mentioned a number of projects above where not a single piece of hardware was delivered despite tens of Billions spent on development. Do they honestly reckon theyll be able to afford to buy a future fleet of airborne lasers or ABM rocket launchers? If the answer is no, then theres no point wasting money on development costs.
You could easily halve or more the US military budget (or more!) and still defend the country, but of course nobodys going to do that because that would mean many 100,000s of people out of work (mainly conservative voting mind), not to mention many more 100,000s of job losses across the corporations that supply the military industrial complex.
Indeed its worth remembering that many defence jobs in the US are in either swing states, or states with a strong tendency to vote Republican. Indeed Utah & Colorado, two of the States which one could declare as the heartland of the Tea Party are in fact two of the top state welfare queens (see here and here) – that is US states that get more money off the federal government than its citizens pay out in taxes. Many other Republican states are also on the receiving end of generous farm subsidies and Federal highway and water systems building projects. So the chances of any of the above programs, or the military budget being substantial cut by a Republican president or congress, is likely a non-starter. But these are the very things that would have to be cut to seriously reign in the deficit.
The irony is that there was a recent US president who did cut the deficit and rein in public spending and even towards the end of his term he ran up several budget surpluses his name? Bill Clinton!, but I dont see anyone in the political right of America advocating his policies (Ill send Bachmann a box of cigars just in case!). Notably, one of the things Clinton did do was to cut out large chunks of the US military budget. I would argue of course that he didnt go far enough, but then again the Republicans controlled congress then and wont let him (why? Read the paragraphs above) .so its a bit rich them now turning around after Bush and complaining about these huge deficits that they are largely responsible for running up!
No, instead the Republicans have chosen to borrow various Tea Party/Libertarian polices to cut non essential things like International development aid, (just under 1% of the total government budget) most of which is in some way strategic i.e. about half is currently going Iraq and Afghanistan, most of which is funding theyre security forces, Israel tends to be the next biggest donor and they mostly use it to buy weapons (from US companies). The rest of the development aid goes towards various important projects helping the very poorest people on the planet, so were talking about taking the bread out of the mouths of beggars so that rich folk dont have to cut back on smoked salmon.
Another favourite target of Underpants Gnomes is the US department of Education (1.3% of the US federal budget in 2010) which Ron Paul has proposed to shut down. Eh!……well I suppose it makes perfect sense to someone who home schools their kids, not so good if you want them to get a proper education. Most working class Americans simply cant afford private tuition, and one of the key things schools do in a society is to get the Weeins out from under the parents feet for a few hours a day allowing them to go to work. This could mean youre average working mom in America will be forced to quit work (cos she has to stay at home and mind the kids), something which will have an immediate and rather negative effect on the economy, i.e more people on welfare, less people working, never mind the long term effects of American education and literacy rates declining (so bang goes the knowledge economy).
Another proposal is to cut Medicare or Medicaid. Actually theres a simple solution here, most of this money spent on these is little more than a massive bloated feeding trough for the pharmaceuticals industry to feed off of. By the US government simply buying out the patents on a few of the more heavily used drugs (which with $700 Billion a year they could easily afford to do) then have those drugs manufactured under license at generic costs. India and other developing countries do this and as a consequence many of these drugs cost several pence per dose, rather than hundreds of dollars a week in the US. Of course such a policy would hit the major US pharmaceutical companies, big donors to the Republican party, very hard.
So their proposal is pretty much a case of throwing grannies out of care homes and not vaccinating on treatable diseases. And what will the economic impact of a major epidemic be to the US? What about the people who have to quit work to stay at home and work as carers? (and thus wont be paying tax and looking for unemployment benefits and food stamps).
Then theres the Department of Energy (less than 1% of the US federal budget, would the last one out please turn off the lights….for the entire country!) or FEMA (so next time a Hurricane hits therell be no warning and no rescues meaning tens of thousands more causalities), the IRS (so basically everyone can cheat on theyre taxes without fear ..ya thatll solve the deficit!) and ironically enough the department of Commerce (well given that after a year or 2 of Tea party/Libertarians in power there wont be much commerce being done in the US anymore this mightnt be such a bad idea!).
The bottom line is cutting from any of the above departments would cause enormous pain with little concrete gain. No, the only significant places where serious cuts can be made are things such as farm subsidies, the military budget, roads/federal highways agency and various corporate welfare programs. Of course none of these are palatable options for the Republicans.
And if the US does default who will be hit the worst? The banks, again mostly Republican voting and as noted, it tends to be Republican presidents who borrow more than democrats so theyll be merely shooting themselves in the foot here.
Hence my advice to Obama would be not to worry, indeed sit in his hands, take a vacation and let the Republicans sweat. They need that debt ceiling raised more than he does, so he should let em squirm!