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The Treasury Department reports that tomorrow, Oct. 17, Uncle Sam will go broke. The House GOP continues to refuse passage of a new budget unless there is some type of delay or defunding of Obamacare, and the Democrats continue to avoid the negotiation table.
If Congress fails to reach a new debt ceiling by tomorrow’s deadline, a catastrophic default will ensue, upending the arduous four-year fiscal recovery.
The Democrats are in a solid position, as they control both the White House and the Senate. Even though President Obama’s sweeping health care reforms have been intensely debated, he was still re-elected in 2012 after campaigning primarily on this policy.
On the other hand, Republicans control a majority in the House and claimed several seats in the last election by campaigning on leveraging severe spending cuts rather than tax hikes to solve the debt crisis.
In 2007, the annual deficit was only $169 billion and peaked at $1.1 trillion in 2012. When Obama took office in 2008, the debt was $9 trillion. Currently, that number is approaching $17 trillion.
Anyone who can perform simple addition and is prepared to face the fiscal realities of our dire situation understands that the Republicans do have a point in attempting to curtail the outrageous government spending. As noted earlier, if we continue spending at our current rate, the U.S. will default on its debt. Anshu Jain, Chief Executive of Deutsche Bank, predicts that a default would be “utterly catastrophic not just for America, but for the world as a whole.”
The Social Security Fund is the biggest owner of U.S. debt, holding $16.7 trillion worth of bonds. If a default transpires, the millions of individuals who are receiving these benefits will not be guaranteed payments in the future.
The second biggest owner is the Federal Reserve with 91% of its assets backed by U.S. government debt. A default would cause the value of the dollar to plunge enormously, as nothing would be backing its worth.
China is the third biggest holder of U.S. debt and owns roughly $1.4 trillion of it. With a valueless American currency, China would lose almost a 1/3 of its reserves in the People’s Bank of China. This would stifle global trade, send the world into another a recession, and cause a significant political rift between the American and Chinese governments.
After several talks during the last week, both sides of the aisle may agree on a five-week grace period that would effectively extend the budget deadline to Nov. 22. This potentially means five more weeks of government shutdown.
In the meantime, Republicans will steadfastly continue to hold the world ransom in order to restrict the ballooning entitlement spending. A compromise will not be reached unless Obama agrees to either delay or defund his trademark healthcare plan. In policy jargon, the Republicans are effectively forcing Obama to slay his first-born, and in order to avoid a complete global meltdown, Obama just might have to consider accepting the non-implementation of his 2010 health care law.
As the markets continue to maintain some hope, many Americans believe that the long-term debt crisis will remain unsolved. We are blessed to live in a country founded on democracy and freedom, but it saddens me to see it governed in such a reckless manner, void of any compromise from both sides of the aisle.
ROD’S 5 STOCKS TO WATCH:
Gerdau SA
(NYSE: GGB)
Endocyte Inc
(NASDAQ: ECYT)
Orange SA
(NYSE: ORAN)
Boulder Brands Inc
(NASDAQ: BDBD)
Global Eagle Entertainment
(NASDAQ: ENT)
