By Peter Ford
October 9, 2013 10:05 AM
As they watch the US budget crisis unfold, presidents,
policymakers, and ordinary savers across the globe are united by a
single fear: that a chaotic US default on its sovereign debt would throw
the world economy into a tailspin just as it is shaking off the effects
of the 2008 crisis.
In Europe, a US default would sabotage the continent’s nascent economic recovery after years of austerity, local bankers say.
In Asia, it would carve tens of billions of dollars off the value of the US Treasury bonds that China and Japan hold, and lead to a collapse of the world trade on which their economies depend, analysts predict.
In Mexico, which sells 78 percent of its exports to the United States, economic chaos north of the border would be fatal to its prospects of greater prosperity any time soon, businessmen warn.
RECOMMENDED:
US debt ceiling: Why it could cost Europe
The effects would be felt everywhere should Congress not
authorize an increase in the US debt ceiling so as to make interest
payments, and if US Treasury securities were deemed to be in default as a
result.
“It’s going to impact the whole world, not just countries
having significant geographic or economic interaction with the United
States,” Mexican President Enrique Peña Nieto warned fellow attendees at
the APEC summit in Indonesia on Monday.
Chinese deputy Finance Minister Zhu Guangyao was equally blunt at a press conference in Beijing Monday, insisting that “safeguarding the debt is of vital importance to the economy of the US and the world.
“That is the United States’ responsibility,” he said, urging Washington to take steps before Oct. 17 to forestall a default.
THREAT TO THE 'ASIAN GIANTS'
Few
countries have more to fear from the potentially calamitous
consequences of a US debt default than Asian giants China and Japan.
They
are the two largest US creditors, holding nearly $2.5 trillion in US
Treasury bonds between them. They are also the second- and third-largest
economies in the world, with much to lose from the collapse of world
trade that experts warn could follow a default-induced freeze in global
credit markets.
The threat of a US default comes at a pivotal
moment in Japan’s economic recovery under Prime Minister Shinzo Abe, who
took office last year promising to pull the country out of its
deflationary spiral. He has presided over three straight quarters of
economic growth as exporters benefited from a sharp fall in the value of
the yen, boosting their profits overseas.
Japan’s recovery could be undermined, though, if a debt crisis in the US prompts investors to drop the dollar
and head for the “safe haven” of the yen, in turn driving up the value
of the Japanese currency. That would make Japanese goods more expensive
abroad and thus harder to export. On Tuesday, the yen rose to an
eight-week high.
More on world impact of US debt default: US debt ceiling: How risky for China and Japan?
FRAGILITY IN EUROPE
Europe
is also beset by fears that a debt default would weaken the value of
the dollar, thus making the euro – and eurozone exports – more
expensive. For a continent just beginning to creep out of a lengthy
recession whose second largest trade partner is the United States, that
could be disastrous.
“A default would be most unwelcome for Europe,” says Mark Wall, co-head of European economics at Deutsche Bank in London. “Europe has reached a position to start a recovery but it is very fragile.”
That
is especially true of southern European countries such as Spain, Italy,
Portugal and Greece, where recovery is much slower than in other parts
of Europe. They are even more dependent on stronger exports to offset
the negative effects of record unemployment and slumping consumer
demand.
“The only dynamic factor in Europe is improving foreign
demand,” points out Matteo Cominetta, an economist with HSBC in London.
That demand, all over the world, would drop if the global economy was
throttled by the sort of credit squeeze and consumer reticence that
followed the 2008 financial crisis.
Equally grave, says Mr.
Cominetta, would be the rising interest rates that a default would
spark. “Most of Europe is not in a position to absorb higher rates with
this initial recovery,” he warns.
EMERGING MARKET VULNERABILITY
If Europe is vulnerable to events in the US, Mexico is even more so – tightly bound as its economy is to its northern neighbor.
“Slow
growth in the United States means slow growth … if not recession in
Mexico,” says Deborah Riner, chief economist for the American Chamber of
Commerce in Mexico.
The uncertainty that a US default would
engender would be especially damaging to countries such as Mexico, Ms.
Riner says, because investors will be looking for safe havens, not the
higher returns that some developing countries have offered in the past.
“If
investors are concerned about risk, they are going to put their money
in the safest thing they can get,” says Riner. “I don’t think it’s going
to be emerging markets.”
The safest thing investors could find
has traditionally been a US Treasury bond, and China owns $1.28 trillion
worth of them, according to the latest US figures, more than any other
foreign holder.
That puts Beijing in a difficult spot. It has
accumulated the world’s largest hoard of foreign reserves, about $3.5
trillion, by exporting more than it imported year after year, and
because the Chinese government bought exporters’ dollars from them in a
bid to keep the Chinese currency, the RMB, competitively low.
Beijing
then invested those dollars in US Treasury bonds, the easiest and
safest place to put them. “China is joined at the hip to the dollar and
to the US debt market, which is the only place large enough to absorb
all the dollars they have accumulated,” says Patrick Chovanec, chief
strategist at Silvercrest Asset Management in New York and former
professor at Tsinghua University’s School of Economics and Management in
Beijing.
“They are along for the ride,” he adds, “wherever that ride leads.”
Obama and Republicans search for a deal on U.S. fiscal impasse
Obama and Republicans search for a deal on U.S. fiscal impasse
WASHINGTON |
(Reuters) - President Barack Obama
and congressional Republican leaders inched toward resolving their
fiscal impasse on Friday, but struggled to agree on the length and terms
of a short-term deal to increase the U.S. debt limit and reopen the
government.
Obama met Senate Republicans at
the White House and spoke by phone to House of Representatives Speaker
John Boehner as negotiations intensified on how to get hundreds of
thousands of federal workers back on the job and extend the government's
borrowing authority past the October 17 limit.
It
was hard to gauge the progress of talks, as all sides refused to
divulge many of the specific details of what is being discussed.
But
both sides spoke with new optimism about the possibility of avoiding a
fiscal crisis. Lawmakers were expected to work through the weekend with a
goal of finishing a deal by early next week.
Economists
have warned that a debt default would create global economic chaos, and
analysts warned on Friday that if the shutdown lasts more than a month,
it would cause a sharp slowdown in fourth-quarter economic growth.
Obama
wants the debt ceiling raised for longer than the six weeks first
proposed by Republicans, and Republicans want a commitment to broader
deficit-reduction talks from the White House.
"The
two of them agreed that all sides need to keep talking," White House
spokesman Jay Carney told reporters after the call between Boehner and
Obama. "It at least looks like there is a possibility of making some
progress here."
House Republicans
will meet at the Capitol on Saturday morning to discuss their options
after sending the White House a proposal that included the short-term
increase in the debt limit that would clear the way for reopening the
government.
The House Republican
proposal called for cuts in programs like the Medicare health plan for
seniors to replace two years of the automatic spending cuts known as
"sequestration" agreed to last year by Congress, senior aides said.
"The
good thing is the negotiations are ongoing. That is much more progress
than has been the case lately," House Majority Leader Eric Cantor of
Virginia said.
But Carney said the short-term increase proposed by Republicans would not provide enough certainty for the economy and would put the country back on the verge of default during the end-of-year holiday season.
"A
debt ceiling increase at only six weeks tied to budget negotiations
would put us right back where we are today in just six weeks, on the
verge of Thanksgiving and the obviously important shopping season
leading up to the holidays," Carney said.
At
a White House meeting with Senate Republicans on Friday, Obama
expressed concerns the proposed debt-limit extension was too short and
also talked about the need for new revenues as part of any long-term
deficit reduction plan, Republican Senator Orrin Hatch of Utah said.
Large
portions of the U.S. government shut October 1 after Obama and
Democratic lawmakers rejected House Republicans' demands for delays to
Obama's healthcare reforms in exchange for temporary government funding.
Thousands of government workers have been furloughed and parks and
attractions shuttered.
Deals were
struck on Friday to reopen three of the most famous landmarks, using
state money and other funds. The Grand Canyon, Mount Rushmore and the
Statue of Liberty will soon be open for visitors, as well as some parks
in Colorado and Utah.
'A DIFFICULT EXPERIENCE'
Hatch said he left the meeting feeling the fiscal fight would still be a "difficult experience."
But
Senator Bob Corker, a Republican from Tennessee, said senators "had to
leave there knowing that probably in the very near future we will have
these issues behind us."
The new sense of optimism sent U.S. stocks
higher on Friday, extending gains from a major rally in the previous
session. But U.S. Treasury bills maturing in late November and
throughout December spiked as banks and major money market funds shy away from holding debt with any risk of delayed interest or principal payments.
"If
the shutdown lasts through the end of October, the economic damage
would be significant, reducing real GDP as much as 1.5 percentage points
in the fourth quarter," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania.
An
unlikely coalition of the heads of the U.S. Chamber of Commerce,
AFL-CIO labor federation and United Way Worldwide joined together on
Friday to warn about the dangers of a prolonged economic impasse.
"While
we may disagree on priorities for federal policies and we even have
conflicting views about many issues, we are in complete agreement that
the current shutdown is harmful and the risk of default is potentially
catastrophic for our fragile economy," they wrote in a letter to Obama and members of Congress.
Obama spoke by phone to a group of about 150 leaders of major businesses on Friday afternoon, the White House said.
"The president reiterated that his first order of business
is to urge Congress to reopen the government and remove the threat of
default, and then he is willing to engage with Congress on a long-term
budget," the White House said.
Time
was running short, with the shutdown in its 11th day and less than a
week to go before the Treasury Department exhausts its ability to borrow
money to pay the government's bills.
Any deal that is struck by leaders could face a revolt from rank-and-file conservatives in both the House and Senate.
Texas
Senator Ted Cruz, a Tea Party favorite who has been a leader of
conservatives demanding delays or defunding of Obama's healthcare law
before they will approve a budget deal, took a hard line at a conference
of conservative activists.
In a
speech frequently interrupted by hecklers but warmly embraced by the
smaller-government Tea Party faithful, he said the country must "stop
that train wreck, that disaster, that nightmare that is Obamacare."
Senate
Democratic leader Harry Reid is scheduled to hold a vote on Saturday on
a measure giving a one-year debt ceiling increase without conditions.
It is expected to be opposed by Senate Republicans. The chamber may then
move quickly on a shorter time frame, even if it is not Democrats'
first choice.
Senate Republicans
were discussing a series of different ideas, including a quick reopening
of the government coupled with a debt limit increase and the repeal of
an unpopular medical device tax that would raise revenues to pay for the
healthcare law.
Reid on Friday publicly criticized Republican calls for a short extension of the borrowing authority.
"We
do not believe a six-week delay of a catastrophic default is enough to
get the economy the confidence it needs," Reid said on the Senate floor.
A
Reuters/Ipsos poll on Friday showed more Americans blamed Republicans
for the shutdown, which also appears to be damaging the party's
reputation on issues such as healthcare and the economy.
Nearly
one-third of Americans - 32 percent - say Republicans are responsible
for the shutdown, up from 26 percent a week ago. About 4 percent said
Democrats were mostly at fault for the shutdown, down from 5 percent.
Sixteen percent blamed Obama, up from 14 percent.
(Additional
reporting by Tim Reid, Patrick Rucker, Roberta Rampton, Mark
Felsenthal, Jeff Mason, Steve Holland and Lucia Mutikani; Writing by
John Whitesides; Editing by Claudia Parsons, Tim Dobbyn and Lisa
Shumaker)
On Friday, October 11, 2013 12:30 PM, Roilo Golez <roilogolez@yahoo.com> wrote:
Jerry-
I read China's comments as a dig against Obama and America, telling
them to put their own house in order before meddling in the South China.
Obama missed the chance to lead the way in APEC and the EAC summit by
opting to remain in the States instead of projecting himself as the
dominant world leader. But then maybe as a Democrat, he subscribe to
their classic slogan: "it's the economy, stupid."Thanks for being there yesterday!
Roy
On Friday, October 11, 2013 9:00 AM, jerry
quibilan <jerryaquibilan@yahoo.com> wrote:
Dear Cong Roy,
It was good seeing you yesterday. The gist of the article below which I read in today's issue of the Philippine Star jives with the comment that I raised during the Q&A portion. I said that while in the past China was the one invaded, it is now the invader due to their dire need of oil and marine resources to support their economic growth which resulted in their being the largest foreign owner of US debt amounting to $1.2 trillion, a good reason why they have meddled in the 'budget war' between the Democrats and Republicans.
Kindest regards,
Jerry Quibilan
'Pitiful' US infighting threatens world: Chinese media
AFP
October 10, 5:16 pm
AFP © 'Pitiful' US infighting threatens world: Chinese media
Beijing (AFP) - Chinese state media hit out at US lawmakers
Thursday, a week ahead of a potential US default, urging them to "stop
manufacturing crises" that threaten the global economy.
The China
Daily newspaper wrote in an editorial that five years after the global
financial crisis "it is pitiful that the US is now putting the fragile
world recovery under renewed threat with its mind-boggling political
infighting".
The paper, which is run by the Chinese government,
added: "The astonishing failure of the US Congress to put national needs
before their partisan interests has sparked fears among investors and
governments around the world that maybe it is time to think about the
unthinkable."
The newspaper's sternly-worded missive comes as
Washington remains deadlocked ahead of the October 17 deadline, by which
time it must vote to raise its $16.7 trillion borrowing ceiling or risk
defaulting on its debt.
The International Monetary Fund this week
cut its forecast for world economic growth for 2013 and 2014, citing
both US political infighting and China's slowing growth as particularly
worrisome factors.
"The prospect of dimmer global growth predicted
by the International Monetary Fund should make it a matter of urgency
for US politicians to stop manufacturing crises," the paper stated.
China
is the largest foreign owner of US debt, holding $1.277 trillion in
Treasury bills in July, according to the latest available US government
figures.
Beijing has in recent days stepped up its calls for
Washington to come to an agreement on raising the debt ceiling,
highlighting the "inseparable" relationship between the two countries'
economies.
"China pays high attention to the US debt ceiling,"
foreign ministry spokeswoman Hua Chunying told reporters at a regular
briefing Thursday, without elaborating.
But on Monday Vice Finance
Minister Zhu Guangyao told reporters that "the clock is ticking" and
warned that any US default would have global repercussions.
"We
hope that before October 17, the US will take credible steps to address
its disputes over the debt ceiling in a timely fashion, avoid a default
and ensure the safety of Chinese investments in the US and ensure the
process of global economic recovery will not be seriously affected by
this," Zhu said.
In Washington, the White House was scrambling to
hold meetings with members of both parties in the hope of forging a deal
to resolve both the debt-ceiling debacle and the partial shutdown of
the US federal government.
But Republicans have been hesitant to
agree to any deal without concessions from Democrats on reforming
federal spending and entitlement programmes.
On Friday,
October 11, 2013 8:12 AM, jerry quibilan
<jerryaquibilan@yahoo.com> wrote:
"Chuck Medel (now
in town, working with the team of Paul Reichler, heading our legal team
on a world issue, a sea row with China involving the UN Convention on
the Law of the Sea; am dining with Chuck this evening."
Dear Sen Rene,
Yesterday, when I read the above portion of your draft article,
I thought of
informing you and the group about the talk that would be delivered by
former
Congressman Roy Golez later in the day at AIM. I wanted to do so
because of our shared interests. Unfortunately time run out on me.
Sponsored
by the AIM Center for Development Management, Cong Roy's topic was
"Territorial Disputes in the West Philippine Sea". Linda and I were able
to
attend. I even wore the "West Philippine Sea Coalition" button that I
wore during the July 24 Protest Rally held in front of the Chinese
Consulate (see attached photo SAM_4609).
The forum was well attended. In the
many instances that I was present at similar fora sponsored by CDM, this is
the first time that I
observed that the venue was filled to capacity. Prof Benjamin Bagadion, Jr,
PHD, who moderated the forum,
expressed, in his brief closing remarks, that the presentation was very impressive and that it delved not only into the
geopolitical and military aspects related to the intrusions of China in the WPS but
also
on its economic aspects.
Kindest regards,
Jerry
October 11, 2013
Rene
Saguisag
I see that during my “forced leave” due to illness, not only Frank
Chavez, but also Tata Sensing, is gone. Tata Sensing (Jose E. Suarez)
may be the only one to have voted NO to the 1973 and 1986 Constitutions.
Such a courageous independent thinker who did us proud by going to
lawyering.
The first time I met him was in the municipal trial court of Makati,
in the mid-60’s, before Judge David Concepcion, when our elder
companeros were so caballeros guiding tyros. He was then with Bausa,
Ampil & Suarez on Escolta; we were on Rosario (now Quintin Paredes)
nearby.
This week also marked the first anniversary of Mario Ongkiko’s
“homegoing.” A few years my senior, another true companero/caballero,
with whom I kept the faith for Hubert Webb.
Any Great Lawyer Interpretation of History cannot exclude lawyers.
So, the exhortation, “the first thing we do, let’s kill all the
lawyers,” Shakespeare’s line in “Henry VI, Part II,” Act IV, Scene II.
But, the speaker was Dick the Butcher, a know-nothing thug in Jack
Cade’s gang. Context is all.
Tonight, I just may meet socially with Gigi Piit, daughter of ConCon
Delegate Rolando, who also voted NO in 1973 on the 1973 Constitution.
(I am now able to walk very, very slowly but far from what I was. From bed to wheelchair, walker and cane, with alalay.)
We are not lacking in men like the heroes I mentioned above, and
those of Balangiga, Eastern Samar, who, on September 28, 1901, showed
that we weren’t a nation of cowards, and sent 48 Americans to the
Promised Land. Bloody Sunday. Bolo Men. But, in our nation, I am afraid
we have failed to produce a Vo Nguyen Giap, a lawyer, diminutive but
defeated France and the US in Vietnam, who just passed away at 102. He
said in 2000: “We can put the past behind. But we cannot completely
forget it.” He had attended no military school but showed up the finest
Saint-Cyr and West Point had to offer. He had gone to law though in
Hanoi U.
Heart. Puso. Like that of our Gilas team. Or that of Giap barely five feet and never went to military school.
On September 28, 1901, Balangiga patriots massacred US soldiers but
we had no Giap—Red Napoleon—to soldier and carry on. A colony for
centuries. No Brown Napoleon?
If Obama would come during PNoy’s term (I had been invited to the
cancelled dinner in his honor tonight but I had not said, yes, as I
dealt and deal with health issues, basically with nothing more glorious
than cellulitis), serious work should start to convince the Americans to
return the Bells of Balangiga now in Fort Warren just outside of
Cheyenne before PNoy steps down in 2016 (PNoy has 982 days to go). A
third bell is in South Korea. Those bells are ours which can be replaced
with replicas in Fort Warren.
I saw the bells (and a cannon) in 1993, with lawyer Chuck Medel (now
in town, working with the team of Paul Reichler, heading our legal team
on a world issue, a sea row with China involving the UN Convention on
the Law of the Sea; am dining with Chuck this evening; Paul and I are
both alums of Harvard Law and Washington DC’s Arnold & Porter, where
I worked out of a townhouse Lafayette once lived in; A&P now has at
least 800 lawyers). Chuck and I saw no way a two-man commando raid,
would have succeeded. That’s how Americans regard those who serve in
uniform. I may be stupid but not insane. Let’s talk with the Kanos.
War of course is hell and they grossly violated our human rights when
they came to “Christianize” us, per McKinley who had not the foggiest
notion we had long been being baptized when we were too young to object.
Americans speak with more than one voice though as we do. Democracy is noisy.
In our chaotic democracy, the Senate and the Ombudsman are not
speaking with a single voice on calling Janet Napoles to a legislative
inquiry in aid of legislation.
But, what about her human and constitutional right NOT to speak? The
Constitution is a Document of Distrust, of leaders meant to protect the
people leery of those in power. “It is a fair summary of history to say
that the safeguards of liberty have frequently been forged in
controversies involving not very nice people. And so, while we are
concerned here with a shabby defrauder, we must deal with his case in
the context of what are really the great themes expressed [in the
Constitution].” Frankfurter.
I am with the Ombudsman.
The Senate probe is arguably in aid of something but not of
legislation, from where I sit, with all due respect. Due process, said
Frankfurter, has to do with what we do with “not very nice people.”
And, yes, in fewer than a thousand days we won’t have PNoy to kick
around anymore, in Malacañang, in this country of many Circular Firing
Squads.
Hey, Jojobama, tahan na.
Only 982 days to go, the way Providential President Cory and
Accidental Public Servant I would mark our days at where the power was.
Part of such power is in the Supreme Court where a Justice may ask
questions but should not let it be known that he has thrown his weight
on one side before ALL the arguments are in.
No comments:
Post a Comment