Well, it’s almost rush hour time at the White House. That reminds me of Jackie Chan.
Yes, perhaps, the Obama team must be pursuing something-some kind of ‘fiscal miracle’ much acrobatically at the last hour. They don’t need stuntmen. They are ought to do the stunts by themselves. Something special, that would ensure that he keeps his last pledge. Just to make certain that the rest of the world worry less about the debt hangover III episode.
And keep faith in American economy, he says amongst all those “Rumble in the Whitehouse”.
That’s not a bad saying. After all, people tend to work hard under pressure, and ideas flourish better under stress, which I buy, ‘sometimes default pressure is a welcoming stimulus for a lame economy’.
However, in fear of losing sovereign credit status and to prove the credibility of the government in handling crisis, the crisis management team has swung in full action to avert an inevitable default. What better can they do? Work hard- it’s now or never!
It seems they are working really hard to counter all odds.
Indeed, it wouldn’t have gone so far if the Washington would have managed endogenous (domestic) deficits with prudency that has now bubbled into exogenous (external) debt. Well, the blame game goes on...
There is a lesson to be learned from this violent yet lurid episode. Be rational.
Yet, for all those countries that does not have sustainable fiscal policies and are in the act of merrymaking with their fiscal ascendancy, this is a perfect time to rethink about fiscal prudency. Else, they will need to perform stunts in future.
The pitfalls of conspicuously raising debt ceilings are evident as it laid the foundation stone for many a country toward defaulting on their sovereign debts. Consider Italy- the tenth largest in the world and fifth largest economy in the eurozone by output measured at $2.01 trillion(2010), has a debt ratio to GDP at 119%. The fact is, borrowing costs are increasing for Italy and a rise above 6% risks contagion. The cost of debt financing now stands at 5.67% for Italy. Even Germany is not spared and has debt-to-GDP ratio at 83%. For instance, just concerns about high debt induce a rise in borrowing costs similar as mouthwatering happens when we think of sausages (Pavlov was right about dogs!). Sausages are to cost more as investors are always fine-tuned to drive borrowing costs to unsustainable levels. Can’t blame them, it’s their money chick.
And when there are the Republicans up in arms against the Democrats, Italy is not far back. There is an ongoing tussle between Finance Minister Giulio Tremonti and Prime Minister Berlusconi. They don’t agree and love discordances. That's...what you call animal instinct. Can't blame, we all have this!
Italy has few options to avoid default, and some options not to. How? By selling more debt by issuing more bonds. Yes, that’s the tip. Italy issues largest amounts of bonds in the Eurozone. It is a cunning jackal in E.U. But that made Italy’s accumulated debt load surpass 119% of GDP. Tough job for the new IMF boss only if Italy defaults! Rating agencies are more cautious since the days of subprime blame game started, and they would not hesitate declaring a country as ‘selective default’ or cut ratings outright.
Nobody wants to take the blame.
It seems that they are into some competition of borrowing and selling debt. Being proud owner of debt is now a fad and fashion. But this fashion was more prevalent among the emerging markets a few decades ago. Yehee! Times have changed but they have not!
It seems now that the IMF boss Lagarde is following the legacy of Bernanke and President Obama by inheriting nothing at all!
An assessment of debt-burdened euro area reveals more crowning jewels. This growing turmoil in the financial markets is leading to head spinoff spooky dog trails, making one country a bedfellow to another. What a theatrical performance!
Greece has three potential and active lenders, the IMF, ECB and the EC. But these institutions are having many borrowers queuing up for alms. And the IMF and the ECB are out to reducing burdens on Greece by cutting their interest rates and extending loan maturities as well, helping buyback their bonds above all, with two tranches of bailout packages. It’s urgent that ECB should look into governance reforms in the eurozone area.
But money doesn’t grow in plants. They grow by practice of hard labor and productivity. These lenders ought to think about financing bailouts that is growing by the day, and emerging by night. And that’s about economic growth. But eurozone countries are not growing and that’s troubling for these lenders of last resort.
Germany has well learned the lesson when it tasted recession at the very beginning of this millennium (2003) at the same time, when the world started to walk into the path of bubbly stardom. However, Germany revived their economy, and now being on a remarkably high growth territory, has become neighbor’s envy but owner’s (Merkel’s) pride.
Endless bouts of austerity may lead to stagnant growth and expanding bailout funds is putting pressure on the euro currency. And following all this, they then have another job to perform- resuscitating the capital market reputation of sovereign defaulters.
So, Obama team must be at something between the two ends of a hotdog- which is better, defaulting on the external debt or tighter macroeconomic measures?
And who knows and cares about some “other hidden debts” of the government?
The real fact is, every button has a hole. The question is, how big it is?
Source: IHT
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