Once again, the world's financial leaders were begging Congress to stop the insani-TEA ASAP. IMF (International Monetary Fund) Managing Director Christine Lagarde and OECD (Organization for Economic Cooperation and Development) Secretary General Angel Gurría again made their case for economic sanity yesterday when they urged Congress to stop playing Russian Roulette with America's government and credit rating.
"When it affects the largest economy in the world, we are bound not only to look at the immediate domestic consequences but at what happens elsewhere, so that we can have a dialogue with our members to help them prepare. I hope we will be able to look back in a few weeks and say what a waste of time that was. But we have to look at the risks no matter how unlikely they are to materialise."
Lagarde said there were two channels through which a debt default in the US would spread to the rest of the world. "One would be the trade channel, caused by a reduction in economic activity in the US from the third quarter onwards. The second would be the financial channel – the result of uncertainty and material issues. We are likely to see volatility, uncertainty and consequences for the rest of the world."
Lagarde said that some of the warning signs of stress in financial markets – such as the VIX index of volatility and the price of insuring financial instruments – were flashing. "It's not helping the US to have this uncertainty and protracted way of dealing with fiscal and debt issues."
Gurría said: "The current political deadlock in the US is needlessly putting at risk the stability and growth not only of the US but also the world economy."
He added there was a risk that the west could be plunged back into recession by a default. "If the debt ceiling is not raised – or, better still, abolished – our calculations suggest that the OECD region as a whole will be pushed back into recession next year, and emerging economies will experience a sharp slowdown. The magnitude of further possible negative feedback effects can only be guessed at." The ongoing political impasse in Washington has sparked fears the US could default on repayments of its bonds, sparking banks and clearing houses to take preventative measures against such an unprecedented event.
At least someone seemed to be paying attention to their dire warnings. Senator Harry Reid (D-Reality) filed cloture last night for his bill to lift the debt ceiling for a year and diffuse the ticking Armageddon time bomb.
And that's not all. Senator Reid has also continued to urge Republicans to accept the compromise they had previously sought and reopen the people's government already. After all, Nevada's economy depends on a functioning federal government.
And of course, let's not forget the human cost of this unbridled and incredibly cruel insani-TEA. Rep. Dina Titus (D-Paradise) took to the House floor last week to let her colleagues know about the children who are suffering because of stupidi-TEA.
And this week, Rep. Steven Horsford (D-North Las Vegas) took to the House floor to share with his colleagues why Brian Sandoval, Nevada's Republican Governor, is begging them to reopen the federal government ASAP.
And then, we have Nobel Prize winning economist Paul Krugman. In his latest New York Times column, he warned America of the consequences of letting Armageddon happen. And yes, we are looking at Armageddon if Congress can't reopen the government and re-commit to paying the nation's bills next week.
We’d be looking at an immediate spending cutroughly comparable to the plunge in housing investment after the bubble burst, a plunge that was the most important cause of the Great Recession of 2007-9. That by itself would surely be enough to push us into recession.
And it wouldn’t end there. As the U.S. economy went into recession, tax receipts would fall sharply, and the government, unable to borrow, would be forced into a second round of spending cuts, worsening the economic downturn, reducing receipts even more, and so on. So even if we avoid a Lehman Brothers-style financial meltdown, we could still be looking at a slump worse than the Great Recession.
From Las Vegas to Carson City to New York to London and Bali, people at home and around the world fear the dire economic consequences of any further escalation of this unprecedented insani-TEA. Perhaps this is why a few House Republicans started floating the idea of reopening the government soon.
Just these past two weeks of threatening Armageddon have caused immense economic harm, financial panic, and burgeoning anger. Do Republicans really want to test their luck and extend it for six more weeks?
This has been a great catastrophe of their own doing. But just as easily as they started it, they can end it. Just as easily as they threatened Armageddon, they can let us escape. They just have to accept the compromise they were offered long ago and release the hostages before anyone else is hurt.