Now the U.S. Treasury Dreads Its Own Default

Now the U.S. Treasury Dreads Its Own Default
La Repubblica, Italy
By Federico Rampini
Translated By Brittany Fowler
7 January 2011
Edited by Mark DeLucas

“Default.” Bankruptcy. Never in the past has a U.S. secretary of the treasury dared to suggest this risk for the richest economy on the planet — that is, its own. Timothy Geithner did this yesterday, using the taboo word in an official letter to Congress.

At the same time at which the Treasury Department dared to utter the unthinkable, the euro weakened, rather than strengthened, against the dollar — a confirmation of the fact that, of these two sick patients, the eurozone is even more fragile than the United States.

New revelations in the meantime confirm China’s crucial role in preventing the most fragile European states from failing. Beijing is preparing to buy 6 billion euros worth of Spain’s public debt to prevent Madrid from becoming the “next on the list,” after Greece and Ireland. If 2011 should be marked by some sovereign bankruptcy, then even the People’s Republic of China, despite its thriving finances, is exposed to significant losses on the currencies of others.

Geithner’s letter has some rather unnerving passages. In the event that Congress does not quickly approve a bill to raise the legal limit of the federal debt, authorizing the Treasury to issue more bonds to finance itself, "the damage would have catastrophic economic consequences.” The robustness of the Treasury would be at risk, as well as the role of the dollar as the currency of international payments. “Given the gravity of the challenges facing the U.S. and world economies,” said Geithner, “the world’s confidence in our creditworthiness is even more critical today.”

In dramatizing of the risks of default, he also plays a tactical element. Washington has just inaugurated a new House of Representatives in which the Republicans have the majority. The right wants to take the Obama administration hostage, denying it the votes needed to issue new Treasury bonds. “The American people,” declared the new House Speaker, Representative John A. Boehner, “will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending and end the job-killing spending binge in Washington.” In some ways it is a case of déjà-vu. The right is pursuing the Reagan strategy of “starving the beast”: denying resources to the state in order to dismantle the entire edifice of the Welfare State, which the right regards as public enemy number one. It is the same right that gave itself “20 days” to repeal all of Barack Obama’s reforms, including health care. The Democratic president, outvoted in the House — like Bill Clinton in 1994 — reacted to this blackmail by denouncing it as a senseless game without end. In a stalemate, it could happen that all the federal offices of this administration could be closed for lack of resources, just as they did for several weeks in 1995.

And EVERYONE needs to take a good, hard look at Tunisia. Hunger, desperation, joblessness WILL topple governments.

absolutely. Young people out of work will bring the resistance - they have the energy. Of course in this country the way they deal with this is to encourage military service for those who can't find jobs. I'll expect a return of the draft if protests start here.

I always remember the nature of who is speaking when I hear him.

Our economy is dead over the long term anyway. We will absolutely default at some point, the mathematics of debt are not that complicated. If interest rates rise just a bit, the percentage of taxes collected that go to just pay the interest on our debt skyrockets. We are already well past the point of no return.

We are screwed and believe me, jackasses like Geithner know it. The whole game plan now is to keep kicking the can down the road as long as possible to give the banksters and oligarchs a little more time to get their looting on.