Tuesday, October 15, 2013

An outsider's view on the US crisis

Finally the  US shutdown began on the 1st of October after the near shut down of April 2011. The political atmosphere in the United States has been very divisive especially in Congress in the last four years. The activities of some US agencies  and departments are closed because Congress failed to pass  a resolution that would fund the government from the 1st of October. It is duty of  Congress to pass a  full budget by the 30th of September every year. This has not happened since 1997 but the Congress usually passed resolutions to fund the government.
The immediate cause of this shutdown is Senator Ted Cruz. He called for a shutdown if Democrats did not agree to defer and defund the Affordable Care Act (AKA Obamacare) which commenced on the 1st of October. ACA is a signature policy of President Obama and for all it flaws is a good policy that addresses America's health issues especially access to health care for the poor and working poor (aka uninsured). I have been unable to grasp why a country like the US lacked Universal health care till now considering that citizens of countries like mine want it but we don't have. 
The remote cause of the shutdown is partisanship, the inability to compromise and the rise of the vocal and resolute Tea party. If a group decides to have its way all the time, when push comes to shove, the other party would react.Funding the government should not be affected by a government legislation that was passed  by the House, though contentiously, and has received the backing of the Supreme Court. Since the Act was passed, Republicans have unsuccesfully tried to repeal it. 
States have a role to play in the success or failure of ACA. Rather than hold the Federal Government ransom, the GOP can take its battle to the States where  it currently controls policy and governance in 29 of the 50 states. 
Though the time for a showdown in Congress may be ripe because something has to give, it should not be at the expense of Americans and US's credit worthiness. Elected representatives seem to forget that the impact of their actions on the people who elected them. Like the Yoruba proverb that says "when two elephants fight the grass suffers", the effects of GOPs uncompromising stance affects Citizens and may have consequences they are not prepared for. 
The Shutdown has affected non-essential services such as National parks and other tourist attractions, NASA, Center for Disease Control, Bureau of Economic Analysis, Bureau of Labor Statistics,Environmental Protection, Commerce, Labour, parts of Transport Security Administration, Departments of Treasury and Energy. Fortunately,the impact of the shutdown has been more dramatic than economic.  The real problem would occur if the Debt ceiling (According to US Treasury, the debt ceiling  is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past) is not raised by the 17th of October 
The US would be affected because:

  • The full faith and credit of the US would be jeopardized, and lack of confidence in the US's government stability may cause a run on the dollar,
  • The dollar status as the world reserve currency would be threatened. This status has helped the US get lower interest rates compared to other countries, 
  • The government would be unable to pay Social Sceurity, Medicare and Unemployment cheques. 
  • If the US defaults and confidence is lost, mortgage and lending rates would rise and this would directly affect citizens
Historically, the US has been financed by debt  and since 1917 raising the debt ceiling was a routine decision by Congress until 2009 and 2011 where it became highly politicized. 
The lessons from the Shutdown and Debt ceiling drama illustrate  the ability of a few vocal people to cause unnecessary situations.Experiences should have taught Congress that investor confidence is key to the  survival of an economy like America's.The downgrade of her  credit rating after the near shut shut down in April 2011 and the world wide effect of the 2008 crisis should teach Republicans that there are times to be intransigent on political concessions and there are times to let things pass. It is  failure of Republican leadership to allow  a zealous few disrupt the activities of a nation. 
The United States is regarded as the embodiment of representative government. Elected representatives should listen to the people they represent and not cater to specific interests. 


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