A version of this column is scheduled to be published in The Washington Times, Monday, July 11, 2011.
Follow the Money No. 74: Charlie Chaplin’s suit?
The geopolitical question of the hour: is there a tripwire that will tie together a series of regional crises bringing on another 2007-08 worldwide economic disaster?
Lehman Brothers’ collapse dramatized how enhanced interconnections can tumble through the new world economy with domino effect. But if the world finance mavim know a seminal interrelation of our several bubbling crises, they are not telling us. Meanwhile, the minitheaters percolate:
Europe –There’s growing consensus Greece’s economic collapse is leading to a restructuring of the European Union’s finances with more than 20% of the world’s gross product. Shooting the messenger – the growing attacks on rating agencies which, indeed, are feeding debilitating increases in the cost of debt – doesn’t solve the problem nor do complicated if band-aid solutions. Nor, does it seem likely to this observer, creation of a Eurobond market to absorb growing debt would automatically bring about inspired, problem-solving central European fiscal and monetary direction. [It didn’t with creation of the Euro “common currency”.]
The U.S. – However much the Obama Administration’s stimulus program staved off an even worse crisis – to be argued until the end of the economists’ time, not soon contrary to John Maynard Keynes hopeful prediction the profession would die out – it has run out its string. Public opinion demands curbing deficit spending. But how against pressures of “special interests” [yours’ always are, mine are heaven blessed] is a conundrum taxing the American political system. It‘s a time when parliamentary government – with its ability to bring down a cabinet’s failed strategy instantaneously – is envied. Instead, more than a year’s political mudslinging appears inevitably producing near paralysis. Meanwhile despite widespread denials – including fudging with inventions like “core inflation” – higher prices could couple with stubborn underdemployment/unemployment and an unresolved housing bubble for increasing misery.
China – The cracks, long seen by the few who questioned sustainability of the miracle of “the world’s factory”, are widening. Beijing central planners – despite their rationale only rapid growth could legitimate “Communism with Chinese characteristics” by providing jobs and stability -- have curbed unlimited infrastructure expansion which with now slowing exports was the engine of growth. “Creative accounting” takes on new meaning for government banks hiding “non-performing loans” in new set-aside organs now making their own bad loans. Beijing’s inability to “feed” local Party hacks leads them to “squeeze” workers and farmers in turn leading to growing violence. Inflation, especially food where most Chinese live, grows despite monetary devices borrowed from Western systems largely ineffective on what still is a Soviet skeleton.
Japan – The world’s third largest economic power drifts, mysteriously bereft of political leadership, caricatured in its inability to address the destruction of the earthquake-tsunami with characteristic “Yamato Damishi” [fortitude]. In Japan’s hot, muggy summer, only 19 of 54 reactors are operating in the face of anti-nuclear sentiment. With more to shut down, cutbacks of 15% already haunt large electricity customers and boosts expensive fossil fuel imports. Consumer confidence falls to record lows, ominous for Japan’s rapidly ageing population. Government debt, already the world's highest ratio at 200% of GDP, will rise as Tokyo borrows $100 billion to rebuild and GDP shrinks. Luckily, Tokyo borrows at home at floor-scraping 1.5%. But, Japan, too, has its echo of the American argument: Economy Minister Kaoru Yosano opposes Tokyo selling itself bonds as the Fed and Treasury have done, warning resulting higher finance charges would hit Japanese banks.
But how does it all connect? We saw how Japan’s disaster put a crimp in the manufacturing supply chain from Shanghai to Detroit. But, for example, what call have German and other European banks on their U.S. colleagues if Greece defaults? Japan, which has been lending the world $175 billion annually in investment capital, is out of that business. Nobody wants to talk about the impact on Spain [20% of the EU GDP] if Greece [3% of the EU GDP], followed by Portugal and perhaps Ireland, “goes”. What will that do to Latin America where Spanish banks have invested heavily as the Brazilian boom simultaneously now threatens to go “bust”? Australia’s roaring dollar is already feeling Chinese cutbacks as will all commodities producers, perhaps even the Mideast petrosheikhs.
In one of his serio-comic sequences, Charlie Chaplin’s little tramp starts pulling a thread from his crumpled suit. Before long, his whole miserable costume dissolves. Is there that kind of loose thread here?
sws-07-08-11
J Nail|7.6.11 @ 8:30PM|#
I think you are dead wrong.
I am going to approach this Constitutional debate from another
angle. That President Obama would risk impeachment by NOT acting
under the 14th Amendment to prevent default.
Whether any of us like it or not it this debt ceiling debate is
all about the “obligations” that Congress over time has signed into
law, not the bonds.
The ceiling raise has nothing to do with future spending, only
that which has already been committed to by this and prior sessions
of Congress over out history.
We elected them, they act via their Constitutional
responsibility passes laws/funding programs, we own it and has the
“full faith and credit” of the US behind it. These are all laws
that then need to be upheld, ie honored.
The Constitution is by definition the original document plus any
and all Amendments to it so trying to separate the two is a
specious argument as well.
In PERRY V. UNITED STATES, 294 U. S. 330 (1935)SCOTUS addreses
the larger context of debt as “obligations” that further supports
the notion that default would be unconstitutional and thus stopping
it would be required of the President:
“…The government’s contention thus raises a question of far
greater importance than the particular claim of the plaintiff. On
that reasoning, if the terms of the government’s bond as to the
standard of payment can be repudiated, it inevitably follows that
the obligation as to the amount to be paid may also be repudiated.
The contention necessarily imports that the Congress can disregard
the obligations of the government at its discretion, and that, when
the government borrows money, the credit of the United States is an
illusory pledge.
We do not so read the Constitution….To say that the Congress may
withdraw or ignore that pledge is to assume that the Constitution
contemplates a vain promise; a pledge having no other sanction than
the pleasure and convenience of the pledgor. This Court has given
no sanction to such a conception of the obligations of our
government.
The Fourteenth Amendment, in its fourth section, explicitly
declares: ‘The validity of the public debt of the United States,
authorized by law, * * * shall not be questioned.’ While this
provision was undoubtedly inspired by the desire to put beyond
question the obligations of the government issued during the Civil
War, its language indicates a broader connotation. We regard it as
confirmatory of a fundamental principle which applies as well to
the government bonds in question, and to others duly authorized by
the Congress, as to those issued before the amendment was adopted.
Nor can we perceive any reason for not considering the expression
‘the validity of the public debt’ as embracing whatever concerns
the integrity of the public obligations.”
The office of the President as “Chief Executive” is empowered by
the Constitution that “he shall take Care that the Laws be
faithfully executed”.
He is also Constitutionally bound by his oath of office:
“I do solemnly swear (or affirm) that I will faithfully execute
the Office of President of the United States, and will to the best
of my Ability, preserve, protect and defend the Constitution of the
United States.”
This creates a slippery slope for any President. In other words
he has no choice in acting per the Constitution lest he violate his
oath and for that could be subject to impeachment.
A secondary argument, slightly less compelling, is that in his
job as Commander in Chief to protect the nation against any threats
could be cited here. A default that plunges the nation into another
recession and costs the taxpayers hundreds of billions in
additional Federal interest payments and billions more in higher
credit card, mortgage and consumer loans threatens the nation as
much as any war or attack does. Not acting would weaken the nation
considerably and his failure to protect the nation from this sort
of “attack” would also be seen as a failure to fulfill his
oath.
So the 14th/PERRY V. UNITED STATES makes it clear on the debt’s
validity and the fact that it cannot be abrogated in anyway that
diminishes the full faith and credit of the nation and its trust
with any one owed money via a statute approved by Congress, be it
your mom on SS, a cleaning contractor for a federal building or
foreign nations holding bonds. All are equally valid and must be
honored.
So no action by Congress is illegal and the Debt Ceiling law in
any dispute is trumped by the Constitution. In “Perry” Chief
Justice Hughes wrote the majority opinion: “We do not so read the
Constitution…the Congress has not been vested with authority to
alter or destroy those obligations.”
Altering those obligations means that the terms of meeting them
cannot be changed in anyway so even a default of a few days or a
program to pay bills in some order with revenues is not allowed. So
inaction that allows any sort of modification is out of the
question as well.
If Obama does not act to avert the crisis if negotiations fail
that is a more compelling reason to Impeach than trying to claim
that he exceeds his Constitutional power in resolving the crisis
using the 14th.
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