The Ron Paul Phenomenon…is this guy ‘The Real Deal’?

Politics is very much like fashion…fickle and unpredictable and many ideas never get beyond a fringe following…but sometimes events reach a tipping point and what was considered ‘avant-garde’, ‘niche’ or even ‘risqué’  becomes all of a sudden mainstream and the accepted wisdom/fashion.

Is that that we’re observing with Ron Paul? Have Ron Paul’s ideas reached a tipping point?

The latest poll from CNN, conducted in the few days leading up to September 11, 2011, before the last GOP candidates debate shows that Paul has managed to double his support since the last survey conducted by the cables news network only two weeks earlier!

The survey indicates that 30% of Republicans and independents who lean toward the GOP support Perry for their party's nomination, with former Massachusetts Gov. Mitt Romney at 18%. Romney, who's making his second bid for the White House, had been leading the list of Republican candidates in the national polls, but since Perry launched his campaign a month ago he's jumped ahead of Romney to capture the top spot.

Former Alaska Gov. Sarah Palin is at 15% (but she’s not even in the race!) . Then is Ron Paul, who's making his third run for the White House, at 12%. Every other candidate is in single digits. Rep. Michele Bachmann, who was at 10% in the last CNN poll, now stands at only 4%.

With Palin out of the running, the headline stays the same: Perry 32%t, Romney 21%, Paul 13% and all other candidates, including Bachmann, in single digits.

Although still way behind the frontrunner Rick Perry he’s closing in on Romney and put the previous strong contender Michele Bachmann out of the race.

His success comes as a surprise to the many in the mainstream that have played Ron Paul off as a fringe candidate seemingly unlikely to secure the Republican nomination. His hardcore ideology is considered too socially libertine for religious conservatives and too economically callous for crossover Democrats.

He has always had passionate group of followers, who although small in number have always been well organised and vociferous about the qualities of their leader. So what’s happening now?

Ron Paul’s campaign chairman Jesse Benton said recently ‘The straw poll results in Iowa, our growing poll numbers and our strong fundraising show that our message is resonating with Iowans and Americans everywhere,’. Jesse continued ‘our message was the same in 2007 as it is now in 2011, but this time we have quadrupled our support. That means our message is spreading, our support is surging and people are taking notice.’

One of my favourite quotes comes from Seneca…‘luck is what happens when preparation meets opportunity’. Ron Paul’s message is being delivered certainly at the right time in the right place…but is he ‘the right man’?

I’m neither a Democrat nor a Republican, actually I’m not even American! However, I do like a good debate and what’s happening in the US at the moment in the race towards the election of a GOP candidate is very interesting indeed and it’s a sign of the times we’re living in.

A Sense of sense of Déjà Vu- Part 1

Is RP 2012 just like RP 1992?

Ron Paul is in many ways popular for the same reasons as billionaire Ross Perot was in 1992. He's feisty.

Like Perot, Paul has built a following by simply stating what's on his mind, in a way that comes off as honesty in the moment rather than a rehearsed mantra with predetermined talking points…and that’s refreshing. The appeal is that when Perot and Paul speak, we don't feel like they're lying.

Perot and Paul have both proved themselves adept at grasping public sentiment. Where Perot made sense out of the federal budget process by likening it to a family budget, Paul takes advantage of the fact that the average American cares more about their tax bill than they do understanding the intricacies of diplomacy involved in foreign aid and the maintenance of military bases abroad.

Never mind that macroeconomics and microeconomics can't work the same way and that if Ron Paul brings all of the troops home from all of the US bases abroad, that unemployment will skyrocket and America will lose its ability to use the threat of military action credibly to keep peace in unstable regions.

The appeal of both Perot and Paul has been their ability to simplify complex matters into one line soundbites that the common man can digest without having to think through consequences.

Paul and Perot have prescribed major surgery without consideration for the aftermath or recovery. In Perot's case, he wanted the nation to elect him so that everyone could sit around a table and decide what to do, and in the case of Paul, he wants to take the nation back to a purely constructionist methodology for interpreting the Constitution, without deference to the fact that perhaps not only the world has changed considerably, but also the US role in it over the last 200 years, requiring a rewrite or at the very least a re-interpretation of it.

Ron Paul talks and acts as if he has nothing to lose and without giving much thought to the aftermath of the policies he’s promoting. Telling you what’s wrong with the current system, but how would you solve the issues Ron? Ask yourselves has he ever explained (either in ’08 or now) his views on the answers to the solutions he's proposing? Do you know the answers to?

• After you reduce the size of the military and federal government, how would you create jobs for displaced employees?
• What would you do to reduce our trade deficit and bring manufacturing jobs back to the US?
• After you eliminate the Federal Reserve, how would you manage the money supply and interest rates?
• After you eliminate the IRS, how would you finance the federal government?
• The federal government is bankrupt – what financial obligations would you default on?
• Would your balanced budget require higher taxes or just less spending?
• How many illegal immigrants in the US would you deport?
• How would you reduce the US dependence on imported oil?
• What is your solution for the housing crisis?
• What changes would you make in airport / transportation security?
• How would you reform health care?

A Sense of sense of Déjà Vu- Part 2

Ron Paul 2008 vis-a-vis Ron Paul 2012

The 2008 Paul campaign was a ragtag coalition of anarchists, antiwar activists, goldbugs, paleoconservatives, hard-core libertarians and conspiracy theorists. His grassroots supporters threw raucous rallies, floated a Ron Paul blimp, lionized the 17th century British revolutionary Guy Fawkes — infamous for his attempt to blow up Parliament — and raised huge chunks of cash through online ‘money bombs’. But his organization was hapless when it came to translating that enthusiasm into votes.

When he ran for President four years ago, Paul drew a zealous but narrow following, and his warnings that murky monetary policy, runaway spending and a sprawling foreign empire would ruin the country struck many Republicans as kooky. His GOP rivals smirked or simply ignored him. Although Paul raised a staggering $35 million, he captured just 1% of Republican delegates.

But in the four years since, the world has changed in mostly grim ways that seem to affirm Paul’s worldview. His vision of an eroding Constitution and a Washington — Wall Street cabal helped spark the Tea Party movement. Conservatives who once sneered at his foreign policy as being ‘isolationist’ have grown weary of war. His call for a more accountable and transparent Federal Reserve has morphed from quaint obsession to mainstream Republican talking point in Congress and on the campaign trail

Rarely does a single political commercial reveal as much about a presidential campaign as the ad unveiled a few weeks ago by Ron Paul.

http://www.youtube.com/watch?v=kUHlIPJTMIg&feature=youtu.be

Here is audio-visual near-proof of a crucial difference between Liberty: Too Big To Fail ‘12 and the rEVOLution of ‘08:

This ad shows that this time the libertarian Republican thinks that he’s  in it to win it.

The production values are upper tier, the choice to attack Texas Gov. Rick Perry (the candidate to beat as he’s leading the polls by a long margin) indicates a candidate trying to elbow his way past other grassroots-pleasing types, and the Reagan-good, Gore-bad message of bedrock conservative principle is plainly tuned to tickle the ears of mainstream Republicans.

However, for all its immediate relevance, Ron Paul’s candidacy remains quirky and idiosyncratic. The blame for that rests with the man himself. What elevates Dr Paul above the other candidates deflates him in the polls. At the podium he speaks without notes on whatever subject seems to come into his head. To see him in person is to experience the apocalyptic magic of wild prophecy. 

His rambling discourse on the moral and economic bankruptcy of America smacks of something missing in modern politics – the truth told honestly. He is so real, he’s unreal. His constituency laps it up. But that constituency – while holding a valid claim to Republican orthodoxy – is too small a base from which to launch a triumph of reason. And an ideologue like Paul could never compromise enough to reach beyond it. For the moment, the man and the movement are locked into a passionate conversation to the exclusion of others.

The fact of the matter is that a base that wasn't too keen on listening to Ron Paul in 2008 has shifted substantially in his direction since then. This presents Paul with an opportunity -- and a challenge -- that he didn't have in 2008.

The key question about Paul's campaign is one that the straw poll was never going to help answer:

Can he build on his sizable (but ultimately limited) base of core supporters and develop mass appeal within the Republican Party?

It seems pretty clear to me a ‘major impediment’ to that is the fact that ‘establishment politicians’ who now talk like Ron Paul because Ron Paul's issues are now prominent in the campaign! Although the base of core support for the things Paul believes to be true has grown…they’re simply not joining Paul's camp. Instead, Paul has to compete with opponents with establishment ties and bigger war chests, who have co-opted him.

In a Nutshell...What's my View of Ron Paul as a Presidential Candidate?

Ron...Enjoy your role as a Kingmaker...The King Job is Not For You

Libertarian or Republican or a Constitutionalist? Austrian Economics Zealot? A lone preacher in a land of non-believers? A maverick?

The reality is that Ron Paul 2.0 isn’t all that different than the original version. For all the focus on how the Texas congressman is running a different race this time around, he is still the same libertarian iconoclast who is unwilling to modulate his views.

There is no doubt that this time he’s a serious contender, but he is not a serious contender for the Republican nomination…Why? Simple: Because he is not a Republican, he’s a libertarian, which places him at odds with the vast majority of the party -- never mind any real Democrat (who on principle favor government).

While his ideals on economics and small government are appealing, his personality is somewhat abrasive and off-putting. He doesn't understand that winning arguments does not equate to winning friends. He simply isn't electable at the national level, despite his extreme popularity with the small-government crowd.

Ron has not learned how to disagree in a persuasive way with anyone, besides those who are already libertarians, and his lack of polish and general wonkishness are his biggest liabilities.

Ron Paul makes the classic marketing error while marketing himself: People don't want to be debated…they want to be seduced!

Ron Paul is the Ralph Nader of the American right and his presence in the primaries sparks an interesting debate whose outcome will be useful.

The reality is that neither Perot in 1992 nor Paul in 2012 could be considered candidates with the wisdom to become presidents, but both men certainly bring important issues to the table worth discussing.

It could be that like Perot, Paul's contribution to the nation is his involvement as a candidate in the public discussion.

Moreover, the USA is still undoubtedly the world’s leading superpower. It has China’s (gross) economic size, matches Russia’s strategic military power, and is as technologically advanced as Japan with 2.5x its population. Therefore, when the Americans elect a President, they’re also electing a world leader, something Ron Paul is not nor wants to be! His views will take the US backwards and inwards…and as that position can’t be left ‘vacant’…China is game over the top spot is yours! 

Ron Paul has more political experience than all his opponents combined…he has been a member of Congress since 1976! However, his idealism and lack of practical negotiating and persuading skills makes him less effective than anyone else.

In big politics, those who don't bend are broken. Paul may have been able to survive as a loud-mouthed, hard-line Representative, but being President requires many hats. And Paul only has the one. Ron Paul’s personality is more likely to give him a heart attack in his first month in office…

Final point… one aspect of the Paul phenomenon that has received little attention so far is his age.

Born in 1935, he will be 77 years old on Inauguration Day 2013 — the same age Ronald Reagan was when he left the White House after serving two terms! If Paul were elected and re-elected, he’d be 85 at the end of his time in the White House. Even though Americans are living longer, most people would probably agree that’s too old for a president…

All that said, Paul's people are demonstrating that whether you organise around a maverick independent billionaire or a maverick libertarian Republican, a concerted mass of people who have figured out how to combine and multiply their voices online can force their way onto the national stage.

Beef...the new 'Hard Currency'!!

Let's Feed the Chinese the 

best beef in the world!!

The new 'HARD CURRENCY' is BEEF (READ MEAT PROTEIN), the 'INVESTMENT CENTRE' is MERCOSUR (Argentina, Brazil, Paraguay & Uruguay) and the exploding market to satisfy is CHINA!

Are you concerned about where to put your money in this uncertain market? About a double dip recession? Is GOLD really a safe haven @ US $1,900/ounce? Way overpriced I would say!!

In 2020, the Chinese will spend nearly $1,000 billion a year on food, up from $350 billion a year in 2010, according to The Boston Consulting Group. As their incomes rise, the Chinese are less interested in buying grains and more interested in more expensive purchases like meat!! Beef consumption, for example, has much more than doubled in the last 10 years; in the next five years, it’s predicted to double again.

The study also revealed trends occurring with Chinese consumers. There is a significant exodus underway from rural areas to urban areas — a trend that will add another 220 cities of more than 1 million residents in the next 15 years — where there are more choices of high-quality foods and where consumers eat more meals away from home. McDonald’s is a popular choice: China has 1,300 McDonald’s restaurants and plans to build 700 more in the next two years.

There are 1.3 billion Chinese and already they rank among the world’s biggest meat eaters. They consume over a third of the world’s beef, half the world’s poultry and two-thirds of the world’s pork!!


Finally you should also increase your red meat intake!! 

Consider the following:

1. Studies indicate that, if our ancestors had not eaten red meats, the brain of humans would be1/4 of its present size! During human evolution, our adaptation to red meat and the vital protein and fats it provides, is one of the KEY reasons behind the rapid growth in our intelligence and brain capacity.. without meat we still would be living in the trees eating bananas!
2. In regions where people have the longest lifespan, the diet is based almost exclusively on meat of ruminant animals and cultured dairy products.
3. Protein in beef provides plenty of building blocks for our body, ensuring strong lean muscles and healthy hormones.
4. Red meat is an excellent source of vital minerals like zinc, iron, and magnesium. In meat, these minerals exist in form that is much easier for the body to absorb compared to the minerals in grains and pulses.
5. Vitamin B12, which can be obtained ONLY from animal sources and which is abundant in beef, is crucial for a healthy nervous system and blood.
6. The carnitine in red meat is essential for balanced and steady functioning of the heart.
7. Beef is rich in linoleic and palmiotelic acids, which have strong anticancer effects and fight viruses and other pathogens.

I'm ready, willing and able to help the Chinese taste the best grass-fed beef coming from my property and those of my fellow cattle ranchers. 

This is the only 'sustainable' way of raising cattle, i.e. on grass! Grass-fed beef is even good for the environment , big grasslands areas that exist in the tropical and sub-tropical areas of the MERCOSUR countries can certainly feed the world...without using the 'unsustainable' intensive system of 'corn fed feedlots'.  

Grass is to feed cattle and corn to feed humans...simple!!

    

EAT BEEF = GROW STRONG, HEALTHY & SMART !!

P.S. BEST ENJOYED WITH A NICE CABERNET SAUVIGNON (IDEALLY BLENDED WITH MERLOT) A LA BORDEAUX WINES!

Is the End of Capitalism upon Us?

Is Capitalism really Doomed? It certainly seems to be the ‘cliché’ of our times. However, I recently read an article by ‘Dr. Doom’ (aka Nouriel Roubini) that makes me reassess the notion that perhaps capitalism has reached its sale by date.


In an interview with The Wall Street Journal he said…‘Karl Marx had it right’. WOW…Karl Marx right? No way!! For a true believer, like myself, in laissez-faire economics (the core principle of capitalism) this is a real shock. Now…you might just dismiss ‘Dr. Doom’ statement as preposterous…after all someone with that nickname can’t be taken too seriously right? Wrong!

For those who are not familiar with this gentleman he’s the one who in September 2006, with markets everywhere still on the rise, told at a seminar at the IMF (International Monetary Fund) Headquarters that the US consumer was just about to ‘burn out’ and that this would mean a US recession followed by a global ‘hard landing’. The IMF’s in-house monthly newsletter (IMF Survey) covered Roubini’s talk more as a curiosity on the last page under the headline ‘Meet Dr. Doom’…and the name stuck.

His simple and pragmatic argument was I quote…‘when supply increases, prices fall: that’s been the trend for 110 years, since 1890. But since 1997, real home prices have increased by about 90 percent. There is no economic fundamental—real income, migration, interest rates, demographics—that can explain this. It means there was a speculative bubble. And now that bubble is bursting.’…unquote.

We all know how it all ended…‘credit crunch’, bank bailouts, or simply put the worst financial crisis since the Great Depression of the 1930s. So…when ‘Dr. Doom’ (who by the way believes in free markets and capitalism) talks now people listen…I certainly do!

What was Marx’s View of Capitalism?

Marx, among other theories, argued that capitalism had an internal contradiction that would cyclically lead to crises, and that, at minimum, would place pressure on the economic system. 

He felt that capitalism created two competing classes of people. One, was the bourgeoisie who owned and controlled the means of production and hired wage laborers. The other was the proletariat, who were common workers who owned nothing but the right to sell their own labor.

Capitalism's very nature would ensure that eventually, these classes would struggle against one another to the point where the class of workers would get large enough and oppressed enough that it would overthrow the bourgeoisie, seize the means of production from it and end the economic system known as capitalism. The system of socialism would be ushered in and gradually evolve into pure communism.

Although, the corporate world and the relationship between employers and employees, through legislation and even new concepts like ‘social responsibility’, is now very different from the days of The Industrial Revolution in the United Kingdom when Marx was making his observations…there are nevertheless some disturbing similarities in issues currently affecting the world economy.


The social uprisings in Egypt, which was later expanded in a wider sense to several Arab world countries (with Syria and Libia as I write still fighting for regime change), in Greece, Spain and even recently in the United Kingdom, are all economic in origin primarily unemployment, but also due to the rising cost of living.

The issue is that there is excess capacity in industries, and companies not hiring because there is not enough final demand…but the paradox is that if you’re not hiring workers, there is not enough labour income, which in turns leads to not being enough consumer confidence, which in turns means that there is not enough consumption and therefore not enough final demand.

In the last 3 years this has worsen because there was a massive ‘redistribution of income’ from labour to capital and from wages to profits…which means inequality of income and wealth has increased. This redistribution of income and wealth makes the problem of excessive lack of aggregate demand even worse!

And…this is ‘Dr. Doom’s point…that Karl Marx was right in saying that at some point capitalism can self-destroy itself because it can’t keep on shifting income from labour to capital without not having an excess capacity and a lack of aggregate demand…and that’s what is happening.

The advocates of laissez faire economics have faith in the ability of markets to ‘self-regulate’ (‘the invisible hand’ as defined by the 18^th century Scottish economist Adam Smith) as the belief is that human beings are naturally motivated by self-interest and, when  they are not interfered with in their economic activities, a balanced system of production and exchange based on mutual benefit emerges.

The problem at the moment is that markets are not workings as what it’s an individual rational decision (after all every firm wants to survive and thrive) of reducing labour costs more and more misses the point that someone’s  labour costs are someone else’s labour income and consumption!...that’s what makes the current situation self-destructive!

So…Marx Was Right Then? Capitalism R.I.P.?

There is no other economic model that proved more adept at creating wealth, develop technology and improve living standards for its citizens that capitalism. However, the main criticism always is the unfair distribution of wealth and power.

A report released in April this year by GlobeScan, an international opinion research consultancy, suggests that the number of Americans who believe in the strength of the free market economy dropped markedly last year. In fact, according to the survey results, both Brazil and China, on a percentage basis, ranked higher than the U.S. in overall support for free market capitalism.


The report, based on 12,884 interviews in 25 countries, asked participants to agree or disagree with the statement that the ‘free market economy is the best system on which to base the future of the world.’

GlobeScan found Americans strongly agreeing or somewhat agreeing dropped to 59 percent from 74 percent, a 15 percent dip from the year prior and the second largest year-over-year drop of any country besides Turkey. An even more dramatic drop (32 percent drop) occurred among those in the U.S. with annual incomes below $20,000, of which only 44 percent agreed that the free market was the ideal system.

If citizens of the nation that epitomises capitalism are disenchanted with it…it’s time to take notice!!

The reality is quite simple and it’s an old story: Capitalism is unstable. Capitalism means growth, but also instability. The system is dynamic and inherently prone to crashes that cause great damage along the way.

It is an economic system that can be ruthlessly productive. But is also one of wheels within wheels – internal contradictions Marx called them – that can, and regularly do, spin out of control. Marx saw these contradictions as opportunities; he figured that capitalism's self-destruction would lead to a better world.

John Maynard Keynes, a British economist who liked to speculate in foreign currency over his morning tea and toast, saw them as problems that could destroy a world he rather liked.

Keynes believed that the free market capitalism was inherently unstable and that it needed to be reformulated both to fight off Marxism and the Great Depression. The welfare state designed in the post-1945 period was in his view the way to save capitalism from itself!

Banks would be regulated to keep financiers from scamming the economy into the ground. Labour unions would be encouraged, in order to give workers a stake in the status quo and inoculate them against radical politics.

The rich would agree to government tax-and-spend policies, knowing that – in the end – it's always better to feed the poor than have them slit your throat.

It was a giant, unspoken bargain – forced by the Depression of the `30s, tempered by war and hammered into shape under the threat of Communism. For about 90 years, we have been trying to regulate the system to stabilise it while still preserving its energy. We are at the start of another set of these efforts…

Towards A New Paradigm…Enter Social Capitalism!

Social capitalism, as a theory or political or philosophical stance, challenges the idea that the goals of socialism and the existing system of capitalism are inherently antagonistic.

The essence of social capitalism is that markets work best and output is maximised through sound social management of macroeconomics.


The world has been grouping towards a new economic doctrine, something that combines the animal energies of capitalist entrepreneurship with the distributive justice of socialism.

Typically capitalism as a business model revolves around exploitation of the workers and the market squeezing profits from an underpaid workforce and over charging the consumer.

Social capitalism is not hostile to free markets or the private ownership of property. Instead, social capitalism recognises the unique success of capitalism, particularly under appropriate social supervision. Social capitalism thus seeks to create a balanced approach to business and the role of the state—with a view to optimising the business environment for maximum sustainable economic growth.

On a micro level social capitalism suggests that best business practices should cater to the needs of consumers, including the needs of workers as the bedrock of consumption.

The exploitation of ever cheaper pools of labor with no regard to maintaining consumption results in market failure…as observed by Marx and explained previously here. Social capitalism proposes that a strong social support network for the poor enhances capital output.

By decreasing poverty, capital market participation is enlarged. Social capitalism also proposes that government regulation, and even sponsorship of markets, can lead to superior economic outcomes, as evidenced in government sponsorship for example broad internet access or provision of computer for rural schools in developing countries.

Given the vast diversities in global culture and socio-economic development, we are likely to see a lot of experimentation before social-capitalism can be defined more precisely. One thing is certain though…its inevitability.

Caveat emport!

‘Despite a voluminous and often fervent literature on ‘income distribution’ the cold fact is that most income is not distributed…it’s earned’

‘The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries’

August 2nd...Doomsday? US Defaults on its Debt?

Hi Everyone! It has been a while since my last blog...but this is 'major news' and needs to be debated, which is why I'm writing again after 5 intensive months as a cattle rancher in South-America...I'm back in England writing at home on this interesting point.


The US 'debt ceiling'...can it go on growing...FOREVER?? 

On August 2nd. the US runs out of money...i.e. , the United States will no longer be able to pay its bills in full...and slashing spending alone won't cut it!  The U.S. government hit the debt ceiling of US $14 trillion on May 16th. Treasury Secretary Tim Geithner told Congress he would have to suspend investments in federal retirement funds until August 2nd. in order to create room for the government to continue borrowing in the debt markets.The funds will be made whole once the debt limit is increased, Geithner said in a letter.                                                      

So...what's the debt ceiling anyway?

It's a cap set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public (i.e. anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare.

The ceiling is currently set at  US $14.294 trillion. The country's accrued debt hit that mark on the morning of May 16th, it is as if it has hit the limit on its credit card. Yours might be US $5,000...theirs is US $14 trillion. So going forward, until Congress agrees to raise that limit, the government needs to pay its bills in other ways.

The US government spends about US $120 billion more each month than it take in, in revenues. That's the amount Treasury needs to find somewhere!! The government has a bank account at the Federal Reserve with a little bit more than $100 billion in it. It has already used that that money! Also, by taking various extraordinary measures like suspending investments in federal retirement funds, Geithner was able to bring total debt down enough to allow the government to continue borrowing until Aug. 2.

All of these measures last until early August. That's when the government runs out of money, even under those extraordinary measures.

Ultimately, if lawmakers fail to raise the ceiling this year, they will have two choices, both awful.

They could either:

• Cut spending or raise taxes by  several hundred billion dollars just to get through Sept. 30, which is the end of the fiscal year. 
• Or they could acknowledge that the country would be unable to pay what it owes in full and the United States could effectively default on some of its obligations.

 The first option would be impossible to execute without serious economic repercussions. And the second option could cripple the economy and send world markets into a tailspin.

Paul O'Neill, former Treasury Secretary, has recently indicated that in order to get by the next election, i.e. November 2012...the debt ceiling would have to be raised by a whopping US $ 2 trillion more to US $16 trillion!!

However, there is a point at which investors realise that the debt is simply too much and it can't be repaid...understandably so in particular as the amount of that debt owed by foreign investors has been steadily increasing!

. 

What happens if we get to August 2nd and there is no deal??

• US government bondholders will be paid
• Social Security checks could be delayed
• Non-essential government services will be shut-down
• Non-essential government workers will be furloughed
• US economy would grind to a halt, increasing the odds for a double-dip recession

How likely is that to happen?

There is no provision in the US Constitution to guarantee that the US will always pay its debts, but the American Republic has proven itself for 200-plus years to be about as good a credit risk as has ever existed.

US fiscal resolve has been tested at least five times: at independence, in the war of 1812, during and after the Civil War, and in World War I and World War II. We can debate the exact fiscal pressures in each case, and precisely how various kinds of bondholders were treated, but the simple fact of the matter is that when the going gets tough, the US pays its debts.

At least in the near term, the chance that the US will not service its debt is vanishingly small – perhaps in the same order of probability as a large meteor striking the earth. To be sure, there are big fiscal questions to be sorted out – including how much the government should spend and on what, as well as how much tax it should collect and by what means.

There is also the vexing question of how much debt is too much for the modern US. In a world where international investors (from both the private and official sectors) routinely wring their hands about US fiscal deficits – and then go out and buy more US government debt – who knows the answer?

Countries never default because they can’t pay their debts; there are always ways to decrease expenditures or raise taxes. Countries default because their political processes bring them to the point where the people in power decide, for whatever reason, not to pay the government’s debts.

It is not difficult to identify who would bear what costs if the US did not pay – or if it disrupted markets by not increasing its debt ceiling. Everyone who borrows or interacts with the credit system in any way would suffer a shock that would make the crisis of 2008 look small!!

Among others, the US corporate sector – big and small business – would be livid. To be sure, executives and entrepreneurs like to shake their heads over the current US fiscal deficit. And some of them engage constructively in debates about the real issues: how to control health-care costs, prevent future financial crises, and end America’s expensive foreign wars.

But these are the issues for the presidential election of 2012, in which one hopes for debates that will set a more encouraging fiscal agenda for the next 20-30 years. How and when America’s budget problems will be resolved is unknown, but US fiscal history is encouraging – the Republic has managed and survived crisis before.

Simply put, America will not score an own goal over the debt ceiling – and John Boehner, Speaker of the United States House of Representatives, who's leading the Republican Party's charge on fiscal policy, arguing that his side needs to see 'trillions of dollars' in spending cuts in order for Congress to approve an increase in the US government’s debt ceiling is simply making threats that are not credible. 

Framing the issue this way creates a major problem for Boehner as it will directly, completely, and quickly antagonise one of the Republicans’ most important constituencies – the US corporate sector. 

Therefore, if Barack Obama’s administration plays its hand well, the result will be a last-minute extension of the debt ceiling with no significant concessions. It is unclear how Boehner or anyone else would be able to portray that as a political victory.