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The tragic fall of the House of Greenback
Global Times | August 01, 2011 03:31
By Global Times
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Investors and governments around the world are holding their collective breaths, waiting for the result of the partisan fight on the Capitol Hill.
A small group of Tea Party members has essentially taken the global economy hostage for its ideological interests.

Despite repeated warnings from the US government and treasury holders around the world, Washington is unable to stop its system, built on compromise, from being abused by a handful of fanatics. The stakes at play, however, are the future of the US economy and the global economy at large.

It is increasingly difficult for Washington to enact real change, and instead it remains stuck in endless rounds of finger-pointing.

Loopholes in the system have been taken advantage of by political extremists at the expense of shutting down the US government.

Concerned countries, including China, that are often lectured by the US to change their political systems, are now watching to see if Washington can overcome its systemic barriers to fix these deep-seated problems.

Shutting down the government may not be unimaginable to Washington. But it will lose its veneer of global leadership if it cannot pull itself together.

This is not meant to intervene into other countries' internal affairs. A delay in reaching a deal to raise the US debt ceiling would mean a default. It would cause serious consequences to the global economy and wreak unfathomable loss to US treasury holders, with China the biggest among these.

There is a chance that the debt crisis may be avoided at the last minute where the two chambers may work out an 11th hour deal. But this thin possibility will hardly make the US creditors feel any better. It simply means delaying a potential implosion if Washington does not discipline itself fiscally.

Fiscal recklessness has entangled the US economy. Raising taxes and cutting budgets are the only options to put its financial house back in order. Washington has no choice but to tighten its belt. However, electoral politics mean neither choice is desirable.

It resorts to quantitative easing and the forced appreciation of other major currencies to keep itself afloat. The US is asking the world to pay for a life that it can no longer afford.

The US fiscal situation is in a profound mire. Both its domestic system and the financial system it leads need an immediate overhaul.

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