Tag Archive for IMF Structural Adjustment

What Happens if We Fail to Raise the Debt Ceiling?

 

By Andre Michael Eggelletion

 

 

 

 

Here is some of what would happen if the Republicans in Washington refuse to allow the debt ceiling to be raised and forces the United States to default on its sovereign debt:

 

(1)      The United States would lose its triple AAA credit rating, thereby causing a significant increase in the difficulty to attract foreign capital.

 

(2)      The Federal Reserve would have to print money to cover the shortfall in revenue needed to run the government, and thereby hyper-inflate and destroy nearly all of the dollar's value.

 

(3)      Interest rates would soar to defend the crippling of the dollar caused by the Fed drastically increasing the money supply and nation going into sovereign debt default.

 

(4)      Unimaginable legal problems would then ensue as the Treasury has to decide who gets paid and who gets stiffed.

 

(5)      The stock market would see a 1000 point drop in a single day, as money is transferred into precious metals and cash reserve.

 

(6)      The price of precious metals would spike to astronomical levels.

 

(7)      Bond prices would collapse as yields soar to entice foreign capital

 

(8)      Government payments to all parties, except foreign bond holders, would cease or be cut by 60 to 80 percent

 

(9)      Federal, State, and Local agencies would implement an across the board freeze on all expenditures, including salaries.

 

(10)  Citizens on supplemental income, such as Social Security and Medicare would severely cut their spending, and the ripple effect would be felt throughout the economy. All businesses from the coffee shop, to the car dealership and hardware store would see a catastrophic loss of business. 

 

(11)  Those businesses and the vendors supplying them that initially survive would have to begin massive lay-offs and downsizing to stay alive.

 

(12)  College students on grants and loans would end up dropping out due to their inability to pay dramatically increasing tuition and rent costs, and return home help their families.

 

(13)  Those states, cities, and industries that depend on tourism would see a crushing loss of revenue, requiring many to declare bankruptcy.

 

(14)  The government could be forced to privatize much of the nation’s property and transportation infrastructure to collect badly needed revenue.

 

(15)  A period of draconian austerity or some serious belt tightening would have to be imposed while the government restructures its debt.

 

(16)  The United States may have to turn to the International Monetary Fund for structural adjustment loans and other assistance. The IMF would then impose the same programs of privatization of our infrastructure, liberalization of our capital markets, and austerity that have been offered to Third World countries and defaulting nations in the European Union.

Republicans should be ashamed of themselves over the fact they are a big part of the reason why this nation is in the financial shape it is in right now. They spent money like sailors during the Bush years and told us that deficits didn’t matter. They pushed for war in Iraq, which turned out to be the greatest strategic blunder in American history. They deregulated our financial system, and allowing commercial banks to become little more than gambling houses, and allowed corporations to move our jobs overseas. Now they want that same public that they abandoned to pay for the excess and malfeasance of those who they allowed to game the system. If the president refuses to force the beleaguered public pay, then the Republican leadership in Washington has said they will obstruct raising the debt ceiling and allow this great country’s reputation and credit rating to be irreparably damaged. In other words, they are willing to allow an economic perfect storm to ravage this entire nation just to make President Obama look bad and assure more fruitless tax cuts for millionaires and billionaire who don’t need it.

It takes a cold hearted person to ask America’s elderly to take cuts in their Social Security and Medicare benefits, after they have worked hard all their lives and paid into the system, and do it at a time when the costs of living are higher than they have been since the Great Depression. Our elderly are being asked to choose between paying for food and medicine, and paying their rent. For what… so rich people can get another ineffective tax cut?

The GOP is actually callous enough to satisfy the avarice of the rich at this challenging time largely of their own creation, that they have called for elimination of vitally needed programs such as day care, food stamps, and virtually every established measure of benevolence in America. Their proposals are not only shameful and unfair; they are against the will of a vast majority of the people of this country, as polled by Kauffman Economic Outlook: A Quarterly Survey of Leading Economics Bloggers, Second Quarter 2011.

The Economic Consequences of Revolutions in the Middle East

 

By Andre Michael Eggelletion

As the most comprehensive revolutionary movement in 60 years sweeps through the Middle East and Northern Africa what will be its economic impact on the world economy? We have already seen democracy movements topple regimes in Egypt and Tunisia. The push for change is still underway in Bahrain and Yemen. Protests in Jordan, Morocco, and Syria are raging. The UN, though somewhat divided, has decided that the Gaddafi regime in Libya must go. It must be understood that the economic consequences of these seismic regional upheavals will be significant as they ripple around the world. The Middle East and Northern Africa will need the economic and political support of the international community to bring stability to the region and reduce the economic consequences to the rest of the world. The plan must be meaningful, workable, and sympathetic to mitigate the spread of the economic carnage. The following challenges pose a threat to the whole world, and must be dealt with as decisively as possible.

The budget shortfall challenge for the region:

Some of the countries experiencing revolution in the region have had to enact domestic spending measures to try to bring calm and restore the lives and businesses of their rank and file citizenry. Unfortunately these measures have created huge deficits, increased their debt, and jeopardized regional economic stability. This has come at a time when tourism and foreign capital flows have been reduced significantly throughout the region because of protests in the streets. This loss of revenue has further compromised the ability of those governments barely clinging to power to offer a sustainable response to their chronic structural economic problems.

Unacknowledged cause of the revolutions:  

To characterize what’s going on throughout the region as a democracy movement is too limited to describe all that drives the protests. The current upheaval is as much about economics as it is about politics. The autocracies throughout the region have been overtly authoritarian for centuries, and they have been the norm. Now that globalism has facilitated the cultural diffusion of the material aspects of Western society, the people of the region want more of it. In short, they like the fashion and amenities of America and Europe, but not necessarily its politics.

In reality, much of the thrust behind the protests is the fact that food and energy has become too expensive for the average family to afford. Notwithstanding the fact that the abuse of these leaders has played a part in causing the revolts, it was the spike in essential everyday commodities that became the straw to break the camel’s back.

Lack of confidence:

Given the fiscal problems within the EU and the US, combined with a history of hardship under the IMF’s structural adjustments, there is confidence crisis in the Middle East about the effectiveness of future Western inspired economic reforms. There is a high level of uncertainty throughout the region over what kind of economic system should be put in place, and whether or not it will actually improve their lives rather than enslave them to debt. It is this uncertainty that will exacerbate a painfully slow implementation of a new system and prolong economic instability.

Refugee Crisis:

Like hundreds of thousands of suffering Sudanese refugees have flooded into Chad, in like manner, neighboring countries to those experiencing the chaos of revolution are under increasing tremendous stress from the added economic burden of absorbing refugees. Many Egyptians and Tunisians have flooded into Italy and Europe. At the same time, revolutionary forces in Libya, which is sandwiched between Tunisia and Egypt, have been inspired by the successful ouster of the authoritarian regimes of their neighbors. Europe and Italy fully expect no soon end in having to absorb Libyan emigrants along with those from rest of the region. With mounting sovereign debt problems affecting the entire EU by way of regional monetary integration, the refugee crisis threatens European economic recovery, and poses deeper social problems with integrating a broadening Islamic demographic.

Higher Oil Prices:

The revolutions in the Middle East and Northern Africa have contributed to the recent rise in oil prices, and are having a depressive impact on the global economic recovery. If the scope of the revolutions and the associated conflagration broadens much further, it will lead to oil prices moving much higher for a very long time and the termination of the global economic recovery. The reason for such a long-term outlook for higher oil prices becomes confirmed when China and India’s industrialization is considered. Industrial growth in these two countries alone ensures a high demand on steadily decreasing oil reserves for the next several decades. Without a doubt, China and India’s thrust for oil, combined with the challenge of securing production and distribution systems for the dwindling resources of the Middle East forms major support for prolonged higher oil prices. The world would be wise to prepare for the point when rising crude prices will stop the fragile global economic recovery in its tracks. The only question is: where is the tipping point? Many feel we may have already reached it.

If they go down we go down:

In the final analysis, we must understand that transition from one state and condition to another in any system is always chaotic. The revolutions in the Middle East and Northern Africa will not be an exception to that immutable principle. Because the global economy has linked the economic fates of all nations, no one will be immune to the effects of these seismic political changes. Therefore, the entire international community must understand that a tenable aid construct for all parties concerned must be implemented to mitigate this historic event of international significance. These countries under revolutionary change must have the financial assistance and political guidance they can respectively afford and utilize. Donor nations and their banking institutions can no longer afford to continue to offer unserviceable lending agreements to aid these struggling societies yearning for freedom and prosperity. To expand upon the words of President Kennedy: Under our global economic construct, if we cannot save the many societies who are poor, then we cannot save the few who are rich. In other words, if they go down, we go down. When any region gets a cold, the rest of the world will start sneezing. This is the nature of a world order without sufficient economic barriers to isolate problems at their origin, and insulate everyone else from the carnage.  

Baby Doc Arrested in Haiti, What now?

 

By Andre Michael Eggelletion

Former Haitian dictator, Jean-Claude "Baby Doc" Duvalier, was taken into custody today after a surprise return to Haiti Sunday night from his 25 year-long exile in France. Duvalier was overthrown in a popular uprising in 1986. Why he returned is unknown at this point, but his arrest does demonstrate that the Haitian government is trying to establish order.

Political conditions in Haiti

Baby Doc’s return came at a time when the political system in Haiti is in chaos as a result of its recent unsettling presidential election. The Organization of American States has noted widespread irregularities and fraud in the electoral process. Now, the country is dealing with a delayed runoff election, wherein no one knows who the candidates are. The current President Rene Preval has been harshly criticized for his handling of the earthquake. Nonetheless, because of the flawed election, and the need to demonstrate stability to donor nations, the Haitian Parliament had to approve an extension of Preval’s term, which ends February 7th, until May.

The economic challenges for Haiti

Haiti is the poorest country in the western hemisphere, and now stands on the verge of complete economic, as well as political and social collapse. With civil unrest on the rise, Haiti’s political instability continues to stifle growth. Baby Doc’s arrest should help assuage donor’s concern. Order must be restored very soon or badly needed investment and aid from the rest of the world will continue to be restricted.

The most immediate need is continued humanitarian relief to feed and shelter Haitians still struggling in the aftermath of the earthquake and weather related catastrophes. Jobs, investment, and industrial and agricultural infrastructure are needed to mount long term stability.

Haiti remains isolated from the prosperity boom brought forth through globalism in developing nations. Companies based in east and central Asia have been the primary beneficiaries of globalism. Some businesses in those areas of the world would love to take advantage of the attractive Haitian labor market, but are reluctant to do so because of the instability. As a result, critically needed market based foreign capital inflows now hang in the balance, as well as $10 billion in aid pledges from rich countries.

Was Baby Doc trying to return to power?

On Sunday at the airport in Port-Au-Prince, Jean-Claude “Baby Doc” Duvalier told local reporters, and the remnant of his old political support, that he came to “help” his country. Duvalier is said to have wanted to run for the presidency four years ago, but Preval threatened to arrest him and make him face charges and trial if he came back.

The Chairman of the Council of the Caribbean Community (CARICOM) Monday criticized the return of Baby Doc to Haiti, saying that his return could further inflame the already shaky political situation in the French Speaking CARICOM country.

The history of Jean-Claude “Baby Doc” Duvalier’s rule in Haiti

During Baby Doc’s rule, political opposition was not tolerated and the legislative process was a rubber stamp. He used most of the proceeds from the country’s tobacco, and other resources, as his own personal private slush fund. Human rights abuses under Baby Doc’s regime, particularly toward his opposition, were incommensurable. Nonetheless, aid from the U.S. was restored to Haiti under the new “Baby Doc” government in 1971 by the Nixon administration. Nixon’s policy toward Haiti remained one of engagement, even as he siphoned hundreds of millions in aid from the United States. By 1980, Baby Doc had siphoned $16 out of $22 billion in IMF structural adjustment loans. Many find it had to believe that Baby Doc kept the entire $16 billion in ill-gotten gains all to himself, and believe some of that money went to others.  

The Chairman of the Council of the Caribbean Community (CARICOM) Monday criticized the return of Baby Doc to Haiti, saying that his return could further inflame the already shaky political situation in the French Speaking CARICOM country.

In conclusion

Whether or not Duvalier was attempting a return to the Presidency or not is unknown at this time, and after his arrest, is a moot point. I just hope that the Obama administration will have a healthier regard for human rights, as well as democracy for the Haitian people, than previous Republican American presidents have had. Nixon effectually rewarded Baby Doc and excused his thuggish behavior. Ignoring a solution from CARICOM, and cries for help from former Haitian President Jean Bertrand Aristide, former President George W. Bush refused to support the notion of democracy 600 miles away in Haiti. Instead Bush allowed the democratically elected Aristide to be overthrown in a coup, while at the same, going half-way around the world to impose democracy on the people of Iraq. Only time will tell what will happen this time. In the meantime, we hope for the long-delayed justice for Baby Doc’s victims, and a swift end to the current suffering.