Obama warns of 2nd financial crisis

MiddleClassCentrist · June 15, 2011

http://www.cbc.ca/news/world/story/2011/06/14/obama-debt-ceiling.html

Obama warns of 2nd financial crisis

Bernanke also warns of possible market disruptions

Congress must raise the American national debt ceiling or risk causing another global financial crisis, says U.S. President Barack Obama.

In an interview Tuesday with NBC's Today show, Obama said "the full faith and credit of the United States is the underpinning not only of our way of life, it's also the underpinning of a global financial system. We could actually have a reprise of a financial crisis, if we play this too close to the line. So we're going be working hard over the next month," he said.

But Obama also expressed confidence that Republican leaders want to avoid such a situation and said he expected lawmakers will reach agreement on how to increase the debt limit "in a sensible way."

The government has said it will exceed its $14.3-trillion debt ceiling on Aug. 2.

Later in the day, the chairman of the U.S. Federal Reserve, Ben Bernanke, urged Republicans to support a vote to raise the ceiling. He said threatening to block the increase to gain deeper cuts in federal spending could backfire and worsen the economy.

Bernanke, in a speech in Washington, renewed warnings that even a short delay in making payments on the nation's debt would cause severe disruptions in financial markets, damage the dollar and raise serious doubts about the nation's creditworthiness.

Federal Reserve Chairman Ben Bernanke,, shown June 7, warned Tuesday even a brief delay in making U.S. debt payments could disrupt financial markets. Federal Reserve Chairman Ben Bernanke,, shown June 7, warned Tuesday even a brief delay in making U.S. debt payments could disrupt financial markets. John Bazemore/Associated Press

"I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job," Bernanke said.

He called on Democrats and Republicans to develop a credible long-range plan to attack the nation's soaring budget deficit. The deficit is on track to top $1 trillion for a third straight year.

Budget negotiators resumed talks Tuesday led by Vice-President Joe Biden. They are trying to reach an agreement that would tie spending cuts with an increase in the debt limit.

An increase of $2.5 trillion in the debt ceiling would allow the government to operate until early 2013, getting policymakers past the November 2012 elections.

Some Republican lawmakers have questioned the Aug. 2 deadline. The government could avoid a default by selectively paying some bills with government tax revenues including making payments on the debt as they come due, they say.

Bernanke challenged that argument. Bernanke said given the size of the debt and the uneven flow of government revenue, such an effort would buy only a short amount of time while raising unnecessary concerns in financial markets.

"While debt-related payments might be met in this scenario, the fact that many other government payments would be delayed could still create serious concerns about the safety of Treasury securities among financial market participants," Bernanke said.

The administration and Congress are now focused on cutting long-term spending, the price for increasing the government's borrowing authority.

Ethanol tax credits targeted

One proposal for achieving that would have the government eliminate ethanol tax credits that pay the oil industry $5 billion a year.

But the Senate sidetracked a move to end the subsidy for ethanol, a corn-based additive blended with gasoline to make alternative fuel.

The vote was 40-59, less than a majority and far fewer than the 60 needed to advance the measure drafted by Oklahoma Republican Sen. Tom Coburn.

Coburn said they are wasteful subsidies for an industry that no longer needs them.

"The days of placing spending programs in the tax code and giving them holy status are over," Coburn said. "Ethanol is bad economic policy, bad energy policy and bad environmental policy."

Coburn's is supported by conservative groups such as the Club for Growth and environmental groups such as the Sierra Club.

The biggest defenders of the subsidies, however, include farm belt conservatives leading the charge for less government.

Ethanol supporters argue that with gasoline prices hovering near $4 US a gallon, it is no time to repeal tax credits that encourage alternative fuels.

I always get sick to my stomach when reading about this... The baby boomers are leaving quite the debt in this ponzi scheme of a society. The sad part is that the baby boomers will likely keep this up for the rest of their lives so that the younger generation can pay it back later. Being 27, much of my life will be spent supporting the artificially high standard of living that most my age will never experience on their own.

Topaz · June 15, 2011

On the weekend, I was listening to a financial advisor, and in HIS view the US is in grave danger money-wise. He said he predicted what has happen with the US banks, Fannie May etc. Now he says within two years the US will go down financially because, right now they can keep printing money to stay afloat but other countries like Russia and China are now turning away for the US dollar , which is recognized as the world currency,or everything measure in US $$. China which holds billions of US treasury bonds are spending them like crazy, buying up to get rid of them. The danger to the US is when the rest of the world devalues the dollar and refuses to except it, the US won't be able to print money because it be all most worthless, and down it will go like Russia and other countries. He also said human beings have a hard time believing in things that has never happen before and think it will NEVER happen. His advise to the Americans was to prepare for the possibility of this by getting as much of their money into other countries currency, like half if possible, which he says he's done. Can you imagine IF this came true and the US banks failed and people couldn't get to their money? It will be like the Xmas movie with James Stewart, "It's a wonderful Life", when people ran to his bank to withdraw their money. The advisor said most of the states in the US are in the red and that's why the California let out some prisoners early and why other states were trying to take away from stateworkers wages and benefits. Think there ANY truth to this?

GostHacked · June 15, 2011

I don't think the last financial crisis had ended at all. So I am not sure if this is another one, or if this is just part of the previous one.

But anyone who has been paying attention to this can only say .. durrrrrrrr.

Sir Bandelot · June 15, 2011

I don't believe such a huge debt can ever be paid off, short of war or complete implosion of the United States, and likely all of its appendages (ie, Western nations, Canada...).

When the Soviet Union collapsed, there was much accolades and hand-clapping on the part of the west, that the cold war had ended. We had "won",and it was by our doing. I had my doubts, and felt it was just the beginning of something larger looming and waiting to happen. Some 20-30 years later we are seeing the next collapse. Yet this one is more like a slow death as governments do their best to try and hold off, what is inevitable. By ignoring the problem, or intentionally allowing it to continue only worsens the final outcome. Perhaps the soviets did the right thing, utterly brave, in order to stave off the worst possibility. We in our selfish capitalist greed do not seem to be quite so wise.

Edited June 15, 2011 by Sir Bandelot

bush_cheney2004 · June 15, 2011

I don't believe such a huge debt can ever be paid off, short of war or complete implosion of the United States, and likely all of its appendages (ie, Western nations, Canada...).

The US has no intention to ever pay "pay off" the entire debt, just reduce the deficits and amount of debt service. Other nations are playing the very same game, and some are in worst shape as a percentage of GDP.

Sir Bandelot · June 15, 2011

The US has no intention to ever pay "pay off" the entire debt, just reduce the deficits and amount of debt service.

Good luck with that.

Canada did well in the 1990's to largely pay off and reduce our national deficit. I recall, all Canadians were called upon to 'tighten our belts'. This is the reason we weathered the first economic crisis a few years ago and are in such a strong position today.

As for US, and maybe everyone, well, as the saying goes beware the second death.

"Those who die in mortal sin without repentance, locked into their proud rejection of God's love, exclude themselves from the Kingdom."

bush_cheney2004 · June 15, 2011

Good luck with that.

It has nothing to do with luck.

Canada did well in the 1990's to largely pay off and reduce our national deficit. I recall, all Canadians were called upon to 'tighten our belts'. This is the reason we weathered the first economic crisis a few years ago and are in such a strong position today.

Yet Canada still has over half a trillion in debt and budget deficits. Strong is only a relative term, and means nothing if the big kahuna goes belly up. That's why so many Canadians worry about the US economy and fiscal imbalance.

As for US, and maybe everyone, well, as the saying goes beware the second death.

"Those who die in mortal sin without repentance, locked into their proud rejection of God's love, exclude themselves from the Kingdom."

God went bankrupt years ago...the banks repossessed his crib.

Moonlight Graham · June 15, 2011

I think we're seeing the drastically negative effects of deregulated neoliberal economic policy, and the massive flaws inherit in the unsustainable perpetual profit-maximization that is capitalism. We've been leading up to this point for many decades.

The global capitalist system needs major reform, and governments (and our society in general) must make major attitude and policy adjustments or we may see a complete collapse of the global economy. How about that for a wake-up call?

We may yet possibly see an end of "capitalism" as we've known it for centuries as the system used in the global economy and individual western states. What will take it's place? Who knows.

Edited June 15, 2011 by Moonlight Graham

bush_cheney2004 · June 15, 2011

I think we're seeing the drastically negative effects of deregulated neoliberal economic policy, and the massive flaws inherit in the unsustainable perpetual profit-maximization that is capitalism. We've been leading up to this point for many decades.

Would that go with the "drastic" economic growth and "massive" global development?

The global capitalist system needs major reform, and governments (and our society in general) must make major attitude and policy adjustments or we may see a complete collapse of the global economy. How about that for a wake-up call?

Then let it collapse. What are you trying to preserve if it is "unsustainable"?

ToadBrother · June 15, 2011

The US has no intention to ever pay "pay off" the entire debt, just reduce the deficits and amount of debt service. Other nations are playing the very same game, and some are in worst shape as a percentage of GDP.

As I understand it, the US has not paid off the national debt since the Civil War. As you say, the trick with any nation is not so much the debt, but managing to service it and not have your bonds turn to junk. Despite declarations of woe, the US is nowhere near the kind of situation Greece is, and I can't really see how it would, even there's a second dip in the global recession, it ever happening. To some extent, this is all political brinkmanship, and that's to be expected, but I do think people need to take a deep breath here. The US is not insolvent, it's bonds are not worth less than toilet paper.

Moonlight Graham · June 16, 2011

Would that go with the "drastic" economic growth and "massive" global development?

No doubt capitalism is greatly responsible for the incredible improvement in standard of living and tech advancements over the past few centuries. But under-regulated capitalism (or "ineffectively" regulated may be the better word) and the drive for perpetual profit-maximization at any cost (with gov'ts full support) is destroying the system. If things aren't drastically changed, we're f'ed.

Then let it collapse. What are you trying to preserve if it is "unsustainable"?

I'm not sure capitalism is unsustainable, but a capitalist system that drives to maximize profits infinitely while actors do moronic things to try to prevent inevitable business cycles is unsustainable. The status quo will likely collapse. If you continually overfill a wheelbarrow eventually it's going to fall over on you.

bush_cheney2004 · June 16, 2011

....I'm not sure capitalism is unsustainable, but a capitalist system that drives to maximize profits infinitely while actors do moronic things to try to prevent inevitable business cycles is unsustainable. The status quo will likely collapse. If you continually overfill a wheelbarrow eventually it's going to fall over on you.

You're not sure? Do you really think changes to your liking will be made based on such analysis? If the wheelbarrow falls over it is righted and filled over again. Hard core capitalists wanted to see GM go under; it was the interventionists that pumped more money into the wheelbarrow.

sharkman · June 16, 2011

So Obama goes on the Today Show? To announce the danger of a 2nd financial crisis, that's hilarious. He needs to quite posturing and trying to win the propaganda war, and instead deal with the reality that he no longer has the congress in his back pocket.

He's simply scaremongering for politics. And he wonders how he lost the Congress majority.

Moonlight Graham · June 16, 2011

If the wheelbarrow falls over it is righted and filled over again.

As has happened. What happens when you overfill it so many times the thing buckles, the wheel falls off, and pieces are lying all over the ground? Will be interesting if it happens.

Hard core capitalists wanted to see GM go under; it was the interventionists that pumped more money into the wheelbarrow.

Regulation is much different than corporate welfare.

different note: What I find ridiculous is after the dotcom bubble burst around 2000, interest rates were lowered and borrowing increased, which was a major cause of the housing crisis/bubble and other debt problems that led to the current recession, and in response to this we have lowered interest rates again to encourage more borrowing/debt and likely causing another bubble in the near future. Balls!

Edited June 16, 2011 by Moonlight Graham

GostHacked · June 16, 2011

So Obama goes on the Today Show? To announce the danger of a 2nd financial crisis, that's hilarious. He needs to quite posturing and trying to win the propaganda war, and instead deal with the reality that he no longer has the congress in his back pocket.

He's simply scaremongering for politics. And he wonders how he lost the Congress majority.

Interesting isn't it? QE3 is just around the corner!! Devalue devalue devalue!!

maple_leafs182 · June 17, 2011

Interesting isn't it? QE3 is just around the corner!! Devalue devalue devalue!!

I have been saying that for a while.

gradkiss · June 23, 2011

I have been saying that for a while.

We here in San Diego Califoria have many views, but tend to rely on logic...physics and the historical past to find that the governing of any finacial matter there in Washington DC has always ended in a tragady. It's time to take the power form their hand and even create an alterative to their dollar (legally) and manage all our affairs our selves.

We surely would have thousands more living among us if we had only accomplished this before any Republican or Democrat ran for any office from one end to the other as legislators of or for us.James Madison would even agree...as it was he who first started the Democratic Republican party to find it split today...plus as Abe Lincolyn himself stated, " A divided house has nothing to stand upon."

Everyone there have a pleasant week, as we here are not all Yanks...LOL gradkiss

ToadBrother · June 23, 2011

So Obama goes on the Today Show? To announce the danger of a 2nd financial crisis, that's hilarious. He needs to quite posturing and trying to win the propaganda war, and instead deal with the reality that he no longer has the congress in his back pocket.

He's simply scaremongering for politics. And he wonders how he lost the Congress majority.

Considering the potential for another crisis and collapse is about the Greek insolvency and default and about the potential collapse of the Eurozone, or at least the departure of the Mediterranean states and Ireland, other than funding the IMF and hoping it can keep loaning money until Greece and similar near-bankrupt states can find their way back from the abyss, what else is Obama and Congress to do about it?

sharkman · June 23, 2011

They want to go into more debt though that will not help anything. The economy never really recovered, it just looked that way because of the borrowed money Obama pumped into it. Now that he's run out of money and wants more, surprise surprise, the economy is faltering again.

Oleg Bach · June 23, 2011

He warns of a 2nd finacial crisis because any fool would know that bail outs and stimulas spending results in the same out come in time...general economic failure. The stimulas money and the bail out cash had one single purpose - the super wealthy knew that their time was up...and they could not bare facing life as an average underprivledged person - nor could they bare the thought of their children or grand children washing dishes at some fast food joint..

.The reality is that there are the sons and and grand daughters of rich noble families that are now washing dishes ---rich is not for ever nor is poor forever. Obama was desperate in his attempt to assist the rich folks that put him in office - Now he is conditioning the public to the idea that the failing rich are on their way back for another huge welfare check.

ToadBrother · June 23, 2011

They want to go into more debt though that will not help anything. The economy never really recovered, it just looked that way because of the borrowed money Obama pumped into it. Now that he's run out of money and wants more, surprise surprise, the economy is faltering again.

We can debate expenditures, but if the economy falters it won't be in large part due to deficits or increased debt in the United States, but due to sovereign debt crises in Europe. The US is nowhere near the debt-to-GDP ratios that, say, Greece or Portugal are. I fail to see the connection you're trying to draw here.

ToadBrother · June 23, 2011

He warns of a 2nd finacial crisis because any fool would know that bail outs and stimulas spending results in the same out come in time...general economic failure.....

Because that's what happened once FDR started doing that during the Depression...

I don't care what economic school you come from, there are times when just fiddling while Rome burns won't lead to a productive economy.

Oleg Bach · June 23, 2011

Because that's what happened once FDR started doing that during the Depression...

I don't care what economic school you come from, there are times when just fiddling while Rome burns won't lead to a productive economy.

Remembering the signs in the subway back in the 80s that stated a recession was on the way. I wondered why they would inflict this mood on people. Firstly a happy population is a prosperous one. No one wants to do buisness with a depressed individual. The doom and gloom harm the human spirit. It is an easy job to toss your hand over your head and say that Rome is burning and there is nothing we can do about it - how about calling the fire department? The reason Obama is letting it slide is because it is simply easier to predict gloom than take action...as they say actions are stronger than words - Obama is too word dependant.

Oleg Bach · June 23, 2011

Tell the people that good times are coming. Keep telling them that...when they are told that bad times are coming it is just a warning that they are about to be robbed on mass.

Oleg Bach · June 23, 2011

Tell the people that good times are coming. Keep telling them that...when they are told that bad times are coming it is just a warning that they are about to be robbed on mass.

Because that 1 tenth of one % that hold the wealth - will not suffer any ill effects - in fact they will turn a profit.