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You will soon be hearing the opposition flinging this number… blaming Obama for $3 million a minute being added to our deficit….

How does one respond to that? With the truth, of course…

Wow, That’s really good, especially when compared to the $20,203,057 a minute George W. Bush added to our deficit… Sure looks like we need more Democrats and fewer Republicans ….

(Remember the deficit was projected to be completely down to zero in the year 2008, had the Bush Tax Cuts never have been enacted……. ) Hence making him now responsible for the entire debt up to when Obama’s term began.

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Hurricane Irene is scheduled to blow into North Carolina, sucker punch Richmond, then follow I 95 up the Eastern Seaboard….

When the storm is over, out come the cries for Federal Assistance to cope with damages. Of course, due to Richmond’s representative Eric Cantor, this time there will be a historically low amount of assistance dollars available to be dispensed among all those states needing help….

The proper way any administration should handle these incoming and overwhelming requests, would be to say: since Delaware has always understood the interfacing required between the Federal Government and states; they will get what we need. Richmond,on the other hand, has not. Perhaps they might like to give Eric Cantor a personal call and ask him and his supporters to assist them with their finances?

Democrats Rule: Republicans Drool….

New York Times — First Drop in Number of Problem U.S. Banks Since 2006… That is the first decrease since the third quarter of 2006

Let’s see….

Third Quarter 2006 — Bush/Cheney
Fourth Quarter 2006 — Bush/Cheney
First Quarter 2007 — Bush/Cheney
Second Quarter 2007 –Bush/ Cheney
Third Quarter 2007 — Bush/ Cheney
Fourth Quarter 2007 — Bush/Cheney
First Quarter 2008 — Bush/Cheney
Second Quarter 2008 — Bush/Cheney
Third Quarter 2008 — Bush/Cheney
Fourth Quarter 2008 — Bush/Cheney
First Quarter 2009 — Bush/Cheney
Second Quarter 2009 — Obama/Biden
Third Quarter 2009 — Obama/Biden
Fourth Quarter 2009 — Obama/Biden
First Quarter 2010 — Obama/Biden
Second Quarter 2010 — Obama/ Biden
Third Quarter 2010 — Obama/Biden
Fourth Quarter 2010 — Obama/Biden
First Quarter 2011 — Obama/ Biden

And the climb back begins………

Second Quarter 2011 — Obama/ Biden

So, where as under the Bush/Cheney doctrine it took 11 financial quarters of downward pressure to get us into this hole, it’s taken only 8 quarters to begin lifting us out….

I would call that a win for the Democratic leadership and a win for the economy.

Because usually when a team comes from way behind to win the game, one usually has to give the team the credit……

First his argument, then my rebuttal. Most of you have already read the article by Warren Buffet: Stop Coddling the Super Rich.

Jeffery Miron rebuts that with Why Buffet Was Wrong

Encapsulated (read the whole in the link above), Miron says Buffet was wrong because

1) number of $uper-rich too few to make a deficit dent.
2) focusing on the $uper-rich fosters a counter-productive attitude towards material success;
3) focusing on the $uper-rich distracts us from the real problems: “policies that make no sense”;
4) the tax on capital gains needs to be zero prevent economic stalemate.
5) High taxes on income/capital gains, drive investment overseas.
6) Buffet errs by focusing on outcomes, not policies…

His closing jab…. In economics, as in sports, we should adopt good rules and insist that everyone play by them. Then we should stand back and applaud the winners.

Agreed: As in sports, we should adopt good rules and insist that everyone play by them……

But which rules?

Take football. Formulated in 1873 the original rules representatives from Yale, Princeton, and Rutgers met to discuss formulating rules for this new game of football. The new rules consisted of reducing the number of men on the field from fifteen to eleven. Adding a fourth down before surrendering the ball. Tackling below the waist was allowed. …..

Yet the first legal forward pass wasn’t attempted until 1906, 33 years later… after a change in rules. So when one discusses following the rules, the immediate question is, which rules are we going to go by?

When it comes to football, obviously not the purest approach, instead we go by those rules reached by a consensus by those who represent those on the field who will be playing… (Incidentally, the previous year’s (1905) season saw several on-field football deaths and serious injuries around the country. President Theodore Roosevelt (The Bull Moose) met with universities officials to find ways to make the game safer. That’s when rules were modified to allow passing.) One can see why they would want to change…..

So something like the forward pass which we take for granted, was added as an innovation 33 years after the game was formulated…

Whose rules is Miron talking about? Keynes? The Chicago School of Business? This Libertarian’s Take?

Here are the fallacies of Miron’s argument.

Are the number of the $uper-rich too few to make a difference? Miron takes Buffets 10% surcharge and multiplies it out giving an optimistic $73 billion off of the top 1% adjusted gross income of $727 billion.

Allow me to ask a question? Would it be easier to balance the budget and cut back on the deficit if we had this additional $73 billion, or if we didn’t?

That is a no-brainer. Is $73 billion everything that we need? No, it is not $4 Trillion.. It is a $73 billion that should have already been in our system had the Bush Tax Cuts not been extended…. It is one simple step towards that $4 Trillion.

Furthermore, just playing with averages, taking this $73 billion in taxes, that Warren Buffet says his group would feel good about giving, especially since 99% of the population are suffering so much,…. This top 1% would at the end of one year…(.assuming they paid Buffet’s average of 17%, plus the proposed 10% surcharge, ie 123 billion plus 73 billion) ….be responsible for $196 billion of America’s Revenue.

Leaving $531 billion of their aggregate income left over for private investment. If receiving a return of 3% on that money (I earned 40%), just sitting their money gains an additional profit of $16 billion the subsequent year, which will will in itself, yield the following year at (17% + 10%), an additional 4.3 billion in revenue once it is taxed…..

So exactly the amount the Bush Tax Cuts are costing us per year of income by continuing them for the top 1% using the figures compiled by the extinguished Mr. Miron, is…. $75 billion if their rate of return that year, was 3%.

This year alone, we will be borrowing $1,270 Billion just to fund our Federal Government Spending…. So how can someone realistically say ,,, NO NEW TAXES! and continue borrowing $1270 Billion at hopefully less than 3% ($38 Billion) when they have the $uper-rich lining up to cut them a check for $73 Billion? And all they need to be, is asked? Instantly our budget deficit drops slightly and we now only have to borrow $1195 Billion which costs us at 3%, $35 Billion… We just saved $3 Billion in interest a year!….

How can anyone say this is a bad plan? Especially when it impacts ONLY 236,833 taxpayers….a number slightly less then the number of citizens of the nation’s second smallest state (Delaware), who have a bachelor’s degree or higher (246,932)

So Take Down 1: Miron says Buffet is wrong because the $uper-rich can’t make up all the difference! Correct: but that doesn’t make Buffet wrong; it makes not raising taxes on the wealthiest 1% wrong, because that $75 billion that is a difference, is one that will be paid at some point by 99% of Americans making less than $1 million a year.

Next:

2) Focusing on the $uper-rich, fosters a counter-productive attitude towards material success.

No offense to the distinguished Mr.Miron, but this is simply a stab in the dark. It, believe it or not, is attempting of all things, to use… the discipline of psychology, as an economic instrument. Most psychologists, can’t tell me what psychology is… As a science, it is very imprecise. In fact, I remember back in the day, when psychology was called “the discipline without discipline.” because it was mostly made up. Those students who could make up theories on a dime, and find threads of reality to defend those theories, did well. Back then, it wasn’t real science. There was no way to invade the brain to test ones theories… (Seriously, everything we do, is phallic? That’s what that discipline’s founder Freud said…)

Miron’s own words: The way to promote a hard-working, entrepreneurial and innovative society is to celebrate great wealth so long as it has been earned by legitimate means. When this is not the case, policy should target the wrongdoing directly, not demonize everyone who hits it big. This is called: preaching to the choir; it is repeating back what those listening want to hear; it is not something based in reality.

I know where he is coming from. Anyone who’d stood in West Berlin, and looked out across East Berlin, knows that the economics used on West Berlin side, were the more preferable. Communism wiped out wealth, and eventually they had no bread. But they had to actually kill millions of citizens to reach that point.

Denmark is pretty cool place to live; it’s top tax rate is 51$. Norway is ranked the best place to live in the world: it has a 40% tax rate. Belgium is a marvelous place: taxed at 50%… So there is a balance that can be achieved. Higher taxes do not necessarily imply an East Berlin. In fact, these three countries, for its own citizens, are the equivalent of a cruise ship. You pay one price (taxes) that you can afford, and everything thereafter is free. Really, if there was something wrong with that concept, why would so many Americans take cruises?

With those two myths out of the way, let’s look at his statement stripped of bluster, and poke at the skeleton of fact…. A quick question rather illustrates the inanity of the remark…

Dear Reader: you who can barely pay your bills, if you could make $28 Billion a year, would you want to? (Oh, I forgot the part where you really make $56 billion but give $28 back to the government, but that doesn’t really affect your choice now, does it?) Are you really going to stick with your $30,000 assembly line job, because if you made $56 billion, the government would take 50%?

So that line, that celebrating wealth is a requirement to motivate an entrepreneurial society, I can buy only if confined in certain contexts. It certainly doesn’t mean that the out-paying by the top 1%, of 10% more of their income to the Federal Government is going to stop all entrepreneurial activity… Did every business close its door, when our local electric company jumped its rates 60% over the previous year? No? Not one? And those same businesses won’t shut down if taxes go up. Paying taxes is just an additional cost of business. Fortunately people will always worship money, and will always work to make it, irregardless of the amount they pay out in taxes, provided that the amount they do make, is still deemed worth their effort…

Remember, the top marginal rate in 1944 was 94%… Back then the economy was booming; an entire Liberty ship was being built in 17 days! Again, we had boom years during the 1950’s (top marginal rate 82%) and again in the 1960’s (70%) and again in the 1970’s (70%)…. Real History disputes that statement by the distinguished Mr. Miron and his implication that increasing taxes on the wealthy, cause a lack of effort and growth.

Take down number 2: Just because a person says values are important for entrepreneurship and a productive economic system, doesn’t mean they are. The Amish do quite well in their business endeavors, but I doubt anyone would believe they worship and celebrate wealth. Certainly taking 10% more from the top 1%, will not destroy America’s work ethic and cause people to stop trying to better their financial lot.

So next.

3) Focusing on the $uper-rich draws our focus away from the real problems: policies that don’t make sense. Most specifically, policies that make no sense in the first place because they inhibit economic growth and that simultaneously redistribute from low-income households to the middle and upper classes.

Examples he offers: The deductibility of home interest rates; the favorable tax treatment of employer-paid health insurance; numerous loopholes for favored industries; Excessive licensing requirements, permitting fees, restrictive examinations and other barriers to entry into medicine, law, plumbing, hair styling and many other professions; crony capitalism; the too big to fail doctrine.. all of which inhibit an entirely free market place from functioning as it theoretically could.

He argues; the home interest rates benefit upper income levels, because the poor continue to rent. Employer based health insurance gives the wealthier greater benefit than the poor, causes excessive use, raises the cost for all; loopholes for favored industries, interfere with economics because what you sell, is not as important as “who you know”.
Excessive permits restrict competition, raising prices for the privileged few. Being too big to fail props up bad companies and swells executives salaries.

He argues these policies are what shifts the money flow upward: benefiting those more who make more, and taking money from those who now make less…. For example, bailouts allow a few to receive great gains in times of good, and taxpayers to pay the costs in times that are bad… Obviously a big shift of money upward.

Back to his original statement: focusing on the rich draws our attention away from these real problems…

No it doesn’t… Take Down #3: Each of these factors is a piece of the puzzle. Just taxing the wealthy 1$ an additional 10% does not take attention off or away from these problems. All pieces of the puzzle need to be in place before the puzzle is deemed completed. And though some of those other items mentioned might theoretically cause an upward shift of money, it appears you failed to see that a majority of these items pump extra money into our economy at the bottom. That money flowing upward through the economy, is the best thing that can happen for the two quintiles of Americans resting on the bottom.

Fourth, he argues that capital gains needs to be taxed at zero. Reminds me of my Santa Clause wishes when I was tiny. Of course anyone with money, would “wish” that capital gains need to be untaxed… The inherent problem with that scenario, is that it benefits only those already endowed with wealth. Those others who can’t save, see no benefit aat all, from it…

Mr. Miron states: Economists agree broadly that an efficient tax system should avoid taxing income, dividends and capital gains to promote savings, investment and growth… But are they right? If so… why then does it never work?

When tax rates were extremely high, the economy boomed. Think about that. Of course it would. If you were about to be charged 94% of everything you made after expenses, ….. you would do everything within your power to raise your expenses higher so that you had little or no income to be taxed!… You might build another factory; you might add on to your business; you might increase your sales force figuring more salesmen, more sales possibilities; you might decide to give a raise or two or three, because better to have experience by your side, than have it walk because someone else was less stingy with their money that they had to spend or lose too. Great things happen when you raise the top marginal tax rate.. And they happen for this very reason: so the amount of tax paid to the entity demanding it, is as small as possible….

Does this decrease the amount corporations pay to the treasury? Yes, but, those new, additional people now working for that corporation, will be paying income taxes; all that money was unavailable before. And once those people who are now working, are buying, the sales tax revenues climb back into each state’s coffers.

But lets look at the opposite spectrum. What happens when capital gains actually go to zero? In a global economy, money does flee the country. And it should. Why should a business build a manufacturing plant here, when he can build overseas for 1/10 of what his cost would be if built domestically? Currently, the unfortunate truth is this: there is no reason to build here in the US, unless one is forced to by a higher tax rate.

After all, what’s the point in building a US factory with ones current profits, a factory that may lose money it’s first ten years (costing you to have opened it), only to barely break even in it’s tenth year?

When instead, one could put those profits into a high-growth foreign investment fund and make 40% this past year alone! When tax rates are low, or close to zero… what incentive is there to invest in the United States? Absolute zero.

Conversely, if one owns a manufacturing site overseas when tax rates go up, one is better off to close it down, move back here, and open a new plant in the US, where one can expand, then write-off their taxes to zero because of all those expansion expenses.

And that is the problem that occurs when one follows the Chicago Business School’s model in a global economy. It doesn’t keep money in the US. If Reagonomics had said,”we will cut taxes but only on that amount of physical capital you put inside this country, then it might have worked. Unfortunately when it passed, it didn’t make that specification.

But that is exactly what higher tax rates do. If you raise the corporate and top marginal tax rates, expansion quickly follows as all that profit (1.7 Trillion this past quarter) tries to find somewhere to go… For example, if you are a bank, you make loans. Capital suddenly becomes available again.

Take down number 4: Contrary to what economists say, historians are right when they point out that an economy was far more lively and productive, and investment in physical capital flourished, when tax rates were higher. As soon as taxes were cut, jobs were as well.

Buffet is scolded in this remark.

“Buffet asserts that taxing capital income has never deterred anyone from investing. Well, then he has never discussed the issue with me or many of my friends.”

Again, a shallow statement. Are you telling me that you really expect us to believe that those with money put it under their mattress, in a tree with a hole, or under their squeaky floorboard, because tax rates go up?

You really expect us to believe that a person is going to choose to settle for a loss, just because tax rates are going up, instead of settling for some solid wins, minus the amount taxed off the gains?

If so, your friends are fools.. No personal offense; it’s just that only fools would pursue such a policy. Granted, I’ve met some; they are out there.

But I highly agree with you on this point.

More importantly, taxing investment returns plays a huge role in what kinds of investments occur, and where, even if it has minor effects on the amounts..

It sure does. If you want economic growth, and put that 2nd quarter’s $1.7 Trillion dollars of profit back into the economy where it can grow jobs, then you’d better raise the rates on capital gains and the top marginal tax rate of the top 1% of income. Suddenly there is an incentive, one that has been missing since 2003, to build and expand your business here in America.

Take Down Number 5: high taxation of investment drives investment overseas…. History proves this wrong: high taxes keep businesses here. Low taxes send companies overseas because that is where the higher profit is. If you can keep more of your money by burying it back into your business, then that’s what you do. If you build overseas, and Uncle Sam insists that you pay 40$ of that profit over here to this fed, you soon will realize it is better off to have put that profit into an expansion facility here in the US, and make more money per day, per week, per year through increased volume (all of which comes to you), as opposed to investing and then turning 40% over to the IRS…

Take down #6: Buffet focuses on outcomes; not on policies.

In fact, most citizens of this country are tired of policies being argued back and forth. They want outcomes.

Outcomes are what it’s about. All proper focuses need to be on outcomes. The outcome is what is important. Whatever policy which can reach that desired outcome is desirable. Some policies may work at different time and different people. Some policies may not work at all. But focusing on the outcome is exactly what the American people are saying they want. Forget policies and philosophies.

Fix it please…Make the top 1% bear more of the burden, please? It worked so well before, make it work that well again, please?

So it comes down to deciding which set of rules we are to follow. A set of rules desired for by a very small select group of people, the top 1% of the wealthy? Or… rules that will benefit the other 99%…

Sometimes when the results don’t quite work out, changing the rules is deemed a good thing…….

It’s time to tax the wealthy. We’ve starved the economy long enough.

Eric Cantor was tipped off early that the firm of Standard and Poors was going to devalue the dollar, irregardless of whatever deal they came up with.

Prior to the devaluation of America’s Treasury bonds, Eric Cantor had sent a letter (how did he know…), warning the Tea Party Republicans that pressure to raise taxes would be ratcheted up by the upcoming Standard and Poor’s devaluation….

He was right… Thank goodness, after 12 years, with this devaluation, we are finally starting to hear a few of the common sense arguments on the main stream media, that illustrate for all… that raising taxes to “now” be our best economy grower.. .

If you read Standard and Poors correctly, their report implies that the Tea Parties line (the one about NOT raising taxes), IS the primary obstacle that prevents the fixing of America’s debt problems… By implication, that makes the election of Tea Party candidates, the sole reason our bonds were devalued. (On the other hand, according to the ratings agencies, Obama receives high marks for his part in trying to make a better life for all Americans.)

In a secret email, Eric Cantor says…..

“Over the next several months, there will be tremendous pressure on Congress to prove that S&P’s analysis of the inability of the political parties to bridge our differences is wrong. In short, there will be pressure to compromise on tax increases. We will be told that there is no other way forward. I respectfully disagree.” Eric Cantor

He knew well in advance…

He continues….

“We have said from the beginning of the year, the new Republican Majority was elected to change the way Washington does business. We were not elected to raise taxes or take more money out of the pockets of hard working families and business people. People understand Washington can’t keep spending money that it doesn’t have. They want to see less government – not more taxes.

Back up: we were not elected to…. take more money out of the pockets of hard working families and business people……..

No one said anything about more taxes for the 99% on the bottom… At issue is how much to tax the 1% on the top…

Taxing the top 1% at a marginal rate of 40% and increasing capital gains taxes to a rate of 40%…… actually PUTS MORE MONEY BACK INTO THE POCKETS OF HARD WORKING FAMILIES AND THOSE BUSINESS PEOPLE RUNNING THE ESTABLISHMENTS THOSE FAMILIES CHOOSE TO PATRONIZE……..

So you see, Mr. Cantor.. Raising taxes on the top 1% is not a conflict of interest for you… You said so yourself….. We’ll support you in not raising taxes on the bottom 99%…

Raising taxes on just the top 1%, is good.. WHAM!!!!! It jump-starts the economy…. Whereas,….

Cutting taxes for the top 1%, is bad… We all know this is fact. You don’t need me to explain it; you know just from living through the past 12 years of the Bush Tax cuts… The last 12 years have made the Clinton Tax Hike Years in comparison, seem like the true Guilded Age..Gosh, it seems like so, so long ago, when everything was perfect.

The Bush Tax cuts, collapsed the economy…..

Tax Cuts kill jobs. Always have… always will….

(but what is really, truly, profoundly sad, is this exhortation from Eric Cantor) “When given the choice between bettering the American economy, and getting more Republicans in power, you better vote for getting more Republicans in power…Our new motto: F*ck the economy!”)

London is ablaze. Rioting.

Why?

Cuts to their budget, just like the ones we are about to do to ours….

The only reason Americans haven’t rioted so far, is because of Obama and the Democrats insistence that Federal money is being spent as part of the stimulus plan…

In Greece, Israel, and now London, Liverpool, and Birmingham, people have been without…

Which as I said above, is exactly where we soon will be…

Not to sound callous, but perhaps one must consider the British deserve it? Likewise so will we if we too follow through with austerity cuts as did all these countries that have been rioting…

In every case, austerity cuts are the instigator….

Now austerity cuts, are really a stupid way out of a budget mess.

When you get to where your expenses are greater than your revenue stream, there are two ways to solve it… One, lower expenses so they match the revenue stream; two, raise the revenue stream so it matches the expenses… Best if you do both…

Where they failed in these nations, was to tax the wealthiest to pay for these necessary programs… Just in the numbers alone it makes so much more sense if you have to piss off someone to piss of the one percent at the top,…. than piss of the 99 percent on the bottom…..

“Hey, lets give whatever the “one-percenter” asks for.. just give it to him, and what ever it is he wants, we will take it out of the little the 99% have to fight over on the bottom…. ”

So Britain did that, and now they’ve got 99% of the population mad enough to riot, and there is only 1% with any resolve to stop them…

On the other hand, if they had taxed the wealthiest one percent (just for the sake of illustration) everything he had…. he’d be pissed. But 99% percent of the population would have jobs, would buy cars again, pay rent on time, would go out to eat, would shop to refurnish their house… 99% of the population would have jobs…..

So when the one wealthy per center, strode into the poor sections of town, and began throwing firebombs at the 5 And 10 Cent Store… 99% of the populations would descend on him, and nip his riot in the bud… “Uhh, no, you ain’t doing that here…”

So from hell it appears this notion came from, that we have to cater to the top 1% …. no, we don’t; we should be catering to the 99% of those on the bottom…. What they need, and therefore, what we need, … is to raise taxes just a tiny bit, up to 40% on the top marginal rate… and re tax capital gains, up to 40%…

Pretty soon, everyone will be too busy working to even think about throwing a firebomb through a store front window…..

It is an event of national security.

Did Standard and Poors deliberately downgrade the U. S Rating to profit from selling the market short?

We capture all electronic data. We have every phone call, every electronic signal that was ever sent to or from inside of Standard and Poors…

We just need to save it, and investigate

It is an issue of national security; if such a motive exists, it is criminal and treasonous…

Was this done in good faith by some really, really stupid people, or…. is their a sinister motive underlying this very shady outcome?

Or it might be a case where perhaps their “Beers” went to their head?

Have the NSC pull up the files and let’s find out for sure…. Everyone who didn’t hear the tip and sell short, should get a little piece of him, don’t you think?

1) Advocate raising the top rates to 40%
2) Advocate raising capital gains rates to 40%.
3) Only corporate tax credits offered, will be in direct proportion to new physical capital, invested in America. No tax credits for foreign investment. No tax credits for buying another company outright. No tax credit for anything speculative in nature.

And don’t worry what Republicans say… Hell, they were arguing we should get out of the war against Germany and Japan, during the election held in the middle of WWII…

They didn’t win, btw.

Definition: Where American spending was brought up to the level where it should be, without the necessary revenue to support it.

(As evidenced by 154,000 private sector jobs being created in July.)

The problem is not with spending. The problem is the lack of taxing of the top 1%. The spending seems to be doing its job.

I’m printing this article in full: tell me, where in America can you find journalism this “fair and balanced”?

Another crisis in the horizon?

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Winarno Zain, Jakarta | Tue, 07/19/2011 7:00 AM A | A | A |

It seems the world economy has faced endless threats preventing it from sailing smoothly into a strong recovery this year.

First there was the Greek debt crisis that jolted several major banks, and then a political uprising in the Middle East that pushed up oil prices, and then a tsunami in Japan that disrupted manufacturing activities in many countries.

The world economy has not fully dusted off the adverse impacts of these three events. Yet another headwind is looming large on the horizon. This time it is the possible default of the US government of its debt on Aug. 2, if the US Congress fails to approve an increase to its debt ceiling as requested by President Barack Obama. By that date, the US government debt would have reached its maximum allocated limit of US$14.3 trillion.

The current negotiation between representatives of Democratic and Republican parties on the US budget deficit has run into a deadlock, and so the possibility is real that there won’t be any substantial agreements reached, since the dateline is nearing. Major rating agencies such as Standard and Poor, and Moody’s have warned they are ready to downgrade the US government debt rating from top grade AAA.

This would be the first time in 90 years that the US government debt has been downgraded.

It is not hard to imagine what will happen if by Aug. 2 the US government has exhausted its credit ceiling and can not get additional debt to pay for its spending needs.

The US government would have to curb its spending, and because some of these relate to payments to government employees, pensioners and other social benefits, this would strike a severe blow to the consumer spending that is so essential to the US economic recovery.

With debt default and credit rating downgrades, it would be difficult for the US government to get loans. Faced with increasing risk, investors would ask for higher returns for US government bonds. This would push interest rate higher, further depressing the economic recovery.

The US dollar would plunge, triggering a surge in commodity prices and another round of inflation around the world. A deadly combination of inflation and economic stagnation could spin the world economy into a tailspin as happened in the early 1970’s.

How would this worst case scenario affect the Indonesian economy? As capital flows out of the US, investors have tended to seek safe havens elsewhere. Commodities, especially gold and oil, would be their first targets. Emerging markets could be the next destination of this capital flight, depending on the assessment of investors on the strength of its economy and their vulnerability and exposure to the US economic fallout.

But financial crises always result in a loss of confidence and produce negative sentiments in the financial markets. They put financial markets into disarray, and as investors panic, capital starts flowing out of emerging economies.

During the global financial crisis in 2008-2009, capital moved out from emerging economies back to the advanced economies. At that time, the US government bonds and commodities like gold were considered safe havens.

If the US government defaults on its debt payment this time, the question is will the situation change? Will the US government bonds still be considered a safe haven for investors? If not, then where else will they put their money? Or maybe they would prefer to keep their money in the same place and not move it anywhere. If so, the Indonesian economy could get some benefit and may not have to face another shock.

In the longer term, however, the situation may change. No country is immune to the negative ripples of a US economic crisis. As US imports plunge from weakening domestic demand, exports from emerging countries will also suffer. The extent to which these negative impacts affect each country will depend on their trading and banking exposure to the US economy.

What is disturbing about this debt talk is the use of this debate as a political game. This is especially apparent in the Republican stance.

Economist, market analyst and CEOs of financial institutions and even the IMF itself have warned that if Congress fails to raise the ceiling of the US government debt, the world economy would slip into deep recession.

The Republicans did not fully accept Obama’s proposal to raise the debt ceiling. They only agree on a smaller number, but even it was given with some conditions. The Republicans asked Obama not to raise taxes, especially for the wealthy, and Obama should cut social spending, a sacred cow for the Democrats.

By using tit for tat tactics in the negotiation and by seemingly ignoring the impending consequences and dangers, the Republicans were trying to push Obama into an intricate political dilemma.

If the US economy slip into another crisis, economic contraction would be inevitable. Corporate bankruptcies would spread, and jobless rate would surge.

A presidential election is still slightly more than one year away, and Obama’s reelection prospects are solid. But his popularity rating is highly dependent on the unemployment rate. That is why the Republicans think the only way for them to erode Obama’s popularity now is by pushing the US economy into crisis.

As the stakes are high, the two political parties should temporarily set aside their ideologies and adopt a pragmatic stance for the interests of saving the world economy from another catastrophe.

President Obama demonstrated his willingness to compromise his political ideology during the global financial crisis of 2008-2009. Being a Democrat, Obama’s political inclination is generally anti-big business.

Obama realized that it was reckless lending by some big banks on Wall Street that triggered the financial crisis. But he also realized that saving these banks from bankruptcy was key to saving the world economy from further disaster.

His decision to pour $800 billion of taxpayer’s money to bail out these banks was hard to swallow by his fellow party members, but it worked. Now it is expected that the Republicans will be willing to do likewise.

The writer is an economist.