The global centre of gravity shifting to Asia


Asia_danny-quah-east-shift1“Danny Quah of the London School of Economics has calculated the world’s economic centre of gravity and reckons that, thanks to Asia’s rise, over the 70 years from 1980 to 2050 it will move eastwards from the mid-Atlantic all the way to somewhere between India and China. By 2015, the halfway point on this great journey, it will have reached the city of Bandar-e Mahshahr, in Iran, on the north-eastern tip of the Persian Gulf .”

 Danny Quah’s calculation of the world’s economic centre of gravity has been included in The Economist’s eye-catching statistical landmarks of 2015

Many see the rush to join the Asian Infrastructure Investment Bank as the beginning of a new international financial order and the decline of US dollar hegemony.

BRITAIN’S recent decision to join the Asian Infrastructure Investment Bank (AIIB) as a founder member has led to a kind of stampede by other allies of the United States in Europe such as Germany, France and Italy to follow suit.

So did two other important Asia-Pacific allies, Australia and South Korea. The only other major US ally in Asia which did not was Japan.

What is striking is that these allies went against the express wishes of the US which apparently saw the AIIB as a potential challenge to the domination of the international financial architecture by the US-controlled World Bank and the International Monetary Fund.

Particularly stunning is the British decision. According to senior fellow at the Department of Politics and International Studies at Britain’s Cambridge University Martin Jacques, in this year’s Boao Forum, this is the first time since Breton Woods in the 1940s, except for one occasion when Britain refused a US request to send troops to Vietnam, that Britain had ever said no to the US so publicly!

Jacques exaggerates somewhat as he should have begun with 1956 as the year when Britain abandoned an independent foreign policy, as a result of its misbegotten adventure in Suez, and became a faithful junior partner to the US.

Still, it is no less remarkable, even beginning with 1956, for it took about six decades before a clear British nay to the US came about.

Many saw the rush to join the AIIB as signifying the beginning of a new international financial order and the decline of US dollar hegemony, with China deemed to be the new or most influential nation.

Some, however, saw Chinese weakness rather than strength in this spectacle.

London’s Financial Times argued that resorting to a multi-lateral institution to exercise influence suggests weakness as China will be less able to get its own way, not to mention possible badgering from non-governmental organisations in future deliberations of the AIIB, than if it could do so by bilateral means.

It remains to be seen if a new financial order will eventuate. I will however make a few points about this development.

One is that it has shown in a dramatic way the global reach of Chinese economic strength, especially in the financial arena.

While it is true that China is already an economic force in other parts of the globe such as in the continents of Africa and South America, not to mention Asia and Australia, this is probably the first time that a major European nation has made an economic decision with obvious political implications favourable to the Chinese.

Someone defined a superpower as a nation or state that can project dominating power and influence in the globe, sometimes in one region or more, and that has the potential to attain global hegemony.

In this respect we can consider China an economic superpower.

Of relevance to our understanding of Chinese strength is the reason behind the British decision.

Britain in the past year or two has evinced a more positive attitude towards China.

According to an analysis in the Internet magazine, Counterpunch, the recent British economic recovery has been mainly based on financial flows to property and infrastructural projects in London and the south of England, and the prosperity of the City of London.

And the city of London is what keeps Britain from becoming a third-tier economy.

This is so important that David Cameron and the Conservatives could conceive of Britain leaving the European Union if the EU were to mess with the running of the City by imposing regulations.

A lot of the money recently has come from China and Britain is very keen to be involved in the offshore trading of the Chinese renminbi. Thus, there is every prospect of Britain getting more action from a China, with foreign reserves of around US$4tril (RM14.68tril), looking for more ways to use the renminbi.

Joining the AIIB in such a fashion, not only brings with it the prospect of possibly getting a leg up in future AIIB projects, but also gains Chinese goodwill. But it is important not to exaggerate Chinese strength. It is a superpower only in the economic arena, and not in other spheres such as the military and political.

Militarily, the US far exceeds China in the amount of money spent and in technological sophistication. Politically, what China can at present offer cannot match the global impact of values associated with the US such as democracy and human rights.

Even in the economic sphere, the Chinese Gross Domestic Product is only equal in size to the US in purchasing power terms, and not in dollar terms where the US GDP is more than one and the half times that of China.

In per capita terms, US GDP is at least four times more. And the US is still far more advanced in the sophistication of its financial market and industrial structures.

The significance of this AIIB development is not a demonstration of raw Chinese economic power.

It is unlikely to do away with the WB or the IMF.

It is really another symptom, this time in Europe and in the financial arena, of the global centre of gravity shifting to Asia.

By Dr. Lee Poh Ping
> Dr Lee Poh Ping is a Senior Research Fellow at the Institute of China Studies in the University of Malaya. The views expressed here are entirely the writer’s own.

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Are they terrorists or militants?


Terrorists or militaants

LATELY, the use of the words militants and terrorists has become very common and people are sometimes confused as to whether an act of violence has been committed by terrorists or militants.

In Malaysia, the two words are often used interchangeably whereas in strict media practice and proper nomenclature, there is a difference between the two.

It was reported that one foreign media had warned their employees to be extra careful on the terms extremist, militant and terrorist in their news coverage to avoid characterising people.

It is good for our local media to follow these footsteps and avoid using wrong words which can be very sensitive and inappropriate.

In this regard, naturally those who are familiar with the subject of “Organised Crime and Terrorism” would able be to differentiate between the two terms.

Militants and terrorists both have their own agendas and mostly, these agendas have political, religious or ideological goals. The difference lies in the means with which they seek to achieve their desired goals.

Either way it is clear that usually both the terrorists and militants are extremists (in the sense of holding a view at the extreme end of a spectrum on a particular subject matter) who indulge in unlawful activities and therefore become a threat to the nation.

Some of the differences between militants and terrorists are:

  • All terrorists are militants, but not all militants are terrorists;
  • Terrorism is carried out by non-governmental groups that do not wear uniforms. However, members of militants usually wear uniforms, identifying insignia or militia – coloured clothes;
  • Terrorists resort to physical violence. They utilise terror as a means of coercion and use violence as a necessary means of attaining their political, religious or ideological goals, thereby causing harm and death to innocent people and maximum damage to property. Militants may or may not actively engage in physical violence, but they are certainly very aggressive verbally or use verbal violence to achieve their desired goals, as undoubtedly, they feel themselves in “war mode”;
  • Terrorists have no regard for humankind and, usually target civilians, instil fear and psychological effect on them in order to gain the attention of the authorities. As terrorist organisations, they will commit violent acts by murdering civilians, scholars, religious leaders and sanctioning of extortion and demanding ransom.

On the contrary, militants usually do not resort to harming civilians to champion their cause but instead use confrontational or violent methods against the establishment in support of a political or social cause. For example militants may choose to rebel and use armed aggression for a country’s liberation; and

  • Where both terms converge is when militants find they have no recourse to achieve their goals and then they resort to terrorism if their needs are not met, thereby transforming themselves into a terrorist group.

By DATUK AKHBAR SATAR Director, Institute of Crime & Criminology HELP University

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Global bank profits hit US$920bil, China accounted for 1/3 total; Globalized RMB to stabilize world economy


LONDON: China’s top banks accounted for almost one-third of a record US$920 billion of profits made by the world’s top 1000 banks last year, showing their rise in power since the financial crisis, a survey showed on Monday.

China’s banks made $292 billion in aggregate pretax profit last year, or 32 percent of the industry’s global earnings, according to The Banker magazine’s annual rankings of the profits and capital strength of the world’s biggest 1,000 banks.

ICBCLast year’s global profits were up 23 percent from the previous year to their highest ever level, led by profits of $55 billion at Industrial and Commercial Bank of China (ICBC). China Construction Bank, Agriculture Bank of China and Bank of China filled the top four positions.

Banks in the United States made aggregate profits of $183 billion, or 20 percent of the global tally, led by Wells Fargo’s earnings of $32 billion.

Banks in the eurozone contributed just 3 percent to the global profit pool, down from 25 percent before the 2008 financial crisis, the study showed. Italian banks lost $35 billion in aggregate last year, the worst performance by any country.

Banks in Japan made $64 billion of profit last year, or 7 percent of the global total, followed by banks in Canada, France and Australia ($39 billion in each country), Brazil ($26 billion) and Britain ($22 billion),The Banker said.

The magazine said ICBC kept its position as the world’s strongest bank, based on how much capital they hold – which reflects their ability to lend on a large scale and endure shocks.
china_construction_bank
China Construction Bank jumped to second from fifth in the rankings of strength and was followed by JPMorgan , Bank of America and HSBC .

ICBC, which took the top position last year for the first time, was one of four Chinese banks in the latest top 10.

Wells Fargo has this year jumped to become the world’s biggest bank by market value, after a surge in its share price on the back of sustained earnings growth. Its market value is $275 billion, about $75 billion more than ICBC.

The Banker said African banks made the highest returns on capital last year of 24 percent – double the average in the rest of the world and six times the average return of 4 percent at European lenders.- Reuters

Globalized RMB to stabilize world economy

RMBBEIJING, June 27 (Xinhua) — The globalization of the yuan, or renminbi (RMB), will not only benefit the Chinese economy, but generate global economic stability, a senior banker has said.

The yuan did not depreciate during the 1997 Asian financial crisis or the 2008 global financial crisis, helping stabilize the global economy, Tian Guoli, chairman of the Bank of China, said at a forum in London last week, according to the Friday edition of the People’s Daily.

China’s economy ranks second in the world and its trade ranks first, so it is thought that use of the RMB in cross-border trade will be a mutually beneficial move for China and its trade partners.

The yuan has acquired basic conditions to become an international currency as China’s gross domestic product took 12.4 percent of the world’s total and its foreign trade 11.4 percent of the world’s total in 2013, Tian said.

According to the central bank, RMB flow from China hit 340 billion yuan (55.74 billion U.S. dollars) in the first quarter of 2014, replenishing offshore RMB fluidity. The balance of offshore RMB deposits hit 2.4 trillion yuan at the end of March, 1.51 percent of all global offshore deposits. Offshore trade between the yuan and foreign currencies doubled in the first quarter from the fourth quarter of last year.

Analysts widely forecast five steps in RMB internationalization: RMB used and circulated overseas, RMB as a currency of account in trade, RMB used in trade settlement, RMB as a currency for fundraising and investment, and RMB as a global reserve currency.

Already, some neighboring countries and certain regions in developed countries are circulating RMB, indicating the first step has been basically achieved.

Data provider SWIFT’s RMB tracker showed that in May, 1.47 percent of global payments were in RMB, a tiny amount compared to the global total but up from 1.43 percent in April. This indicated progress in the second and third steps.

Some countries in southeast Asia, Latin America and Africa have or are ready to take RMB as an official reserve currency. It indicated the fourth and the fifth steps are burgeoning.

Investors are also optimistic about RMB globalization. Bank of China’s global customer survey shows that over half of the respondents expect RMB cross-border transactions to rise by 20 to 30 percent in five years. And 61 percent of overseas customers say they plan to use or increase use of RMB as a settlement currency.

Li Daokui, head of the Center for China in the World Economy under Tsinghua University, said RMB internationalization is a long-term process and should be made gradually based on China’s financial reforms, including freeing interests and reforms on foreign exchange rates.

Dai Xianglong, former central bank governor of China, forecast that it will take about 10 to 15 years to achieve a high standard of RMB internationalization.

Among the latest moves toward RMB internationalization is the naming of two clearing banks to handle RMB business overseas.

The central bank announced last Wednesday that it has authorized China Construction Bank to be the clearing bank for RMB business in London, and the next day named the Bank of China as clearing bank for RMB business in Frankfurt.- Xindua

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China surpasses US as world’s top corporate borrower; Will the IMF headquarters move to Beijing?


Corporate debts_Eurozone_US_China

 

The Chinese mainland has surpassed the US as the world’s top corporate borrower, and higher debt risk in the world’s second-largest economy may mean greater risk for the world, a report said on Monday.

However, Chinese economists noted that the debt risk in China’s corporate sector is still well under control.

Nonfinancial corporate debt in the Chinese market was estimated at around $14.2 trillion by the end of 2013, overtaking the $13.1 trillion debt owed by the US corporations, a progress happening sooner than expected, said a report from the Standard & Poor’s Ratings Services on Monday.

The report expects that by the end of 2018 debt needs of mainland companies will reach $23.9 trillion – around one-third of the almost $60 trillion of global refinancing and new debt needs.

“It [the mainland surpassing the US as the largest corporate borrower] is not surprising at all, as the [size of] mainland non-service sector has already surpassed that of the US,” Tian Yun, an economist with the China Society of Macroeconomics under the National Development and Reform Commission, told the Global Times on Monday.

Cash flow and leverage at mainland corporations has worsened after 2009, and debt risks in the property and steel sectors remain a particular concern, the report said.

Private companies are facing more challenging financing conditions – highlighted by China’s first corporate bond default case of Shanghai Chaori Solar Energy Science and Technology Co in March and another case of default of leading private steel maker Shanxi Haixin Iron and Steel Group.

“The capital market has been sluggish during the past few years, leading to the fast growth in corporate debts,” Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges, told the Global Times Monday.

Experts noted that the rapid growth in debt reflected some problems of the  Chinese economy, but the size of the debt is still in a safe range and will not cause major risks as the economy remains stable.

“The problems of the Chinese economy are institutional and structural,” Tian said, “By addressing these issues, debt risks can be managed.”

Tian further noted that most corporate debts in China are internal debts, thus debt problems in the country will have limited impact on the rest of the world.

The report also said a possible contraction in “shadowing banking” will be detrimental to businesses as general.

But Xu noted that China’s tighter supervision of the “shadow banking” sector will make it more transparent and better-regulated, which will reduce the potential risks in the sector.

Local governments face massive debt repayment pressure

China’s local governments are facing huge debt repayment pressure this year with 2.4 trillion yuan ($390 billion) of debts due in 2014, China Business News reported Monday.

From 2009 to 2013, China issued 94 local government bonds raising 850 billion yuan, the report said.

With another 400 billion yuan worth of bonds to be issued this year, the total financing since 2009 will reach 1.25 trillion yuan, according to the report.

However, the total local government debt is much higher than the amount raised through the bonds, the report said, noting that major debt came from bank loans.

Although the central government has stated several times that the overall debt risk is under control, the statistics from China’s National Audit Office show that some local governments have a debt-asset ratio of more that 100 percent and are facing huge repayment pressure, the report said.

Market analysts hold the view that local governments may borrow new debts to pay for the old ones.

The central government allowed local authorities to raise funds since 2009 in the wake of the global financial crisis, while the central government also issued bonds and repaid debts on behalf of the local governments, a practice criticized by some as not conforming to market economy principles.

As the bond issuing backed by the central government is limited and could not fully meet the local needs, the local governments also turned to opaque financing channels including shadow banking activities, the report said.

Despite the big debt pileup, no local government default has so far taken place.

– By Liang Fei Source:Global Times Published: 2014-6-16 23:43:09

 

Will the IMF headquarters move to Beijing?

 

The International Monetary Fund’s headquarters may one day move from Washington to Beijing, aligning with China’s growing influence in the world economy, the fund’s managing director Christine Lagarde said early this month.

Attaching importance to China

Christine Lagarde made the statement at the London School of Economics and Political Science (LSE), saying that the IMF rules require that the institution should be headquartered in the country that is the biggest shareholder. This has always been the U.S. since the fund was formed.

“But the way things are going, I wouldn’t be surprised if one of these days, the IMF was headquartered in Beijing,” she said.

Lagarde remarked that the IMF had a good relationship with China, the world’s second largest economy, and she praised the Chinese government’s commitment to fighting corruption.

Lagarde added that she did not think the IMF should be controlled by Europeans in its first place. Since its establishment in 1945, the IMF headquarters has been headed by Europeans and located in Washington, while the World Bank has been headed by the Americans.

Not satisfied with the U.S.

Lagarde also pointed out that the U.S. government is an “outlier” among the G20 in refusing to approve IMF reform, and the IMF was trying to give emerging economies like China and Brazil a bigger voice through reform.

According to Lagarde, on the part of countries like China, Brazil, and India, there is frustration with the lack of progress in reforming the IMF by refusing to adopt the quota reform that would give emerging economies a bigger voice, a bigger vote, and a bigger share in the institution. “I share that frustration immensely,” she said.

She also claimed that the credibility and the importance of the IMF are closely related to proper representation among the membership. “We cannot have proper representation of the membership if China has a tiny share of quota and the voice, when it has grown to where it has grown,” she said.

The IMF agreed to reform its management structure in 2010 so that emerging economies could play a bigger role, and made China the third largest member. The U.S. is the only member with control weight in the voting; meaning that any major reform must be approved by the United States.

Hello headquarters

Lagarde has no specific schedule for the headquarters’ shift. However, this once again reminds China that there are few international organizations headquartered in its country, which is disproportionate to China’s status as the world’s second largest economy.

This article is edited and translated from 《IMF总部要搬北京?》,source:Beijing Youth Daily, author: Bu Xiaoming. (People’s Daily Online)

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US mind-boggling politicians: stop rocking the boat, China Daily said


US gov shutdown1Furloughed federal employees, along with their family members, protest the government shutdown outside the US Capitol in Washington DC, USA, 08 October 2013. The federal shutdown in the US is in its second week – EPA Photo.

The prospect of dimmer global growth predicted by the International Monetary Fund should make it a matter of urgency for US politicians to stop manufacturing crises.

Five years after the start of the global financial meltdown triggered by the bankruptcy of Lehman Brothers, it is pitiful that the US is now putting the fragile global recovery under renewed threat with its mind-boggling political infighting.

The IMF on Tuesday cut its global growth forecast to 2.9 percent this year and 3.6 percent for next year. This year’s growth forecast is 0.3 percentage points lower, and next year’s 0.2 percentage points down, than the July projection.

Indeed, the growth slowdown in major emerging economies, as the Washington-based global lender identified, will contribute to a global growth fall in the coming years. Both cyclical and structural problems in these economies are demanding immediate and bold reforms to make growth more sustainable.

However, when financial ministers and central bankers gather in Washington later this week to discuss global growth issues, they will be lucky if their attention is not too distracted by the US government shutdown.

The inconvenience caused by the shutdown may be the least of their worries. The elephant in the room, the once inconceivable notion of the US defaulting on its debt and ensuing dollar upheavals will have to be acknowledged.

As the world’s largest economy and the home of the global reserve currency, the US surely has the wherewithal to fund its government and avoid a catastrophic default by raising its self-imposed debt ceiling.

Yet the astonishing failure of the US Congress to put national needs before their partisan interests has sparked fears among investors and governments around the world that maybe it is time to think about the unthinkable.

That may explain why the biggest US creditors, China and Japan, have expressed concern over developments in Washington which could affect their several-trillion-dollar investments in US Treasury bonds.

US politicians can discuss, bicker and argue over government spending and economic growth. Kicking cans is one thing, but throwing caution to the wind is not a course of action worthy of the world’s leading economy.

–  China Daily

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USA government shutdown !

IMF, China, Japan warn USA’s debts on default! Demystifying the US debt ceiling


US debt default

UNITED States (U.S.) President Barack Obama Tuesday declared that he was willing to negotiate with Republicans in passing at least a short-term budget that opens up the government at current funding levels.

But Obama, during a media briefing Tuesday, said his offer to negotiate with Republicans on the issues would “absolutely” stand if Congress passes even short-term clean spending and debt ceiling bills.

However, he declared that “the only thing that I will say is, we’re not going to pay ransom for” America paying its bills.

This came as it was revealed yesterday that there are no talks going on at any level to resolve differences over the government shutdown and the debt ceiling deadline.

But Washington’s march toward self-inflicted financial calamity is setting off alarm bells around the world as general bewilderment turns into genuine concern over a possible default by the world’s lone superpower.

The International Monetary Fund (IMF) as well as China and Japan – which hold a combined $2.4 trillion in U.S. debt – have called for a quick resolution to the crisis and expressed worries over the economic consequences of a default.

Meanwhile, Obama said U.S. credit-worthiness will be affected if markets see that “we’re not paying all our bills on time.”

Noting that he missed a major conference in Asia this week because of the government shutdown issues, said the president said: “whenever we do these things, it hurts our credibility around the world. Makes it look like we don’t have our act together.”

He warned that if Congress doesn’t raise the debt ceiling, “every American could see their 401Ks and home values fall,” and the country would see a “very significant risk” of a deep recession.

Obama said that Congress has to vote to raise the debt ceiling as soon as it votes to reopen the government. Failing to raise the debt ceiling “would be dramatically worse” than a government shutdown, he said.

He criticised House Republican tactics in dealing with the government shutdown and a debt ceiling increase. “Let’s lift these threats from our families and our businesses and let’s get down to work,” he told reporters yesterday.

Obama spoke after Republicans reportedly offered a new approach yesterday to resolve the U.S. fiscal standoff, proposing creation of a bipartisan panel to work on deficit reduction and find ways to end the government shutdown and make recommendations on a debt-limit increase.

The proposal, which was quickly dismissed by Democrats, came as House of Representatives Speaker John Boehner and President Barack Obama spoke by telephone shortly after Boehner adopted a slightly more conciliatory tone in comments to reporters.

“There are no boundaries here. There’s nothing on the table, there’s nothing off the table,” Boehner said after a meeting with House Republicans, making no mention of his recent demands to delay parts of Obama’s healthcare law in return for approving funds to end the government shutdown.

In the first official response by China, Vice Finance Minister Zhu Guangyao said that a solution must be found quickly in order to “ensure the safety of Chinese investments” and provide stability for economies around the globe.

“We ask that the United States earnestly take steps to resolve in a timely way the political issues around the debt ceiling and prevent a debt default,” he said. “This is the United States’ responsibility.”

The International Monetary Fund (IMF) has trimmed its forecast for global economic growth at the same time as lifting its UK growth projection.

It now expects global growth of 2.9% this year, a cut of 0.3% from July’s estimate. In 2014 it expects global growth of 3.6%, down 0.2%.

It cited weakness in emerging economies for the cut.

But it warns that the political standoff over raising the US government’s borrowing limit, if it results in the US defaulting on its debt payments, “could seriously damage the global economy”.

It expects growth of 1.6% in the US this year and 2.6% next year, down 0.1% and 0.2% from its July forecast.

Economists have predicted that a default would do great harm to economies around the world.
Obama recounted to reporters his telephone discussion yesterday morning with House Speaker John Boehner:

He was happy to eventually talk with Republicans about issues they care about, but that “shouldn’t require threats of a government shutdown” or economic chaos over the heads of the American people.

Yesterday, there were news conferences and a high-level phone call between Obama and the House Speaker, but no immediate sign of progress on reopening the government a week into a partial shutdown or reaching a deal to avoid the first-ever U.S. default next week.

Obama called Boehner yesterday morning, and the White House then announced the president would make a statement and take some questions from reporters at 2 p.m. ET.

Earlier, Boehner demanded that Obama and Democrats negotiate with Republicans on steps needed to end the shutdown that began on October 1 and raise the nation’s debt ceiling before the deadline for default on October 17.

“Americans expect us to work out our differences, but refusing to negotiate is an untenable position,” Boehner said, adding that Obama and Senate Majority Leader Harry Reid are “putting our country on a pretty dangerous path” by rejecting GOP calls for talks

– The Guardian

Demystifying the US debt ceiling: 5 things you should know

As the US government is about to hit its so-called debt ceiling of $16.7 trillion on Oct. 17, the frightening prospect of the world’s biggest economy running out of cash is dominating headlines around the globe.

So, in an effort to shine some light on what exactly the debt ceiling means to all of us, Business RT spoke to leading Moscow financial expert Chris Weafer, a senior partner at Macro-Advisory.com.

What exactly is the “debt ceiling?”
 
The US debt ceiling has existed for almost a century, and describes the maximum amount of money the US can legally borrow. The country introduced the legislative limit on its debt back in 1917, and since then it has stipulated the affordable amount of national debt that can be issued by the US Treasury. As of September 25, the US Treasury reported federal government debt at just shy of $16.7 trillion
($16,699,396,000,000.00, to be exact) in its daily statement, a figure which has been reported for 130 days straight. This is about $25 billion shy of the precise legal limit – $16,699,421,095,673.60. When the US approaches this debt limit, it can take some “extraordinary measures” to buy some time before Congress agrees to raise the ceiling. In its entire history, the US has so far never reached the point of default, where Treasury can’t pay its debt obligations.

Who holds the US debt?
 

The US owes about two-thirds of its debt to US-based creditors, with almost 66 percent of the country’s debt held domestically. US individuals and financial institutions hold around 31.7 percent of US Treasuries, with the US central bank, the Federal Reserve, which holds some 12 percent of the debt. Foreign creditors, including China and Japan, own an estimated 34 percent of total US government debt. These two ‘big lender’ countries have recently urged the US to take decisive steps to avoid a default.

3 What does the US borrow the money for?
 
In the US, often referred to as a ‘big-spending’ country, both individuals and the government have habitually spent more than they earn, pushing the economy deeper into debt.

“Just like any ordinary individual, the choice is either to cut back on spending or to borrow money to bridge the gap,” Weafer says.

In 2012, 22 percent of total government expenditures went to social security (means-tested payments to the poor and unemployed), while 21 percent was spent on healthcare, again mostly for poor Americans who cannot afford private health insurance. The third largest expenditure item is defense at 19 percent. In recent decades, the US defense bill has ballooned, mainly due to costly wars in Iraq, Afghanistan and elsewhere. The so-called War on Terror has also added greatly to the debt burden, while the Department of Homeland Security, created after the September 11, 2001, attacks on the US, has cost taxpayers more than a cumulative $800 billion.

The biggest contributory factor to the fast-growing debt mountain in recent years, however, has been the economic crisis that began in 2008. Apart from hundreds of billions of dollars paid out to rescue failing Wall Street banks that had made too many toxic loans, the US government has also paid out large amounts on vital social programs to aid the growing ‘army of the unemployed’. Coupled with the Bush-era tax cuts to the rich and big business, lower average incomes and greater unemployment have hit government tax revenues hard, sending federal government debt sky-high.

Why can’t they simply print more dollars and pay their debt?
 

No economy in the world can simply turn on its printing presses and create as much cash as it wishes, as this would make its currency worthless.

“If the amount of currency in issue is not sensibly related to the strength of the economy, then foreign trade partners will … devalue the currency quickly,” Weafer explains. “If you have one asset and income source which allows you to issue one dollar, and then you print one more dollar, everybody else will see what you have done and will value your one dollar at only 50 cents. Some countries have done that in the past, but in those cases people soon had to use suitcases just to carry enough currency to buy a loaf of bread.”
 
Under the Bretton Woods financial system, established in 1944, the amount of currency in circulation was linked to gold reserves. But in 1971, the US abandoned this system and started to include a number of other economic factors, based on a recognized ability to service debt and prevent inflation, and maintain orderly trade with the rest of the world.

5 How would a US default affect people around the world, on a macro and personal level?
 
If the US defaulted, then the world’s financial system “would start to freeze up,” Weafer says. “Banks would pull back from risk and lending. The US economy would slide towards recession and the global economy would quickly be affected.” A prolonged US default would lead to job losses everywhere and much tougher borrowing conditions for companies and individuals, he adds.

“A short period of default would also have a bad effect in that it would hurt confidence in the world’s financial system,” he says. “Bankers and investors would assume that a short-term fix in the US would mean it would only be a matter of time before the same issue arises again in 2014. The resulting caution would make life that much tougher for all of us.”
 
– RT news

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 USA government shutdown !

USA government shutdown !


US gov shutdown

The mood was grim at the Capitol Monday as Democrats and Republicans couldn’t get it together for the good of the nation. 

http://landing.newsinc.com/shared/video.html?freewheel=90051&sitesection=nydailynews&VID=25214750

OUT OF SERVICE: Federal government enters first shutdown in 17 years; lawmakers remain divided over Obamacare

The U.S. government has shut down as Democrats and Republicans refuse to negotiate on Capitol Hill. GOP leaders remain determined that key aspects of Obamacare must be delayed, while President Obama insists that the demand ‘is the height of irresponsibility.’

WASHINGTON — The first shutdown of the U.S. government in 17 years began early Tuesday as Congress bickered and bungled an effort to fund federal agencies due to a bitter ideological standoff over Obamacare.

The embarrassing disruption that an angry President Obama said was “entirely preventable” and would “throw a wrench into the gears” of the country’s recovering economy was triggered as a midnight deadline passed without agreement between the Republican-controlled House and Democrat-run Senate.

Senate Majority Leader Harry Reid (D-Nev.) disclosed at midnight that the White House budget office had directed agencies to start closing up shop. He then called a recess until 9:30 a.m., meaning that there would be no House-Senate deal in the wee hours Tuesday.

President Obama criticized Republicans' efforts to delay key aspects of the Affordable Care Act.

Susan Walsh/AP

President Obama criticized Republicans’ efforts to delay key aspects of the Affordable Care Act.

The shutdown would keep 800,000 federal workers at home on Tuesday and inconvenience millions of people who rely on federal services or are drawn to the nation’s parks and other attractions. Critical workers, from the Border Patrol to air-traffic controllers, would remain on the job, unpaid.

Legislation was passed, however, to fund the armed services during the shutdown.

House Speaker John Boehner said Obamacare 'is having a devastating impact.'

Chip Somodevilla/Getty Images

House Speaker John Boehner said Obamacare ‘is having a devastating impact.’

Despite the drama, members of Congress faced no threat to their own pay, because the 27th Amendment to the Constitution bars their salaries from being subjected to the annual appropriations process. Obama, too, will still be paid.

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Conservative firebrand Sen. Ted Cruz (R-Tex.), who made himself the face of the GOP effort to block Obamacare through the funding bill, pledged Monday to donate his salary to charity during the shutdown.

Many Americans will be inconvenienced by a shutdown.

Photos by AP, Debbie Egan-Chin/New York Daily News

Many Americans will be inconvenienced by a shutdown.

Repeatedly Monday, amid all the political posturing and rhetoric, the House amended a Senate resolution to fund the government to add a one-year delay in Obamacare, and other alterations. Repeatedly the Senate rejected those conservative-backed changes.

The House was expected to pass the latest health-care law changes in an early morning vote. The Senate was set to reject those additions when they return Tuesday.

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Senate Majority Leader Harry Reid (D-Nev.) arrives at the Capitol Monday. The Senate voted Monday to defeat a House bill that links keeping the government funded to delaying 'Obamacare' for one year.

Win McNamee/Getty Images

Senate Majority Leader Harry Reid (D-Nev.) arrives at the Capitol Monday. The Senate voted Monday to defeat a House bill that links keeping the government funded to delaying ‘Obamacare’ for one year.

As the nearly ridiculous legislative tit-for-tat played out, Obama went to the White House briefing room to insist that Republicans give up their demand to tie new money for the government to scuttling or delaying his health care law.

“One faction of one party in one house of Congress in one branch of government doesn’t get to shut down the entire government just to refight the results of an election,” Obama said.

“You don’t get to extract a ransom for doing your job, for doing what you’re supposed to be doing anyway, or just because there’s a law there that you don’t like.”

The front page of the NY Daily News on October 1, 2013.

The front page of the NY Daily News on October 1, 2013. 
 

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House Speaker John Boehner (R-Ohio) responded a few hours later on the House floor. “The American people don’t want a shutdown, and neither do I,” he said. Yet, he added, the new health care law “is having a devastating impact. . . . Something has to be done.”

Even more troubling than the shutdown was that the partisan stalemate that caused it sets the stage for an even more high-stakes clash, as Congress must soon deal with raising the debt limit by Oct. 17 — a matter in which both sides concede that failure would be perilous for the U.S. economy and economies worldwide. Republicans also want to attach conditions to that vote. Democrats said giving ground now would encourage Republicans to take a harder line in that fight.

Congress remained gridlocked Monday over legislation to continue funding the federal government. The federal government shut down after both chambers failed to pass a resolution before midnight.

Win McNamee/Getty Images

Congress remained gridlocked Monday over legislation to continue funding the federal government. The federal government shut down after both chambers failed to pass a resolution before midnight.

“You know with a bully you can’t let them slap you around because they slap you around today, they slap you five or six times tomorrow,” Reid said.

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Monday’s failure on Capitol Hill caused the stock market to drop on fears that gridlock would continue and Congress would shoot the recovering economy in the foot. The Dow Jones slipped 128 points, or 0.8%.

The last shutdown happened during President Clinton's time in office.

Photo by AP

The last shutdown happened during President Clinton’s time in office.

The fight also sent Congress’ already abysmal approval plunging to a new low. A CNN poll released late Monday found that just 10% of Americans approve of the job Congress is doing, while a record 87% disapprove. And Americans are blaming the Tea Party and its no-holds-barred-against-Obama stance for the crisis — the party had its lowest favorable rating in its five-year history, at 31%.

At times Monday, Washington seemed like a real-life “House of Cards,” the Netflix drama in which D.C. power players are motivated by dark self-interest rather than the national interest.

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Boehner arrives with his security detail at the Capitol on Monday, remained adamant that 'Obamacare' be delayed. 'This law is not ready for prime time,' he said.

JONATHAN ERNST/REUTERS 

Boehner arrives with his security detail at the Capitol on Monday, remained adamant that ‘Obamacare’ be delayed. ‘This law is not ready for prime time,’ he said.

Congress, and the government, needed to act because there was no authorization for the government to spend any money as of 12:01 a.m. on Tuesday, the start of the new budget year.

Monday’s maneuvering began in the Democrat-controlled Senate, which voted, 54 to 46, to kill a House-passed bill that would keep the government funded but delay Obamacare for a year.

The Senate then sent the House a so-called “clean” bill — one that would simply keep government running through Nov. 15. With the ball back in their court, House Republicans sought different concessions in exchange for keeping the government funded. They called for a one-year delay in the Obamacare requirement for individuals to buy coverage.

Only 36% of Americans blame President Obama for the shutdown, a poll released Monday showed. 46% blame Republicans.

Charles Dharapak/AP 
 
Only 36% of Americans blame President Obama for the shutdown, a poll released Monday showed. 46% blame Republicans.
Sources: NEW YORK DAILY NEWS
Shutdown effects ripple across US

A string of cancellations and delays caused by the federal government shutdown is rippling across the United States, ruining dream vacations, upending carefully laid wedding plans and complicating the lives of millions of people.

From blood drives to daycare programs, musical performances to research projects, the disruptions caused by the political stalemate in Washington sparked growing frustrations and left people scrambling to make alternative plans.

Scores of weddings planned at national parks and monuments around the country were moved or postponed, and vacationers hustled to change their itineraries after finding iconic sites from the Statue of Liberty to the Lincoln Memorial closed.

“We’re really disappointed. We spent a lot of days waiting for tickets so we just want to go inside the statue,” said Gaelle Masse, a tourist from Paris who was startled to discover the Statue of Liberty was closed.
Thousands of tourists with prepaid tickets to visit Alcatraz Island, the famed prison site in San Francisco Bay, were unable to tour the former penitentiary.

In Boston, Italian tourist Federico Paliero and his girlfriend Claudia Costato peered through a closed metal gate to catch a glimpse of the USS Constitution, a wooden, three-masted US Navy ship from the 18th century docked in Boston Harbor that serves as one of the city’s major attractions.

Normally buzzing with tourists, the site was nearly abandoned on Wednesday, except for a handful of people looking lost and dismayed as they gawked at a sign explaining the closure.

“Italy is not the only state with money problems,” Paliero said, rubbing his thumb and forefingers together.

At Great Smoky Mountains National Park in Tennessee, park staff said nearly 30 weddings scheduled for the next two weeks are threatened by the shutdown, which also sent hundreds of campers packing.

‘WORRIED ABOUT RAIN’

Two dozen weddings planned at monuments on the Washington mall in October also were threatened, a park service spokeswoman said.

“I wasn’t worried about the government shutting down. I was worried about rain,” said bride-to-be MaiLien Le, who was planning to walk down the aisle at the Jefferson Memorial on Saturday.

Having to possibly change venues just days before her wedding is “really upsetting,” she said on NBC’s “Today” show.

In northern Virginia, officials canceled blood drives that would have provided transfusions for up to 900 area patients.

The Library of Congress in Washington closed its doors, disrupting research projects and canceling a musical performance by Randy Newman.

About one-fifth of the classes at the Naval Academy in Annapolis, Maryland, were scrapped, and science laboratories at the school were shut down as furloughs for civilian Defense Department employees took hold.

The Smithsonian, which shuttered all of its museums and the National Zoo, also had to close its early childhood center even though many parents had already paid between $300 and $400 in tuition for the week, according to local radio station WTOP.

“When you have to sit down and explain to a 5-year-old why he can’t go to school, it’s a difficult conversation,” Virginia resident Brian Katz, whose two children attend the Smithsonian Early Enrichment Center housed in the Natural History Museum, told a local Fox television station.

Juleon Rabbani, 28, got a call from the National Park Service informing him that his scientific research in national parks would be shut down for now, compounding funding issues he was already facing.

“I wanted to graduate in the fall of 2014, but with my funding being held up and since my research sites are national parks, it will be well into 2015 before I am done,” he said. “The funding I need won’t come through, and who knows how long this shutdown will be.”

Some Washington businesses faced growing uncertainty as the shutdown continued, keeping government events away from hotels and federal workers out of their usual restaurants.

David Hill, general manager for two area hotels, said two dozen events at the hotels have been canceled in the coming weeks, including one large government group that triggered a $45,000 loss.

“What I’ve told my team is: for us, it’s business as usual … but everything in the future is in limbo,” said Hill, who manages the Phoenix Park Hotel just blocks from the US Capitol and the Four Points by Sheraton near the White House.

Grain traders in Chicago were preparing to cope without weekly US Department of Agriculture data on export sales typically released on Thursdays. The data, covering sales the previous week, can roil prices for crops like corn and wheat if demand is unexpectedly strong or weak.

“For now, we’ll go with our best guesses,” said Sterling Smith, futures specialist for Citigroup.

Traders and analysts were frustrated that USDA websites went dark as a result of the federal shutdown. They mine the sites for data on crop supplies and demand to project price trends.

Terry Reilly, analyst for Futures International, said he could not complete presentations on the grain markets for clients because USDA data was unavailable.

“It makes no sense to me that they would shut down their websites,” he said.

Sources: Reuters
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