US political stalemate threatens world economy

Green shoots: American politicians are accused of trampling on the recovery

The economic health of the world is under threat due to ‘carelessness’ and political deadlock in its most powerful nation. What are the global implications of the crisis in Washington?

After five years in the doldrums, at last there is some cheerful news about the economy: businesses and consumers say they are gaining confidence about the recovery, and this week the International Monetary Fund said that the UK would grow more than it had expected both this year and next.

Globally, the picture is more mixed. Europe and the US are slowly strengthening. But the emerging economies, which had become used to rapid increases in prosperity before the financial crisis of 2008, are slowing down. The ‘impulse to global growth,’ as the experts call it in their report, now rests with America.

But there’s a major problem with this analysis: US political leaders are at loggerheads, with opposition Republicans refusing to allow President Obama’s government to borrow more money. If they fail to come to an agreement, the US could be forced to default on its debt.

Because it is the largest economy in the world, and because most countries have invested heavily in the dollar and US bonds, any crisis in Washington has powerful negative repercussions. Commentators usually say that if America sneezes the rest of the world catches a cold. One columnist says the current danger could be ‘more like global pneumonia’.

This latest threat comes only a couple of weeks after Congress refused to sign off Obama’s bill to reform the healthcare system, triggering a constitutional crisis and forcing every ‘non-essential’ government employee in the the US to stop work and go home. This is shutdown.

Why are the Republicans so dug in? Because members of the right-wing ‘Tea Party’ movement want to prevent Obama getting his way above all else – threatening the government’s ability to run the country’s finances is their latest, most powerful tactic. But behind lies a deeper commitment to their own interpretation of American history: that the nation of which they feel so proud has travelled too far from the ideals of the US constitution, which was designed to limit the powers of the federal government.

But the problem is that some Republican members of Congress have an equally simple, opposing interpretation of their duty. They see their own refusal to compromise as fulfilling a historic mission to resist the US government.

Mission impossible?

‘The US has a special responsibility,’ warned Christine Lagarde, head of the IMF. ‘It is mission-critical that this be resolved as soon as possible.’

From Lagarde, the rest of the world’s leaders, and indeed ordinary businesses and individuals everywhere, the message to Republican hardliners is simple: do a deal, make some compromises and protect us all from the meltdown that you are threatening.

You Decide

  1. What does the threat of another recession mean to ordinary people?
  2. ‘President Obama is as much to blame as the US Republicans.’ Do you agree?

Activities

  1. Class debate: Do Republicans have a duty to just their nation or to the entire world?.
  2. Draw a cartoon or infographic to illustrate a story about this crisis.

Some People Say...

“There is no heroism without confrontation.”

What do you think?

Q & A

What on Earth has this got to do with me?
It affects us all. We have already had five years of economic problems since the 2008 financial crash dried up global lending. Now the US Treasury and central banks around the world are warning that if the American politicians can’t agree to raise the debt ceiling, there could be an even worse crash – followed by recession. So don’t feel this is too remote from your own life.
But there’s nothing I can do about it!
That can be a difficult feeling for any of us, unless we have direct influence on events. I suspect that if you’re reading this, you aren’t a member of Congress, for example! But we can all take an interest in how political and economic systems work, because they can, over time, be reformed and improved.

Word Watch

International Monetary Fund
One of the most important international financial institutions, especially in times of crisis. The IMF was founded in 1944 to help with post-war economic reconstruction and has since developed a range of purposes: promoting international cooperation, facilitating trade, providing financial assistance to countries struggling with debt.
The UK
In its latest World Economic Outlook, the IMF upped its predictions for UK growth to 1.4% this year and 1.9% in 2014.
Default
America is running a deficit (borrowing more than the government takes in taxes), and has to constantly borrow by issuing US Treasury-backed bonds. A default would mean admitting that borrowing can never be paid back, exploding the entire self-perpetuating system.
‘Tea Party’ movement
A radical anti-government faction of the conservative Republican Party which has come to prominence since the election of Barack Obama in 2008. The name comes from a historical event called the Boston Tea Party, when American activists tipped tea into the sea rather than allowing it to be taxed by the British government.

Subjects

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