The Recent US Government Shutdown: Bad For the Global Economy?

Despite the “political fallout” of the recent US government shutdown largely confined within its own boarders, was this bone-headed move by the GOP really bad for the global economy? 

By: Ringo Bones 

The cause may be just a “mere” disagreement by the Tea Party leaning members of the US Republican Party over President Obama’s flagship healthcare, but the reasons behind the disagreement seems to read like the salient points of Adolf Hitler’s Mein Kampf being shoehorned to the US Republican Party’s “interpretation” of the Christian Bible has cost the US economy 24 billion US dollars – or 0.6 percent of US GDP wiped out - in the 16-day government shutdown. But will a repeat of such a “political tantrum” – which will be due in January 14, 2014 – spell the death knell of the global economy? 

Reputational damage to the US government and of the US economy – from the perspective of the rest of the world – is quite considerable over the Tea Party leaning members of the US Republican Party resorting to manufacture a crisis in order to protect their vain political interests. Even Mainland China – who owns trillions of dollars of American Treasury Bills largely used by the Bush administration to fund its “War on Terror” during the first decade of the 21^st Century – now calls for the global economic community to restructure the way they do business that’s decoupled from America’s recent politically triggered economic uncertainty. The last time the US Republican Party pulled such a prolonged shutdown was back in 1995 where a 21-day shutdown cost the US economy 1.5 billion US dollars. 

Can the global economy survive another political temper tantrum from the ultra right wing branch of the US Republican Party? The world’s leading tenured economists may shudder at the prospect, and unless the most radical right-wing members of the US Republican Party are voted out of Capitol Hill this upcoming mid-term elections in November 2014, the global economy might not survive another political temper tantrum from radical right-wingers who insisted that white Anglo Saxon Jesus didn’t miraculously cured the sick for free. I think things are worse that what Vanessa Williamson had been pointing out in The Tea Party and the Remaking of Republican Conservatism.

The London G20: A New Start or Business as Usual?

Touted as the most important economic summit since World War II, but does the proposed reforms of the London G20 really save our ailing global economy?


By: Ringo Bones


Even though US President Barack Obama is probably the most influential policymaker of the London G20 economic summit because the US together with the UK and Japan managed to put forth their proposals of spending more money in order to save our ailing global economy. Never mind President Obama’s powers of “Diplomatic Persuasion” during the London G20 summit. Although France and Germany’s call for tighter regulation of the global economy was eventually approved, it seems like every sensible proposal – make that “conventional proposals” - to save our current global economic crisis was eventually embraced by everyone. The question now is will all these measures that we’ve taken really save our ailing global economy?

Throwing money at the problem was readily approved, given that it had saved Japan’s economy during her “Lost Decade” even though the policymakers haven’t dealt with the bad banks / zombie banks fast enough. Thus the plan to spend 1 trillion dollars to rehabilitate the global economy was given the green light. 750 billion dollars of which will serve as an extra resource for the IMF to help countries on the verge of financial collapse, most of which are Eastern European states. While 250 billion is promised as trade credit overdraft for cash strapped countries, in other words, a kind of export insurance for the global trade to make protectionism less profitable.

The call for tighter regulations on financial institutions was also given a green light. Especially those pertaining to key players like hedge funds, credit derivatives, and credit rating agencies. Plus stricter compliance of capital requirements; especially when it comes to capital risk requirements; like Basel Accord / Basel II implementation compliance; a crackdown on tax havens and a call to end arcane bank secrecy laws as an institution. And finally the creation of an early warning system to prevent the repeat of the July 2007 subprime mortgage crisis from spreading out of control. Even though every key players of the London G20 eventually reached a somewhat concise consensus, but does all of these proposals really work in practice?

Brazil’s president Luis Inàcio “Lula” da Silva said that the financial sector should be congruent with the production sector in order to avoid a repeat of our current economic crisis, or to avoid our current one from becoming worse. Has he got it all figured out? Given that investment banking had been making money out of thin air in an unsustainable manner, Brazil’s president could be on to something. Though his suggestion will never ever be taken seriously or do most of the ones proposed during the London G20.

For the very reason that the global capital markets had already grown into a powerful economic entity since Ronald Reagan ruled the free world and it is very unlikely to be influenced by the various heads of state’s consensus made during the London G20. This is where the “business as usual” part of the global economy trumps the altruism of the London G20 consensus. It looks like “leave it alone” capitalism is a dead end because it tends to go into excesses. In short, it can’t reform itself.

But there are very good reasons for everyone to be optimistic of the consensus reached during the London G20 summit. The proposals put forth by the various NGO’s to aid the world’s poor during times of crisis were eventually given the green light. Even the rock star and anti-poverty activist Bob Geldof was very optimistic about the consensus reached during London G20 summit. The London G20 could be capitalism’s make-or-break moment to reform itself.