China warns U.S. against debt default; GOP scoffs

Posted on June 9, 2011

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Note to Republicans: Now is not the time to see if Chinese banks feel like playing a game of “chicken.”

According to reports from Reuters, Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.

The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republican “our way or no way” extremists who see it as a price worth paying (especially when someone ELSE is paying) if it forces the White House to cave to their pro-rich/screw-the-poor spending slashing agenda.

But Chinese government officials and investors warn that any form of default could very quickly destabilize the already tenuous global economy and sour already tense relations with big U.S. creditors such as China – which as America’s largest foreign creditor holds a $1.26 Trillion I.O.U. from Uncle Sam.

Republicans, apparently, feel that now is a good time to play a game of 13-digit chicken with America’s foremost banker, and believe that solving our financial problems from within through such “ludicrous” and “preposterous” means as … say … raising taxes slightly and asking *ALL* Americans to sacrifice a small slice instead of defaulting on the entire pie … aren’t even worth considering.

Li Daokui, an adviser to the People’s Bank of China, said a default would swiftly undermine the already weak U.S. dollar, and Beijing is strongly advising Washington against pursuing this course of action.

“I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire. I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar’s value.”

Ratings agency Fitch warned Wednesday that the United States could lose its sterling credit rating if it fails to raise its debt ceiling to avoid defaulting on loans. The third of the three big ratings houses to issue such a warning, Fitch said the country needed to beat the Aug. 2 deadline for raising its $14.29 trillion borrowing ceiling to avoid seeing its bonds lose Fitch’s top-grade AAA rating.

Think about that in its most-basic terms: American bonds … worth less … You don’t need an advanced degree in Finance to understand the rippling effect that would have on you – not “them,” but “YOU.”

Leading economists (those who aren’t on either party’s payroll) nearly unanimously agree that shredding the current 28,000-page tax code and implementing a blanket flat tax of 10-14 percent nationwide would immediately generate $1.22 Trillion in revenue within the year that the flat tax is enacted.  But that would require wiping out all loopholes, shelters, deferments, extended deductions and offshore accounting – and that’s something that Republicans and their corporate whore-masters simply won’t accept.  A recent study by the Beacon Hill Institute shows that implementing a 12% flat tax across the  board to all American taxpayers while still retaining the current individual personal exemption and the home mortgage interest deduction would generate $217 Billion immediately and $912 Billion within the first 12-months of the tax enactment. And a flat tax would put a long-overdue end to the ridiculous argument over what counts as “income” and what doesn’t.

Nearly all independent studies show that a flat tax of 10% enacted in 2012 with the corresponding elimination of the conditional garbage in the current tax code would generate more than $8 Trillion in new revenue by the end of 2020.

How is that worse than the ballyhooed and equally bloated Paul Ryan plan which claims it can generate $2.6 Trillion by the year 2024 by only slashing domestic (i.e., helping the poor and middle class) programs and refusing to increase taxes in any way? (And we’ll put aside the discussion of how the same economists I’ve referenced have declared that Ryan’s plan is riddled with inaccuracies, gross suppositions based on unrealistic expectations, and just-plain Republican fuzzy math.)

When you consider that the primary reason that Republicans give for being against raising taxes is that “the rich already pay far too much, upwards of 38 percent in most cases,” then *WHY* would they object to implementing a 10-to-14 percent flat tax – which would immediately reduce taxes on the rich by two-thirds?  Could it be that the actual tax *RATE* isn’t their concern, but the trillions of dollars in loopholes, shelters and other shell games they get to play which enable the country’s wealthiest people to pay a net rate of 5 percent or less, sometimes even nothing?

Even economist/actor Ben Stein, who was a financial advisor to Republican demigod and future saint Ronald Reagan, says the current system is stupid, ineffective and self-destructive. “At some point,” Stein said, “the debt will be so large relative to the national output that our U.S. Treasury securities will be downgraded in terms of credit quality. The Republicans – who started the problem with excessive tax cuts in the Bush years – will have to agree to raise taxes, at least upon the truly rich (of whom there are plenty). The Democrats will have to agree to major spending cuts. Social Security and Medicare will have to be changed … a lot. Basically, we have to kill Voodoo Economics.”

But Republicans refuse to hear that. From the same hymnal, they chant the right-wing mantra: “A flat tax is unfair to the poor.”  I want someone to explain how. If you erase all exemptions, deductions, loopholes and shelters – most of which “the poor” don’t qualify for because they don’t make enough to engage in them – you have a level playing field. With a flat tax of 10 percent for ease of calculation for example, if you make $10,000 a year, you pay $1,000. If you make $10 Billion, you pay $1 Billion. Ten percent is 10 percent. Where, how and why is that unfair to anyone?

So here’s China, holding more of America’s debt than anyone else, telling the United States Congress that it would be very unwise to allow the country to default on its debt. And Republicans stand rigid and say – quite ignorantly and arrogantly, “You’re bluffing!”

By all means, let’s not only bite the hand that’s feeding us, let’s take a crap in it first.

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