The recession as a financial reality is nasty enough. But now it is beginning to leak its poison into the already fetid political pond.
The US now has political troubles in domestic and international finance. Domestically the Bush era tax breaks are due to come to an end. The Democrats want to end the tax breaks for the wealthy but perhaps keep those for the poorest. The Republicans would like to keep those for the wealthy as well. And there are some who think they should all go. This would be a vexed enough party political argument. But it is happening in the run up to the Mid Term elections in which Obama and the Democrats are facing the likelihood of the Republicans winning control of one and perhaps both Houses of Congress.
Thus neither party is feeling much like compromising. Both want to play to their core vote. The danger is if a complete stalemate sets in. In which case the clock could tick down and ALL the tax breaks could expire. Now debt vigilantes may rub their hands. The problem is that a sudden and complete expiration will reduce the amount of cash people have to spend by a large amount. At a time when the economy is already looking feeble.
This is not to mention the fact that there are a lot of struggling Americans, who are just NOT all feckless scroungers, who will be hurt. The banks scream any time support for them (endless bond buying for a start) is in danger of being phased out. Yet stopping help for ordinary Americans – well that, according to some in the financial class is OK.
While this important financial decision gets spun round and round to party political advantage on the international front America is taking serious steps towards a full blown trade war with China.
There is the now well worn argument about China’s ‘refusal’ to let its currency appreciate. The currency argument got ratcheted up a lot this week and looks like Congress intends on heating it up some more as soon as they can. Sadly, China bashing plays well in the run up to the Mid terms.
To which America is adding trade complaints lodged officially now at the WTO.
The first accuses China of illegally baring US financial institutions from being able to enter, never mind compete with Chinese institutions, in China’s electronic payment market. Basically Visa and AmEx want in. The Chinese have said, please be so kind as to jump through these several thousand very tight fitting hoops first.
The second is a claim that China is barring imports of certain kinds of high grade American steel. America just announced it will retaliate by slapping some huge tariffs of its own on some Chinese paper products.
Now every nation is guilty of protectionism. And it could be, for all I know, that China is at fault. That is not the point. The point is that instead of these things getting settled quietly in a low key manor they are becoming inflamed with nationalistic sentiment because it suites domestic politics in both countries.
One thing that puzzles me about the Republicans is their insistence on protecting tax breaks for the wealthy. Who would vote for them in support of this? Surely there are not that many wealthy people in America. Or, maybe they know they can get away with this policy because the American People's major concern is the overall performance of their President?
Regarding China, I fatalistically desire another country to challenge the American way of conducting global trade, even if the new opposition is wrong. American business has acted so outrageously these last few decades that it is time they had a sparring partner. Hopefully a little Oriental wisdom will take the edge off the brasher forms of American culture.
Mormning Rich,
If it's only one thing that puzzles you about the Republicans then you are doing better than most of us!
Amercian politics in my experience, I lived there for nine years, is fixated on tax cuts as being the magic dust which can enable 'anyone' to make it. Taxes, conversely, are seen as the tool the powerful use to thwart those who 'are gonna make it on their own'. Its a simple faith. But a dangerous one for anyone who genuinesy needs help.
Fort us taxes are about help. For most Americans it is about oppression.
As for China. I know what you mean. The worry, for me, has been seeing China and America find a mutually advatageous synergy whereby they both prop up the worst excesses of the same system. I have hopes that that may not be so easy as it once appeared.
Hi Golem
I hadn't realised that Americans thought that about taxes. That is quite a revelation and sheds new light on some of the articles I've read … and mostly forgotten.