Friday, 15 July 2011

What will happen after the world ends on Aug 2

The end of the world is near. On Aug 2 to be precise. Repent and thou shall be saved.

Every year, some nutter prophecies the end of the world on some artificial date and his followers prepare for Armageddon. Come the day and nothing happens. We live on till the next prophecy. Is this what is going to happen on August 2nd, the latest doomsday deadline ?

Somewhere on August 1st or so, America will reach its legally approved debt ceiling of $ 14.3 trillion. Ninety times in the past, this ceiling has been raised by the US Congress and the Senate and life goes on. This time however, there is a real possibility that it may not be raised. Hence the doomsday.

Do I see you yawning ? Surely some technicality of American debt ceiling cannot affect you and me. Who cares ? Unfortunately you should. You should care very much, wherever in the world you are. It won't be the end of the world, but you will have a vision of what the end of the world might look like. For this is what will happen if the antics of the lawmakers in the US continues.

In August, the US will have revenues of $172 bn and expenditure of $ 307 billion. Pause for a moment and read this again - this is the level of madness at which the Americans have been operating. (Its a sobering thought that every major country in the world, barring China, has been equally mad; India is at the top of the madness stakes). So come Aug 2, if it cannot borrow anymore, the US can spend only what it receives ; therefore $172bn. So where does it cut.  The top five spending needs are Medicare and Medicaid $50 bn, Social Security $ 50bn, Defence $30bn, Interest $30bn and Unemployment benefits $ 13 bn. All these themselves add upto $ 172bn. There's no money for anything else - paying salaries for government, or even turning the light bulbs on at the US Congress.

So cut everywhere it has to. When it cuts Social Security or Medicare, there will, metaphorically, be  riots on the streets. When it starts to touch interest payments, however, is when the global impact will really come. For that will mean, the US defaults on its debt. But well before that, the US credit rating will be cut. Lenders will not lend anymore, or if they do, will demand much higher interest. Global confidence will be shattered. The dollar will sink.  Markets around the world will violently swing and I guarantee you, its impact will be felt everywhere, even on you and me who are a million miles from America.

You would have thought that the wise men in America, who know all this, won't be so foolish as to let this happen. Unfortunately, these days, nutcases, exhibiting the highest sense of irresponsibility, have come to positions of power in the US. I am a diehard fan of America and Americans, but I have been wringing my hands at the amazing levels of depravity to which American politics has descended to.

I urge you to read everyday on the drama that's going on in the US on this debt ceiling issue. Its a real concern for the world - not just America. It affects you in a profound way.


J said...

What is the most disgusting part is that it is just politics as usual for most of those involved. As for your recommendation to follow the events, you should have also warned us about the sideffects - nausea, depression, etc, etc.

zeno said...

Please tell us what are the precautions we should be taking? Like Better sell out stocks. Dont buy property for now as you may not have job or the property prices may go for a toss.

RS said...

V. unfair to leave us all this anxious, Ramesh. Please educate us on the repercussions as well...

Prats said...

Brilliant Article Ramesh... Totally true and relevant.... But I feel they will some how lift the bar this time again as they have done it for so many years.

Ramesh said...

@J - Somehow it feels this time the politics has sunk to a new low. Just saying No to everything can't be politics. The extent of irresponsibility beggars belief.

@zeno - If the default happens, stock markets around the world will tank. Nothing will happen to jobs or property as yet, for the nonsense won't carry on for long. But the faith in the Triple AAA of the US will be gone forever. It has massive long term consequences for the US, which is why I simply cannot fathom the extent of stupidity.

@RS - These are uncharted waters, so nobody knows, But at the very least financial markets around the world will wobble dangerously and the dollar will sink Longer term, serious ramifications for the US.

@Prats - Thanks. It may yet happen, but the antics of the Tea Party crowd makes a deadlock much more than a remote possibility.

Anonymous said...

As you have alluded to, this is really a case of American politics reaching an all time low. The real proof lies in what the Republicans will agree to. They will agree to a series of smaller debt ceiling raises, ensuring that this is a problem which comes back up when Obama is up for re-election. Obama obviously wants a plan in place that will keep us from hitting the ceiling until after the election.

But what one also needs to understand is, Obama himself voted against Bush's debt ceiling raises for the same reason. Credit to him for admitting that was exactly why he did it. If the debt ceiling is hit, the repercussion around the globe will be devastating. Suddenly many countries holding American debt (except China) will find itself sitting in the same situation that Greece is, and will be unable to pay their bills as well. Not to mention what will happen to currency values, interest rates, and inflation around the globe. It could get ugly, very ugly..... but it won't.

Why? Because the Republicans really only serve one master and it's not a group of goofy people who like to wear triangulated hats and white wigs. Nope, those rubes are just used for reeling in votes. Republicans know that their true master, Wall Street, will not stand for the repercussions and they will find someway to make a deal. They will then come back out to their rubes...errr.. I mean constituents and tell them how hard they fought against socialist Obama but felt they were doing what is right for the American people. It's all... how should I put it? bullshit.

Sandhya Sriram said...

sorry for being absent in action, but what delights me is that you have managed to generate three beautiful posts in less than a week!! whoa... what a delight

it is politics all the way.. in India, politicians are exploting the lack of knowledge of the voters. in the US of A, they are exploiting the abundance of this. In India no one ever has a view on how the economy runs but in the US, it is the view on the Government that guides the voter bank.

This is an election campaign according to me. both parties trying to prove to the world that they are trying to do what is best for the economy - on one side, managing a bankruptcy and on the other side, being the whistle blower.

But heart of heart, this is a viscious spiral. if one borrows and spends into sunk expenditure, how are they ever gonna generate all that money to pay it back. a line has to be drawn to put an end to this together and it should be much beyond bi-party political gimmicks

Ramesh said...

@Hopfrog - Yes the pressure of Wall Street might force the Republicans to come to a deal, but I suspect their big problem is that they have let the genie out of the bottle and now they don't know how to contain the rubes.

@Sandhya - Yes its all politics and all elections. No different from the irresponsibility of a Mayawati or a Karunanidhi. Debt is a massive issue and actually if America were not of the size it is, it would actually be in much more serious trouble.

Vishal said...

I did not yawn because it cannot affect me but because these numbers have been revised ninety times and it will be further raised once again. But apart from politics, what will happen to China if USA keep on increasing debt ceiling and suddenly someday realize that it is not in a position to pay?

Ramesh said...

@Vishal - This time its not so sure that they will actually raise it. There are too many loonies in the US Congress. Michelle Bachman, supposedly a serious contender for US presidency says the limit should not be raised, come what may.

Anonymous said...

It is a tight corner for America for sure.
As they say, if the Congress approved the spending at some point of time, shouldnt they be letting them to borrow for the spending too?
Will the "cut, cap and balance" work for the Tea Party crowd?

Anyways, it is such a disgrace for USA to be in this situation and keeping the whole world in anxiety and aniticipation.

All they can do now is, chant' We shall overcome...."

Thanks Ramesh, for such a gripping post here!

Ramesh said...

@hema - Sometimes I wonder whether it is fair to allow a few nutheads to decide on something that affects the whole world. The concept of national democracy seems under strain, when the actions of one country affect the whole world. You and I have no say in this and yet have to bear the consequences.

Reflections said...

Like Hema says above it is a gripping post....drank in every word u said, sorry, wrote but it sure felt like u explained all this in person to me.
I tend to agree with Vishal tht they'll increase the debt ceiling....they dont have any other choice do they??? The difference between the expenditure & revenue is simply too much. They have no other go. Like u mentioned there are chances of it rocking everybodys world and Obama with his next end of term nearing will never risk this will he????

Reflections said...

End of world reminds me....March 12 was the last end of world date according to some brits here. They put up a huge billboard stating the same on Maktoum Bridge & within a day had a case slapped against them & the billboard taken down. All of us had a good laugh;-D

Ramesh said...

@Reflections - Not so sure that they will definitely increase. The tea party is in the hands of zealots and there's a streak of madness in the governance process of the US now. Not sure. Not sure.

Oh yes - end of the world doomsdayers are everywhere in the world.

Srivats said...

Dearest Ramesh

Glad to read your post :P been wondering that is this secnd recession is about.
Very well explained


Ramesh said...

@Sri - Great to see you back. There's also an Euro crisis brewing, but in the wonderful creative world you are in, banish such petty problems from your mind !

Srivats said...

@ Ramesh

yeah very well said :)

rads said...

Why does the whole world have to depend on America? I hate the word "recession"

Ramesh said...

@Rads - Thanks for reading many of my old posts and commenting. I am touched.

Oh - simply because America is the largest economy by far (5 times that of second placed China) and therefore the world's economy is still largely driven by the US.

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