US econ. crisis to spread worldwide

Stock markets around the world have fallen sharply for the second consecutive day, due to concerns over the US economy and its debt ceiling plan passed by Congress.

Press TV has interviewed Larry Birns, director of Council on Hemispheric Affairs, about the market plunge after the passing of ‘Budget Control Act’ by the US Congress, and its effect on the country’s economy.

Press TV: Mr. Birns, thank you very much for joining us here on Press TV. Everyone was talking about how the US must raise its debt ceiling. Now that that has occurred, why have markets reacted negatively?

Birns: Well, because the problem facing the western economy is much larger and goes much deeper than we all along have thought.

Another [thing is that] it is a very complicated matter and it’s a matter that can only be addressed by huge sacrifices of the part of the developed economies and we don’t know whether the political will to make those sacrifices is at hand.

Complicating the matter is the fact that President Obama … his popularity is rapidly declining, and with a growing instinct on the part of the Republicans and the significant faction of Democrats, who are breaking away and challenging Obama, and to that point, that there is almost… it is difficult to establish a clear constituency that the president still preserves, after these withering political wars he has been through for the past several weeks.

Press TV: Mr. Birns, was everyone a bit too optimistic then that the US raising its debt ceiling was going to solve the problem, and if so, what is the root cause of all this economic instability?

Birns: Well, the problem is because of the fact that it is a multiplex problem, a problem arising from various sources, no one action, no one initiative, is going to calm the waters, and that is the difficulty here that there are too many decision makers and they are working for each other.

For example, the Chinese are very worried that so much of their income has been largely in Dollar baring certificates. At the same time, the US has problems with the fundamentals of its economy; that its job creating mechanism is weak; its building housing which is the main stay of a job creating program also is very thin and is not functioning effectively.

So in the absence of a robust economy, in the absence of clear pathways, to an economic revival, there is a ground for great deal of pessimism. And so what we need now is a rebirth of confidence in existing financial mechanisms.

I don’t know where that rebuilding is going to come from; I don’t know where that optimism is going to come from. I mean this is a very serious crisis that principally the West is now facing and if the West is facing it, the rest of the world will soon face it as well.

Press TV: Well realistically Mr. Birms, where does the US and indeed, as you mentioned, the world economy go from here?

Birns: Well, there is only a limited amount of actions that one can take. One is going to have to be that the US is going to stop thinking in terms of its global economy and consequences that are being directed to its flagging economy. It is going to have to start thinking in terms of worldwide problems and worldwide solutions.

Now the Republican Party which controls one of the two Houses, the Lower House, is not inclined to do this kind of thinking, they don’t have a history of being prepared to challenge the status quo and to come up with public solutions to its problems.

In fact, the Republicans, by ideological whiff, all they are thinking about are private solutions and that the private sector is what counts and not the public sector.

But much of the solutions that will come to this problem will come from public sector initiatives and not private sector initiatives. That is what orthodox economics will tell us. But not necessarily what the Republican Party is prepared to do.