Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Investors are looking for alternatives (NYT) to U.S. Treasury bonds as Washington lawmakers remain deadlocked over a plan to raise the nation's $14.3 trillion debt ceiling just five days ahead of an August 2 deadline that could see the U.S. default. Institutional investors are increasingly concerned that if the U.S. defaults – or even has its AAA credit rating downgraded in the absence of a long-term deficit-reduction plan – the value of Treasury securities would plummet, prompting some to invest in a strengthening Swiss franc, and others in rapidly growing emerging markets like China.
Following losses on Wall Street at the end of Wednesday, stocks in Europe and Asia (FT) fell sharply after markets opened Thursday. U.S. debt markets faced diminished foreign interest, as yields for insuring U.S. debt rose. While U.S. stock futures made small gains (WSJ) Thursday morning, markets remained focused on Washington's inability to resolve the debt standoff.
After much wrangling by congressional Republicans, the House will likely vote Thursday on a two-step plan (Politico) to raise the debt ceiling, a bill that faces significant opposition in the Senate, and one that President Barack Obama has vowed to veto. The $2.5 trillion debt ceiling bill would prevent a default next week but threatens more conflict in six months.
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Whereas a U.S. default triggered by a failure to raise the debt ceiling is the worst possible way to address the country's unsustainable deficits—causing borrowing rates to soar and hurting growth prospects—raising the debt ceiling without a credible deficit-cutting agreement still poses real risks of imminent market turmoil, explain these charts by CFR's Geo-Graphics.
As partisan wrangling over the U.S. debt ceiling continues in Washington, fears are mounting that a default could trigger another global economic crisis. This CFR Issue Guide offers timely analysis on the global implications of the U.S. debt crisis.
If linked to serious longer-term deficit reduction, a temporary stimulus could well be warranted to boost demand, writes CFR co-chairman and former Treasury secretary Robert Rubin in the Financial Times.
MIDDLE EAST: UK Recognizes Libyan Rebels
The UK became the latest Western country to recognize Libyan rebels' National Transitional Council (WSJ) as the country's legitimate government, while expelling from London diplomats loyal to embattled Libyan leader Muammar al-Qaddafi.
Iraq: A car bomb exploded at a bank in the Iraqi city of Tikrit (al-Jazeera), and was followed by a suicide bombing. The explosions killed at least twelve people and wounded twenty-eight.
PACIFIC RIM: China Defends Naval Plans
China called its plans to renovate a Soviet-era aircraft carrier as vital to its maritime security, heightening regional tensions (Reuters) in the South China Sea. The country has invested heavily in defense, even as the U.S. – the leading military power in the Pacific – plans to cut its defense budget.
Escalating hostilities between China and its neighbors over competing claims to the South China Sea is a test of the country's growing strength and a diplomatic challenge for the United States, which insists that the waterway should be open, says CFR's Joshua Kurlantzick.
SOUTH AND CENTRAL ASIA: Clinton to Fight for Pakistan Aid
U.S. Secretary of State Hillary Clinton warned congressional Republicans that she will fight proposed legislation to cut U.S. aid to Pakistan (ExpressTribune) as well as Mideast countries saying it would compromise her ability to carry out a “considered foreign policy and diplomacy.”
Cuts in U.S. military aid to Pakistan only have a chance to translate into greater cooperation if they're part of a larger strategy, including a U.S. crackdown on Pakistan-linked militants in Afghanistan, says CFR's Daniel Markey.
Afghanistan: A military jury found U.S. Army National Guardsman Sgt. Derrick Miller guilty of thepremeditated murder (Guardian) an Afghan civilian. Miller has been sentenced to life in prison with the chance of parole.
AFRICA: Displaced Ivorians 'Afraid' to Return Home
Over half-a-million refugees are afraid to return to their homes in the Ivory Coast for fear of ethnic reprisals (al-Jazeera) following the ouster of former Ivorian president Laurent Gbagbo, a result of last year's post-election violence that left at least 3,000 dead and displaced more than a million.
In looking at the successful resolution of the political standoff in Cote d'Ivoire, most commentators have focused on the role of France and the UN, writes Thomas J. Bassett and Scott Straus in Foreign Affairs.
Eritrea: According to a United Nations report, Eritrea has been funding Somalia's al-Shabaab (Reuters) rebels through its embassy in Kenya, and was behind a plot to attack an African Union summit in Ethiopia in January.
AMERICAS: Peru to Swear in New President
Peruvian President-Elect Ollanta Humala is set to be sworn in today in Lima (MercoPress) at a ceremony that is to include a majority of South American presidents and other dignitaries, including U.S. President Barack Obama's chief advisor on Latin American affairs, Dan Restrepo.
EUROPE: NATO Takes Charge of Kosovo Border Crossing
NATO peacekeepers took control of a border crossing in northern Kosovo (DeutscheWelle) after tensions accelerated Wednesday night between Kosovarian forces and ethnic Serbs, who reportedly set fire to a border checkpoint following a trade dispute.
Cyprus: Cypriot President Demetris Christofias moved to reshuffle his cabinet Thursday and push for a unity government that can pass budget cuts (FT) and other austerity measures necessary to fight Cyprus' burgeoning financial crisis.
TRANSNATIONAL: Inflation Threatens Asian Emerging Markets
East Asia: Rising food and fuel prices have hurt growth in emerging East Asian economies, putting pressure on inflation rates, said the Asian Development Bank in a new report.
The debt ceiling had been raised so many times in the past, and nobody hardly gave a hoot. This time it has been hi-jacked for neferious ends.
There's an old expression that goes something like this:
"You cannot get blood out of a turnip."
NO ONE likes the concept of taxation, but it is a necessary evil, just as sleep is a necessary evil.
It (sleep) deprives us of a third of our entire lives, yet it pays us the other two.
It (taxation) deprives us of some of our money, yet it paves the way for us to make the money in the first place.
**I've said too much already this morning, and now it's time to play some good old-fashioned Texas Hold'Em.**
The CFR and the Federal Fake Reserve are off probation and headed to jail!!!!!
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