The United States is three weeks from defaulting on its obligations. Ordinarily, at this point what would happen is the party in opposition (though it’s hard to tell who that is in this case) does a lot of heel dragging, but grudgingly decides not to send the US and world economies into a downturn that would make the 2007-2009 crisis look like an amusing typo. And in many ways we are in luck. The President, Senate Majority Leader and House Minority Leader all want to raise the debt ceiling. As does the Republican Speaker of the House. But, as with many things in US politics, it’s not so straight forward.
The US owes $14trn, and it needs some more, hence the necessity to raise the debt ceiling. Throw in the fact that the economic recovery has been anemic at best, and you understand why unemployment, the truest misery index, has remained stubbornly above 9%. Republicans are demanding major spending cuts and not a penny of ‘job-destroying tax increases’ in order for them to agree to not crashing the global economy. America has an economy problem. America has a political problem. It’s a marriage made in K Street.
This is not to say that Democrats are blameless. In the same way that they could have passed a budget deal before the 2010 midterms and therefore avoid a near government shutdown, they could have voted to raise the debt ceiling when they were in charge of the House. Furthermore, in the years of total Republican domination of the executive and legislative branches, Democrats repeatedly voted against raising the debt ceiling in protest against the policies of the Bush Administration. Neither side is blameless in this debate.
America has not run out of money. It has run out of the legal authority to borrow money, a legal authority that it can grant itself. They are in the enviable position of being their own bank manager. And if they do, they’re fine. People are falling over themselves to purchase US Treasury bonds. They can’t get enough of the stuff. In some cases, some yields are working out at negative interest rates. Simply put, there is a seller’s market for US debt. And it’s not surprising when you look around the world. Europe is suffocated by sovereign debt, the Chinese make it difficult for foreigners to buy bonds whilst the greenback remains a reliable friend, even after the near trillion dollars of quantitative easing.
Right now, America is the Titanic, but with satellite navigation and headlights. It can see the iceberg coming. And it is literally (at least in this dodgy metaphor) deciding whether or not it should hit it. America is not like Portugal. It has never defaulted on its loans. Also, if Portugal were to default, the world will not have lost $14trn. I’ve never had more than £50 in my wallet at any one time, but that sounds like a lot of money. And it’s mostly held by US citizens in pension plans, not by the cackling Chinese and their plans for global domination.
The debate in Washington, and indeed around the world, is thus: are the Republicans that crazy? And the answer is no, probably. Republican policy is, if not dictated by, then written for big business and the super rich. Hence their strident opposition to all tax rises on the uber wealthy, and to closing tax loopholes for oil companies. But if the US defaults, everybody loses. If you own anything other than gold and wheat, you are in big trouble. And the Republicans know this because their backers are telling them as much. If America defaults, big business loses. This is why there will be an agreement to raise the debt ceiling. Probably.
The US has a medium to long term debt problem. It doesn't need a short term one as well. John Boehner is a serious guy, and the main danger isn’t that he doesn’t vote yea, but that he can’t take his Tea Party infused caucus with him. The world economy is in the process of recovering from a nasty bout of pneumonia. Will the Republicans vote for Spanish influenza? No, because their financial backers don’t want it. So sit tight until August 2nd. Though I’d stock up on canned goods, just in case.
