U.S. gov't must make debt deal to prevent another 'Made in USA' global finance catastrophe
House Speaker John Boehner of Ohio, right, listens as House Majority Leader Eric Cantor, R-Va., left, speaks on Capitol Hill in Washington, Friday, July 15, 2011. (AP Photo/Susan Walsh)
(Mainichi Japan) July 27, 2011
With each passing day, the unthinkable grows closer: default by the government of the United States on the U.S. national debt.
The deadline for the U.S. Congress to approve raising the country's debt ceiling from the current 14.3 trillion dollars is Aug. 2. If the deadlock between President Barack Obama and his fellow Democrats in Congress, and Republican members of Congress behind House Speaker John Boehner is not broken by that date, the U.S. government will run out of cash, civil servants will stop getting paid, social security checks won't be issued, and government services will grind to a halt.
However, the greatest fear surrounding a default is that it would cast the global financial markets into chaos and deal a massive blow to the world economy. The market still apparently believes that a U.S. default is impossible, and that a last-minute deal will be made to raise the debt ceiling. However, with the U.S. dollar drifting down to just 77 yen, the strain even in market circles is beginning to show.
Debt-rating giant Moody's Investors Service first slapped its premiere AAA rating on U.S. debt in 1917, and it hasn't budged since. The very fact that it has been considered the most trustworthy sovereign debt in the world for so long makes predicting what effects the current crisis will have all the more difficult.
However, even as the world sweats over the looming financial catastrophe, Washington gazes only inward, fixated on its political game of chicken. Far from narrowing the gap between the Republican and Democratic positions, it appears the parties are digging in, making a compromise even more difficult to reach.
The Republicans are set on raising the debt ceiling in two stages -- the first this year and the second in 2012 -- and starting negotiations on serious cuts to the budget deficit in tandem with the second step. Their aim is to time the second stage -- and the accompanying budget cuts -- to land in the midst of the 2012 presidential election campaign, hoping to destabilize their Democratic opponents at the vital moment. The Democrats, however, are pushing to have the debt ceiling raised this year by an amount that would also cover 2012, thereby getting the party through the autumn election without need of a pitched battle over budget cuts.
President Barack Obama answers questions on the ongoing budget negotiations during a press conference in the Brady Briefing Room of the White House in Washington, Friday, July 15, 2011. (AP Photo/Evan Vucci)
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Of course, it's natural for politicians in democratic countries to worry about the next election. Particularly members of the U.S. House of Representatives, who must face voters every two years, tend to play constantly to their district constituents to better their chances of retaining their seats. For the Republicans, who swept to a majority in the lower chamber in the last midterm election, this means taking a lot of pressure from the Tea Party grassroots conservative movement -- dead-set against raising the debt limit -- that helped propel the Republican Party to victory.
However, this should not be an issue subject to Washington's usual electoral anxiety. U.S. congressmen and women must act to protect international trust in the dollar, to uphold what is so obviously a major U.S. interest. That they and the president should get a deal done on the debt ceiling soon is a given, as is the necessity of drastic deficit-cutting measures. Half measures would invite a U.S. debt downgrade, possibly triggering at least a short-term crash in the value of the dollar, long-term interest rate hikes, and sinking stock prices worldwide.
"We can't allow the American people to become collateral damage to Washington's political warfare," Obama said during a national television address on July 25, aimed at rallying the American people around a call for compromise. The potential chaos stemming from a failure to break the debt ceiling impasse, however, would not just suck in the American people.
It has not yet been three years since the collapse of Lehman Brothers sparked a global financial crisis that nearly tipped the world into another Great Depression. No matter the causes or the background, it would be very difficult for us outside the United States to accept another "Made in the USA" financial catastrophe.
(Mainichi Japan) July 27, 2011
