It’s that time of year again. It’s a monotonous Republican ritual of sabotaging core government business during Democrat presidencies. When the US debt ceiling is obstructed it has caused government shutdowns, a lot of embarrassment, and total failure to manage the basics.
The debt ceiling is a level of debt approved by Congress for future government debt obligations. If not approved, there’s no money for Medicare, Social Security military and government wages and, most importantly, paying for existing government debt.
Theoretically, there’s the option of “suspending” the debt ceiling so borrowing can continue, but that’s being blocked, too. So it’s all or nothing, and nothing might well be the outcome.
Given the usual utterly irrational illiterate political response to anything in the US for all these years:
- Total irresponsibility is the name of the game. In 2008, the maniacally unregulated debt market devastated the entire American middle class. Recovery was incredibly slow. Some might say the middle class never really recovered.
- The Fall of Rome scenario is looking like a comparatively great option. You’d have to outsource your barbarians, though. American barbarians are comparatively expensive, and as Jan. 6 indicated, not too photogenic, or three-dimensional, etc.
- Total economic failure isn’t impossible; just until recently unlikely. Keep crashing confidence like this, and you won’t have an economy. You’ll have a highly medicated, overpriced rehab center with 300+ million people in it.
- There is as usual no practical or even meaningful basis for opposing the obvious debt management options. This is purely political, and probably geared to the 2022 mid-terms. If America drops financially dead, too bad.
Looking nasty in theory; in practice, it’d be worse
The current state of US debt is that the US risks default on 18 October according to Treasury Secretary Janet Yellen. If the US does default, for the first time in history, the effect on the debt market will be horrific. The US has never previously defaulted on a debt. US government debt payments fuel the premium debt markets. In a sleazy, corrupt global credit market, those payments matter, a lot. If those debts go bad, so does the world’s debt.
Domestically, a default would be an economic disaster anyway. The stock market will definitely plunge. Main Street will be broke again. A lot of Americans are dependent on Federal money. Everything will be affected, severely. Interest rates would have to rise on personal credit. All other types of debt would follow suit, including mortgages, loans, etc. Indirectly, the rises in prices and interest rates will hit personal and business spending very hard indeed across the entire economy.
A propaganda gift to China
In the wider sense, a debt default would seriously undermine the US around the world. American economic power makes its military power seem insignificant at best. China could benefit a lot from American debt default.
The US dollar, that much-too-easy target, could fall sharply making the yuan a viable alternative as an alternative global currency. The yuan would inevitably rise, giving China more capital. That would be a major strategic failure for the US, potentially drawing a lot of money away from its own market.
Debt makes the world go round
The entire global economy is highly exposed to debt. Trillions of dollars of debt are paying for this global paradise. This very insular, very smug, market isn’t famous for its toughness in crises. In short, the debt market really doesn’t have a clue how to manage the risks of a US default. For example – China is also being very coy about bailing out Evergrande, which is giving the debt market another crisis which it is failing spectacularly to manage, and the “Masters of the Universe” are to put it mildly nervous. A US debt default would make Evergrande look like a cheap toy in a cereal box.
A cascade of debt defaults is possible. The debt market, not too surprisingly, buys government debt, and borrows against those debts as assets. If those assets fail, that debt is in big trouble.
Not helping matters much is the fact that US government debt is usually so safe the market is effectively comatose. It’s hardly a model of dynamic alertness to risk, and could react very badly. A “debt panic” could easily go nuts, overselling debt and reducing its value, wiping out margin-dwellers and critical bread-and-butter sources of revenue.
Pretending to govern
Coming as it does soon after the Trump “presidency”, the hypocrisy barely needs mentioning. The GOP simply accepted the Fed’s management of the pandemic situation. It had nothing at all to do with the fiscal realities. The GOP scrupulously confined itself to giving handouts of public money to private parties, aka everyone on its payroll.
This is baseline neoliberal conservatism; rob the public to give to your necrophiliac associates. It’s common practice around the Western world, and much good it’s done. People who pay taxes (the lucky recipients of all this largesse don’t) are now simply funding the rich and the insane. It’s a wonderful epitaph to the United States, isn’t it?
Now, The GOP is the expert on prudence and financial management? One of the constant thematic failures of the anti-big-government ideology is that the world is now a lot bigger, so government has to be bigger. But no, it’s still 1920, according to anti-big-government. The last century never happened in this idyllic view of a world that no longer exists. The failed pre-Great Depression mantras are still the same.
The GOP is calling the new Biden budget a spending binge. This debt ceiling vote is one way of blocking it. The Trump “administration” raised the debt ceiling three times in four years with bipartisan support.
That was OK, this isn’t? How? Does the GOP really want to see all those private assets devalued? Or will all the tax-dodging money offshore cover that? It’ll be interesting to see.
Trailer parks uber alles
The exact difference between Trump’s Front Row Joes and the GOP Senate isn’t at all clear. The goosestepping styles are slightly different; the message is the same. The negativity and failure to acknowledge reality on any level, however, is exactly the same.
This is economic certain death staring the GOP in the face. The fallout will be toxic for decades if the US defaults. Any incoming GOP administration would be facing an absolute wasteland of collateral damage.
…But that’s OK, right? Americans simply don’t need money. They have nutritious press releases to live on. Being broke is good – As long it’s someone else doing it. The red states can live on nothing, as you know; they’ve been doing it for decades while you’ve been clogging your arteries.
Meanwhile – You want 50 stars on that thing you keep waving so very unconvincingly? Someone’s gonna have to pay for it. Think about it.
