I understand (somewhat) and sympathize with the anguish over raising the American debt ceiling. But it is far too easy to condemn the creation of debt, as if certain people had been willfully overlooking our best interests. The fact is, we are all to blame—but we’re to blame for a system whose gradual creation we all colluded in. We are just now, very awkwardly, beginning to emerge from the Age of Debt, when we could sweep any excesses into the inflationary dustbin and watch them disappear. No one has participated at a more expensive level, of course, than our politicians. It is somewhat sickening, therefore, to watch them hold themselves above and superior to the debt creation that has taken at least fifty years.
Perhaps we can take the current political argument as a wake-up call telling us the game can’t be played by the same rules any longer. More likely, we can take it as an effort to have their cake and eat it, too, as the presidential candidates condemn a deal allowing the debt to rise while their party leaders negotiate just such a deal. This could allow Republican candidates to distance themselves from the deal, while at the same time allowing our economy to avoid the trauma of a default.
But a default on what exactly? Surely there would be no default on U.S. Treasury securities. (More on that potential nightmare in a moment.) So we would probably end up with delayed pension checks and, perhaps, wage payments—as if the members of the Armed Forces are ruining our economy by accepting paychecks. There is no solution to the problems created by a default that is not messy and damaging.
And most damaging of all would be a breach of payments on our Treasury securities. The insidiously powerful credit rating agencies would almost certainly rise up, twisting their moustaches, and downgrade American credit. That, in turn, would surely lead to higher interest rates, and we might then start down a very sorry road. Simply put, everything would cost more—especially credit—and the pay for most jobs would tend to decline.
The point here is that the dollar would lose some of its strength. The reason we have not joined Greece and Portugal in having our credit rating lowered and watching the cost of borrowing rise is that we’ve been able to print our own money. True, we can condemn this system as wasteful and foolish. But it’s the world we have been living in and continue to live in. We can gradually modify the rules, but we can’t change them overnight. We do so at our peril.
People are playing political football with our economy. The Economist, which I quote often and rely on for steady, conservative free-market views, said (specifically about the refusal to include higher taxes with spending cuts in trimming the deficits), “This is economically illiterate and disgracefully cynical.” I would suggest that what we see at work is a confusion of moral issues with the inevitable realities of economic life.
But again, I suspect we’ll see a deal fashioned by the party leaders…and then condemned by a party’s candidates. Do not look for sanity in this picture.
by: Bill Fisher
