Editorial, Globe And Mail, July 21, 2011
Without a congressionally approved increase in the debt ceiling by Aug. 2, the U.S. will run out of new borrowing authority, forcing it to pick and choose among its existing obligations – to Social Security recipients, bondholders or its own employees. And so one consequence of failure would be a removal of money from the American economy. That would affect economies the world over, many of which rely on trade with the U.S. (and on which Canada remains especially dependent).
The U.S. would also enter into technical default and its debt would surely, and deservedly, be downgraded by major rating agencies. That would devalue the holdings of millions of people and institutions (including those in Canadian pension funds, government reserves and private accounts). Treasury bills, a lifeblood of its own economy and the world economy, would no longer be risk-free. That would put into play the “full faith and credit of the United States” on which global finance depends, limiting borrowing elsewhere and further threatening the prosperity of other economies.
The power the U.S. exercises on the world stage comes largely from its economic strength. Default would demonstrate the U.S.’s inability to meet its commitments. In addition to the economic consequences, that could lead to a loss of its moral authority in international affairs – and that would be a very bad thing.
Editorial Globe and Mail July 12, 2011
The debt ceiling is the legal limit of the debt the U.S. can issue to meet its obligations. Thanks to expensive wars, tax cuts and the recession, the nation is much obligated: Congress passed nine separate bills to raise the debt ceiling in the past decade. If Congress does not pass another increase by Aug, 2, the U.S. would have to pick and choose which of its current obligations – pay to civil servants and soldiers; cheques for grant recipients; interest on existing debt – it will not meet. In time, the country could be in a default situation, wreaking havoc on a world economy that depends on the U.S. currency.
After years of profligacy, both parties now realize the fiscal trend – debt as a proportion of GDP could double in ten years, says the Congressional Budget Office – is unsustainable, and that a debt-reduction plan, not another band-aid, is necessary. But only one is reaching across the aisle. Mr. Obama’s proposal for up to $4-trillion in savings constitutes a massive concession, given the orientation of his base, the Democratic Party.
In the U.S. system, Congress holds the purse, not the President. The Republican majority should share an interest in governing, in such hard choices. But Republican House Speaker John Boehner has capitulated – to his party’s presidential candidates and his own deputy, who insist that the deal include no tax changes whatsoever.
Low taxation is a laudable objective. But so is fiscal rectitude. And low taxation at the price of default is a price not worth paying. The complete set of tax cuts approved under George W. Bush are proving to be unaffordable in the long run, yet the Republicans refuse to discuss them. The U.S. tax code, which allows well-connected parties to reduce their obligations, could use reform – yet the extremists in the Republican Party refuse to consider that, either.
Both belief in the U.S. and the country’s economic future are at risk if they continue this game. Default is staring Americans in the face. It would be criminal if a broken political culture and an out-of-touch political party inflicted default, and its horrible consequences, on its own people and the world.
Last night the President addressed the nation, again, for the nth time it would seem, once again demonstrating his commitment to a balanced solution, combining both spending cuts and tax revenue from loopholes and from the termination of the Bush tax cuts on the wealthiest Americans. Should this crisis cross the threshold without a solution by the August 2 deadline, it is quite clear that the Republicans are the party and Boehner their leader whose hands must bear the blood of the failure.
It is the Republicans who merit severe castigation at the polls, in the next election. And, specifically, the TeaParty candidates whose ideological commitment to their oath, sponsored by Grover Norquist, the anti-tax ideologue, bear the heaviest respsonsibility for the failure to reach an agreement.
By having a majority of Republican politicians sign his oath that they will not vote for any measure that includes a tax increase of any kind, Norquist has effectively tied the hands of the rest of the government, including the remaining moderate Republicans, the Democrats and the President.
If this log-jam continues, and the U.S. does indeed default on its payments, because the debt ceiling is not raised, any fingerpointing must be directed to Norquist, and he must be held accountable although he does not even hold a seat in either house in Congress.