When President Obama defiantly stated last week that he absolutely will not debate Congress over raising the debt ceiling, he was trying to send a message not to his Republican adversaries but to the American people whose future is very much dependent on how that very debate is resolved. It wasn’t exactly a knockout punch by Mr. Obama, but rather an opening jab that may allow him to win the knock-down drag-out fight that is looming in the next two months.
The president will need strong support from the public, which is far from a certainty at this point. Most Americans, if they are aware about any of the economic issues currently being debated, are far more concerned about the size of the national debt than they are about what happens if the government loses the means to borrow to pay for bills it has incurred. On this point, the Republicans have the public’s ear. The essence of their argument is the debt is too high and mustn’t go any higher, lest the future for succeeding generations of Americans will grow increasingly more dismal.
It’s an argument that has been made for the last sixty years (at least), and it is as tenuous now as it has ever been. Yes, the national debt (the amount of American currency owed to lenders) is far higher than it has ever been, but so is the nation’s gross domestic product (the measure of all production in the country).
And, as recently as thirteen years ago, the national debt was projected to be completely paid down by the year 2015. Of course, that was when the country was experiencing full employment and was before two massive tax cuts were enacted and two major wars were engaged that weren’t paid for. But now, instead of looking at a debt-free picture in two years, the country is overwhelmed with debt (currently estimated in excess of $16 trillion).
The nation’s debt, then, is mercurial, if recent history is an indication. In good economic times, when the labor force is fully employed, taxes are not unduly low, and the country is at peace militarily, the debt can be reduced dramatically. In bad economic times, when unemployment is high, taxes are low, and the country is (or has recently been) fighting two major wars, the debt can rise even more dramatically, especially if the economy receives a hefty stimulus to help it recover from a severe recession (as has been the case for the last four years).
What lesson do these conflicting stories from our country’s most recent past tell us about concerns over the national debt? The answer to that question is that those concerns are misplaced with respect to any impact the current debt might have on future generations. The country’s ability to grow out of debt was proved in the good economic times of the 1990s. Those conditions can pertain again with sound management of the country’s fiscal and monetary policies, which is what the Obama administration and the Federal Reserve Board are trying to foster.
Seen in this light, the Republican claim that the current level of indebtedness is a disaster in the making is nothing more than ideologically-driven fear-mongering. Yes, the country’s future could be very dismal, but it won’t be the debt that makes it so.
Rather, it will be the onset of a catastrophic economic depression that will destroy the nation’s ability to grow out of debt and will instead produce a vicious cycle of ever-increasing unemployment and destabilized financial markets that bring American industry to a grinding halt.
That scenario, however, will only occur if the nation defaults on its current obligations, thereby sending the bond market for U.S. treasuries into a free-fall and making it almost impossible to borrow the funds necessary to stimulate a recovery. That, in essence, is what has happened in Greece, which Republicans love to compare the United States to.
The comparison is completely unfounded for one critical reason: unlike Greece, the United States is the master of its own currency. It can control the amount of money in circulation by, in essence, printing more of it. And as long as the country makes good on its current debt payments, the ability of lenders to bank on those dollars can support any short term stimulus.
We are seeing evidence of that fact right now. Consider the massive deficit spending that the Obama administration initiated on taking office four years ago. What did that spending cost the country? Are interest rates skyrocketing out of control? Is inflation rampant? Is the country about to be taken over by the Chinese government?
The answer to all of those questions is a resounding no. Interest rates are still ridiculously low. Inflation is nearly non-existent. And the bulk of the borrowing the nation has incurred hasn’t come from the Chinese (their share, even now, is only about 8 percent of the national debt). Instead, it is American institutions that own most of that debt. And they own it because the government has always paid its debts, has always had a triple-A credit rating.
But that credit rating was shaken in 2011 when Congress threatened to refuse to raise the debt ceiling, and it would be badly damaged if Congress carried through on the Republicans’ threat to refuse to raise it.
And that is why President Obama must prevail in the coming battle with his ideological adversaries. To let the country default on its financial obligations would be to risk taking the country to financial and economic ruin. Indeed, it would threaten the economic stability of the entire world and would, thereby, increase the risk of economically-driven military conflicts that could, with the proliferation of nuclear weapons that currently exist, put the planet at risk of Armageddon.
That’s the game the Republicans are playing with this threat to withhold increasing the debt ceiling. It isn’t the debt they’re after. They want to tear down the “social-welfare entitlement programs” they have long despised.
The shame is that they are playing Russian roulette with their own country’s future.