FRONT PAGE CONTRIBUTOR
Debt default: global threat, or greatest stimulus plan ever?
The World Bank and International Monetary Fund declare themselves deeply troubled by the U.S. government shutdown crisis, and the looming possibility of “default.” There is absolutely zero possibility of actual default, mind you. Such a thing would only happen if President Barack Obama explicitly directed it, because there is a vast amount of spending the federal government could cut before it became necessary to think about defaulting on our sovereign debt obligations. If Obama gave such an order, he would be immediately removed from office, leaving his media cheerleaders to gape in shocked amazement. But he’d never give the order, because he knows that not even the most biased media imaginable could pin it on anyone else, and the President really does not want to live with the aftermath of the crisis he would be deliberately provoking.
Obama’s irresponsible rhetoric is built around stoking the phantom fear of something that cannot possibly happen. This is not to trivialize whatever would occur if we sailed off the fiscal map into “Here there be dragons” territory later this week. It is reasonable to suppose the international markets would be shaken by a perceived failure of the American government, which is not supposed to behave like all the little socialist basket cases the world community is accustomed to subsidizing and bailing out. Nobody can bail out the United States of America. The entire world, acting in concert, to the exclusion of all other considerations, would be hard-pressed to pay off the hundred-trillion-dollar mountain of liability we’ve already accumulated. Even if our current debt obligations were covered to the penny, structural instability in the American federal government would scare the pants off investors here and abroad.
But no one in the Ruling Class is much interested in having an honest discussion with the American people about the debt ceiling and its consequences, least of all Barack Obama, who is interested in nothing except accumulating leverage against his political opponents. It’s always interesting to confront a “crisis” so dreadful that we’re told to worry about a phony made-up apocalypse instead. And since this manufactured crisis is politically useful to the Left, we’ve got IMF and World Bank leaders quoted in the New York Times as they issue warnings about an impending global market crash:
Many leaders at the World Bank and I.M.F. meetings said they believed the impasse would be resolved before Thursday, when the government would be at severe risk of not having enough money to pay all its bills on any given day going forward.
But they pressed Treasury Secretary Jacob J. Lew and the Federal Reserve chairman, Ben S. Bernanke — who were both at the I.M.F. meeting — on the issue, predicting that even a near-default would lead to higher borrowing costs and a slowdown of the global economy.
“This cannot happen, and this shall not happen,” Baudouin Prot, chairman of the French bank BNP Paribas, said at a meeting of the Institute of International Finance also being held in Washington. “The consequences of this would be absolutely disastrous.”
Mr. Lew acknowledged the threat. “Our work begins at home,” he said. “We recognize that the United States is the anchor of the international financial system. With the deepest and most liquid financial markets, when risk rises, the flight to safety and to quality brings investors to U.S. markets. But the United States cannot take this hard-earned reputation for granted.”
Mr. Lew’s Administration has been working awfully hard to squander that hard-earned reputation, pushing enough irresponsible spending policies to make even the more passive global credit rating agencies nervous. We’re not all that far from the day when mandatory entitlement spending and debt service will consume the entire federal budget… and then it really will be hardcore crisis time. Meanwhile, the spectacle of a government that deliberately provokes faith-and-credit crises for its political benefit can’t be reassuring to those vaunted global investors.
And is everybody in the U.S. electorate cool with the idea that we’re so weak and dependent on massive deficit borrowing that nervous foreign markets equal fiscal doomsday, as President Obama has taken to warning us? Perturbed by the markets’ refusal to panic at his command, Obama described the possible increase in government debt service costs as a “Republican default tax.”
“Damage to America’s sterling credit rating wouldn’t just cause global markets to go haywire; it would become more expensive for everyone in America to borrow money,” Obama explained, neatly co-opting the language he used to deride as extremist fear-mongering when it came from critics of his mad dash to double our national debt. In other words, racking up a titanic debt load reducers our independence, because we can’t afford to do anything that would make our creditors nervous. Funny Obama didn’t warn us about that before he dumped another $7 trillion on Washington’s credit cards.
Perhaps it’s time to consider a few fashionable left-wing economic theories in the context of the debt ceiling crisis. When they’re trying to defend the laughably expensive and ineffective “stimulus” policies Obama favors, liberal economists love to point at the postwar era as a model for American economic expansion. They’re also fond of “Broken Windows” stimulus thinking, viewing natural disasters as wonderful opportunities for government control and stimulus spending. (They evidently missed the part of Econ 101 where the Broken Windows parable is presented as a fallacy.)
So maybe a global market crash is just the ticket for American economic renewal! The postwar boom was due largely to the destruction of competing infrastructure in Europe, which had been bombed into oblivion. We’re not about to physically destroy half the industrialized world again, but under liberal stimulus logic, a foreign market crash caused by our credit crisis could become a golden opportunity for American dominance. Big Government aficionados are fond of describing the current partial government shutdown as a catastrophe on par with a natural disaster… but they view actual natural disasters as glowing opportunities for accelerated economic activities. Rebuilding after a catastrophe creates jobs, right?
Obama’s current debt-ceiling ransom demand calls for an end to the sequestration cuts he designed… and which are the only surviving example of actual budget control from the Budget Control Act of 2011. If I were a global credit analyst worried about the gathering American fiscal crisis, I would be deeply alarmed at the spectacle of Obama and the Democrats using a fiscal crisis as leverage to erase the only act of fiscal restraint they’ve performed in years. Short-term, the model of a growing American government perpetually accumulating more debt appeals to those who profit from lending Uncle Sam money. Long-term, it’s an unsustainable disaster heading into the kind of nuclear financial fission the world has never seen before. One suspects the sharp operators will sit tight as long as the U.S. government appears stable, and continues borrowing money… but they’ll abandon ship mere moments before it plows into the iceberg. They’ll admit they always knew it was coming when they write their memoirs.
A shock to the system is always unpleasant, but sometimes a bit of short-term unpleasantness is worth enduring to secure long-term survival. It’s amazing how much of our mega-government has been revealed as truly non-essential during the “shutdown crisis.” Keep the debt ceiling in place, and we’ll be equally surprised to discover how much vital, non-negotiable spending can be cut. If the only way to drag the Ruling Class into the harsh light of honesty is to endure a fiscal crisis, we should consider having more fiscal crises.
Accusations of “hostage taking” are flying back and forth across Washington. The Big Government system has been holding all of us hostage with exaggerated fears for decades. Maybe it’s time to call their bluff, and find out just how many bullets are really in the gun they’ve been waving at us.
More government and more debt means less freedom. That means options readily available to stronger previous generations seem like catastrophe and chaos when contemplated today. If we don’t have the courage to make big changes now, we’ll be astounded to learn how much has become “unthinkable” a decade from now… right before the whole racket becomes untenable.