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Watching a slow-mo train wreck

Posted: 07/30/2011 1:00 AM | Comments: 0 (including replies)

The United States appears to be on an inexorable march toward financial disaster. That might not be so bad in itself -- in fact, if that were all that's involved, a lot of Canadians and Europeans would happily buy tickets to watch America go over the edge, envy being the deadly sin that it is.

But that's not all that is involved. Canada -- in fact most of the world -- is tied to the United States like prisoners on a chain gang. Once Washington steps into the abyss, it is very likely it will pull the rest of us with it. China might be able to hang to a rock, but for Canada and everyone else, the world could be quite a different place after Aug. 2 than it is today, and not nearly so pleasant a one.

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Aug. 2 is the day America's bills come due. If by then the United States Congress has not been able to pass legislation that satisfies both Democrats and Republicans and is also agreeable to President Barack Obama, who has a veto -- and those are three very distinctive points of view -- then Washington will not have the money to pay all it owes. It will not have the money to make the interest payments on the trillions of dollars of debt it owes around the world or to pay for Social Security or Medicaid or even veterans' benefits to the hundreds of thousands of troops who have been coming home from the wars in Iraq and Afghanistan, weary and wounded in body and soul.

And if the U.S. defaults on that debt, the credit agencies have already said they will lower its credit rating, for the first time in history, from AAA to whatever is called for, and that would mean higher interest rates on all those trillions of debt, possibly the cracking of the American oak the world's economies have always leaned on and a diminished respect for and influence of America on the international scene.

In short, Washington will be kind of like you and me, basically broke and embarrassed on a scale that would astound even the brother-in-law or the friends and colleagues you occasionally tap for a loan.

I am not very good with money. In fact, Barack Obama and I have something in common. The mistress of my house will not allow me to handle any -- my wife looks after all the banking and gives me a meagre allowance that hasn't been adjusted for inflation in 10 years -- and the president's House appears determined not to allow him to handle any money either, although he will continue to get an allowance. Indeed, if the Tea Party Republicans have their way, there will be no money for anyone in the government to handle.

But even though I don't know much about economics, I know it was never supposed to come to this. The debt ceiling is a simple enough thing -- raising it allows the American government to borrow more money to pay the interest on the money it already owes. It does work routinely -- almost 40 times in the past -- but this time it ran into a roadblock. Tea Party Republicans -- almost all of them rookies in the House of Representatives and new to the sad world of politics -- don't want the government to borrow any more money, refuse to allow it to raise taxes in order to raise revenue and demand drastic spending cuts that would reduce the deficit -- and eventually the debt -- but also rend the fabric of American society and sow the seeds of economic chaos around the world.

There will be a lot of frantic political activity in Washington this weekend as both parties and the president try to agree on a formula that can pass both the House and Senate and not be vetoed by Mr. Obama.

Last-minute solutions are not unusual in the brinkmanship that often passes for political process in the United States, but the politics in this situation are complicated by a rare wrinkle. Mr. Obama wants a deal that will put the debt on a sideboard until after the presidential election in 2012. He doesn't want it as the main course, or to have to talk about it; ironically, if he doesn't follow his own advice and compromise, he may be campaigning as the president who is the author of the Great American Debt Default.

Most Republicans are willing to deal, but they only want a six-month solution to the debt ceiling so the deficit will be front and centre during the election and in the event of default, they will go to the polls as suicidal obstructionists. The unknown factor is the Tea Party. Many of those peculiar Republicans campaigned on no new taxes, no new spending and they say -- so far -- they're not prepared to break those promises, that it doesn't matter if they don't get re-elected.

This wreck-the-train-and-run approach to politics is a new wrinkle in the U.S. or anywhere else, but it fits with the mood. Following the news this week created an eerie feeling that there's something happening here, something different, something dangerous. Writing in The Economist, "Buttonwood" wonders whether this is in fact a "watershed" moment in world economic history, like the 1930s and the 1970s.

In that light, President Obama campaigned on the slogan of "Yes, we can!" but what he needs to address now is "Do we want to?"

We'll know on Tuesday.

tom.oleson@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 30, 2011 A17

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