In the classic hot rod game of chicken, two drivers accelerate toward each other with neither wishing to yield. Unless someone swerves away, tragedy is unavoidable.
Nov. 3 is the deadline for a high-stakes game of chicken with the Republicans’ self-described “Freedom Caucus” unwilling to let the United States borrow more unless equal cuts are made in social programs. That’s when, according to Treasury Secretary Jack Lew, the United States will be unable to pay its bills.
The default deadline would be normal Washington politics of brinkmanship except this time the world economy is along for the ride.
The United States economy is more than simply national. It’s the world largest economy, its dollar the international reserve currency and its federal debt — T-bills, Treasury Notes and other securities — considered the safest investments anywhere. What happens if we default on that debt? Among the possibilities:
- A massive sell-off on the stock market, perhaps making the 2008 crash seem like a modest correction.
- A downgrading of U.S. credit. In 2011, when we first came close to the brink, Standard & Poors downgraded the country’s long-held AAA rating one notch to AA+.
- Somebody won’t get paid. It could be Social Security recipients, doctors treating Medicare patients, active-duty military, government employees, foreign bondholders or some combination of all of these.
In 2013, when he broke ranks with conservative Republicans and voted to increase the debt limit, Rep. Darrell Issa from Vista noted, “A default, even a brief one, would have immediate and catastrophic effects on the U.S. and world financial markets.”
What’s crazy about the brinkmanship is is that the annual deficit has been steadily declining, and the U.S. total debt is far from profligate by international standards.
The annual deficit for fiscal 2015 was $439 billion, the lowest since 2007 during the Bush presidency. The U.S. national debt stood at $18 trillion in June, a big number but less than three-quarters of what we produce in a year. Japan, the United Kingdom, Canada, France and Germany all have much higher debt as a percentage of their economies, according to the CIA World Factbook.
Conservatives say it’s all about principle: as a nation, we should spend no more than we take in, and we must pay down our current debt. That makes sense, of course, unless you put the numbers in perspective.
American homeowners routinely take out mortgages that are twice their annual income. In California, it’s even more. We don’t think that’s bad, but rather smart planning for the future.
Like a new home, much of our national borrowing goes for investments like highways, scientific research, law enforcement and military equipment. We borrow more during recessions, of course, but we pay it off through later growth in the economy.
The good news on this issue is that outgoing Speaker of the House John Boehner is said to be readying a debt limit bill that could be passed by Democrats with perhaps a small group of Republicans voting for it as well.
In any case, let’s hope someone swerves soon.
Chris Jennewein is editor and publisher of Times of San Diego.