• Otter Views: Mere Anarchy is Loosed

    by Tom Stevens

    Barring some unforeseen breakthrough, the United States as of today has one week’s worth of spending cash. Treasury Secretary Jack Lew has red flagged Oct. 17 as the day the U.S. finds its wallet empty. Before it can reload at the global ATM, the Treasury will need Congressional authorization to raise the nation’s debt limit.

    According to National Public Radio, the federal government has run up against this legally mandated “debt ceiling” 78 times in the past few decades. On each occasion, Congress has grudgingly or willingly voted to raise the debt limit so the Treasury can continue borrowing money to pay its bills. This time may be different.

    After exchanging taunts, threats and counter-threats with the Obama Administration and the U.S. Senate, the House of Representatives effectively shut down the federal government last month. This is a time-honored tactic various Congresses have used to wring concessions from a stubborn White House. The shutdowns usually last two or three weeks until some accommodation is reached.

    Two factors make this 2013 shutdown especially intriguing, if that’s the word: the inclusion of the debt ceiling and the intractability of the opponents. Neither the administration nor the House has budged an inch on its demands. If anything, their positions keep hardening as October 17 nears. Once that day passes, the U.S. could cross a historic threshold and default on its debts for the first time.

    There has been no shortage of blame-casting as to how we reached this fateful impasse and who is most responsible for it. What has been missing is any helpful discussion of probable consequences. I’m no economist or political scientist, but defaulting on the national debt would seem to raise troubling questions for the citizenry at large.

    For instance, will the stock market crash? Will the credit system freeze? Will a wounded economy flounder once again into recession or depression? Will the dollar plummet in value? Will there be a run on the banks? Should we withdraw our meager savings and buy gold? What about stockpiling groceries, medical supplies, fuel and tires? How dire is this situation?

    Because the U.S. has not defaulted before, our own history is little help, unless you count Stockton and Detroit. But other nations periodically default, so we can look overseas for guidance as we join the likes of Venezuela, Greece, Spain and Somalia in the world’s welfare line.

    The pundits say a default generally damages a country’s credit rating and its reputation for fiscal competency. This drives would-be lenders and investors elsewhere. As the distressed nation’s credit pool dries up, its economy seizes, jobs are lost, goods become scarce or hoarded, prices spike, and so do tempers. Scapegoats are swiftly sought out and punished. Changes in leadership are demanded.

    As a failing government’s credibility falters, its currency devalues accordingly, and inflation can skyrocket. Until it got its financial ship righted, Argentina was the most recent global poster child for triple-digit inflation. Venezuela seems headed that way presently.

    If they continue long enough, soaring inflation, economic recession and high unemployment can stir dangerous currents of uber-nationalism. Greece is witnessing that now with the rise of the head-bashing, immigrant-thrashing, neo-Nazi “Golden Dawn” movement. Substitute various paranoid, heavily armed, white supremicist “citizen militias,” and we’re back in the U.S.A.

    Viewed from the “long game” perspective, the 2013 federal shutdown and looming national default are the latest battles in a far lengthier war over the size, reach and legitimacy of the U.S. federal government. This goes back to the Founders, but a more recent exemplar was the “manifest destiny” movement’s thirst for empire, circa 1900.

    Once America became an expansionist warrior nation with global appetites, its military ambitions demanded ever-increasing federal budgets and payrolls. The Great Depression added a host of costly social welfare programs, as did the Great Society and Civil Rights movements later.

    States-rightists, Goldwater Republicans, the John Birch Society, Ross Perot Libertarians and other small government advocates have long lamented the federal bureaucracy’s increasing size and reach. But with the nation continually at war in one part of the world or another, jingoism and patriotism invariably trumped prudence and parsimony.

    From time to time, the nation’s economic productivity and a hiatus in warfare have enabled it to run a surplus. This happened last during the second Clinton administration, before 9-11 and the global war on terror plunged us into long, costly military campaigns in Iraq and Afghanistan. Borrowing and debt reached unprecedented levels.

    In 2010, the backlash arrived. States-rightists and Tea Party populists swept into office nationwide, seized control of two dozen state legislatures and the U.S. House, and set out to paralyze the federal government. With the Supreme Court’s complicity, they have been spectacularly successful.

    A U.S. credit default would ice the cake.

    posted to Cedar Street Times on October 10, 2013

    Topics: Otter Views


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