Saturday, July 02, 2011
In the coming weeks, you need to keep one thing in mind. Congress could raise the debt limit without any debate. No fuss. No muss. No spending cuts. No new taxes. There’s nothing stopping them from just raising the debt limit in the House -- “We hereby raise the debt limit of the United States of America from $14.2 trillion to $16 trillion.” -- running the Bill over to the Senate and then running it over to the President to sign. It could be done and finished in an hour.
Instead, what you are seeing is a giant game of “chicken”.
What you need to understand is that in this game of chicken, the whole world is in the car headed for the cliff. I’ve already shown you that Fareed Zakaria thinks it could be “catastrophic”. I’ve even showed you that the American Enterprise Institute -- an organization that I love to loathe -- is nervous about it and searching for an “out”. And now, here is what Krugman has to say about it.
To the Limit
”There will be dire consequences if this limit isn’t raised. At best, we’ll suffer an economic slowdown; at worst we’ll plunge back into the depths of the 2008-9 financial crisis.”
There are consequences for this foolishness already. Pretend you are in the Chinese government. They realize that this is a manufactured crisis. We could raise the debt limit right this second with no more that a few words on a piece of paper and a signature. But instead -- like foolish teenage boys -- we’ve decided to put the Chinese government’s investment in U.S. Treasury bills in jeopardy. We are talking about trillions of dollars. We are talking about the future of the entire Chinese economy -- over a billion people -- for a decade or more. We’ve put all that at risk for political ideology.
That scenario is being played out in the minds of every government official in every government in the world. And every one of them is having the same thoughts -- “Have these people lost their minds?” And the longer this insanity goes on the more likely it is that people in other governments around the entire world will come to the conclusion that -- yes -- American has lost its mind. More from Krugman:
”Not that the confidence issue is trivial. Failure to raise the debt limit — which would, among other things, disrupt payments on existing debt — could convince investors that the United States is no longer a serious, responsible country, with nasty consequences. Furthermore, nobody knows what a U.S. default would do to the world financial system, which is built on the presumption that U.S. government debt is the ultimate safe asset.
But confidence isn’t the only thing at stake. Failure to raise the debt limit would also force the U.S. government to make drastic, immediate spending cuts, on a scale that would dwarf the austerity currently being imposed on Greece. And don’t believe the nonsense about the benefits of spending cuts that has taken over much of our public discourse: slashing spending at a time when the economy is deeply depressed would destroy hundreds of thousands and quite possibly millions of jobs.”
It is really hard to grasp the simplicity of this issue once you understand the enormity of the consequences. We are going to drive our car towards a cliff -- voluntarily, without any prodding -- knowing that we will have to jump out at some point or die. And we expect this rest of the world to sit quietly in the back seat while we take them on a ride. How do you spell “insane”?
Make no mistake about it -- this is a Republican-Party-created crisis. The debt limit has been raised 10 times since 2001. It’s an issue now because the Republican Party is in the minority and they believe they can use the debt ceiling as leverage to get their way. And there is another -- darker -- reason. From Krugman again.
”They believe that they have the upper hand, because the public will blame the president for the economic crisis they’re threatening to create. In fact, it’s hard to avoid the suspicion that G.O.P. leaders actually want the economy to perform badly.”
If there was ever an issue to call your Congressman over, this is it. The message couldn’t be simpler. Stand down. Raise the debt limit. No conditions. No new taxes. No spending cuts. No negotiations. No anything. Just raise it. Just like you’ve done the 74 times before.
July 2, 2011