Unlike so many others in the US, public debt is twofold. This has been exacerbated over time by the actions of Democrats and Republicans, including Donald Trump’s 2017 tax cuts. A major contributor was pandemic relief, which was almost unanimous in Washington, at least in its first wave.
It is then as grim as ever to see biased feuds while the latest of America’s fiscal cliff edges are near. For an idea of the input, consider that a strike by the governmentDue to a lack of funding, the least possible are crises. The other is completely standard.
It is unclear exactly when the US will reach its debt ceiling – tax receipts must be paid soon – but the treasury has offered October 18 as an estimate. If it is not increased or suspended, only a lack of precedent can prevent us from detailing the the severity of the fallout. ‘Catastrophic economic consequences’ is the elliptical phrase of Janet Yellen, secretary of the Treasury.
This week, Republicans are even blocking the consideration of a bill related to raising the ceiling on providing short-term funding to the government. They want the Democrats to resolve the constraint on their own so they can gain a reputation as frugality in the process. This political turnaround, dressed as a concern for the budget, is not new. But the context — a still-living pandemic, an economy in recovery — is extraordinarily charged. Fiscal brinkmanship is now even less conscientious than in normal times.
Republicans, as co-authors of the debt, must work together to raise the limit. They are right that the Democrats, who run all three branches of the federal government, are in free spending. An infrastructure plan and a much larger bill on social reform will be found by Congress this week. But the debt is a legacy of decisions from the past, not a single year of ‘great government’. The budgetary conservatism of the IDP is in any case the strongest in opposition.
Even if it prevents the immediate crisis, the US will eventually have to address the issue of the ceiling itself. America is not typical with a nominal debt limit (currently $ 28.4 tons). The reason is that it imposes fiscal discipline on politicians. In fact, the extraordinary risk of default outweighs the caution, if any, of the limit. This is the product of a club that has been in Washington for a long time, in which the ceiling was an easier process. Even then, disorders were common.
Reform is admittedly difficult. Abolishing the limit, the most radical option, involves a legislative saga. (Denmark’s answer is to have a ceiling height.) But the status quo guarantees that bottlenecks like the current one are still coming. “We should never get that close,” says Jamie Dimon, the boss of JPMorgan. There is more to his opinion than the special plea of investment banks and their US debtors.
Americans have a mostly benign experience of these crises. But this is increasingly the problem. The sheer frequency of fiscal cliffs makes people feel serious. The markets expect Washington to be scared enough of the standard to finally be able to do what is necessary. In Washington, each party expects the other party to be scared enough of the market to come to the table. The rest of the world is constantly assuming that the US would never allow the worst.
There is a fragile web of assumptions and second guesses. That it has held together in the past – if the occasional strike of the government does not mean ‘hold together’ does not mean that it will do so forever. A disastrous accidental default cannot be allowed. It requires a lasting and not just tactical solution.