Archived Story

Bad news looms on the horizon

Published 9:37am Friday, January 18, 2013

Is the next big headline: Government shutdown, U.S. currency de-valued?

It certainly looks that way right now, with the President firmly refusing to allow the House Republicans to take the US economy hostage to gain political leverage in fiscal policy discussions.

Republicans seem equally firm that they do in fact intend to refuse to pay the bills for money congress previously authorized to spend, unless they can force cuts in popular federal programs.

To be clear, by refusing to authorize raising the U.S. debt ceiling, Republicans in the House would be refusing to pay for the spending they authorized in past budgets.

Presidents and the executive branch can only spend money authorized by Congress; President Obama cannot spend any money that Congress has not approved.

So while Republicans would argue this president spends too much, it is Congress, and the House of Representatives specifically, who authorize and fund all spending.

Republicans argue that Democrats and President Obama are not serious about cutting spending, reducing the deficit and the debt. And certainly a case can be made that there are spending cuts that can and should be undertaken that would reduce the deficit.

But will refusing to raise the debt ceiling have any effect on that issue? Certainly not directly, but Republicans hope to force the Democrats to slice and dice Social Security and Medicare by holding the debt ceiling increase as blackmail.

As blackmail, is the debt ceiling an effective tool for the Republicans? Well, it depends on whether or not it is used as a threat or the blackmail is metaphorically implemented, as in forcing the nation into fiscal default.

As a threat, this would be the second occasion the debt ceiling has been used. The first time it worked, except for the rather ugly outcome of causing the perfect U.S. credit rating to be reduced. That of course raises interest rates on the large U.S. debt.

If implemented, that is if Republicans force the U.S. into default by not paying bills, then several outcomes unrelated to fiscal policy debt and deficit issues occur.

First, we would probably quickly find our credit rating reduced yet again. Then, the strength of the U.S. dollar, the strongest worldwide currency, could be de-valued, at the same time negatively affecting worldwide trading markets.

The international implications of default could also spin the fragile economic recovery into recession in many countries, including the U.S.

But default brings with it more challenges. The federal government would, as the default continued, be unable to pay military personnel, even those in war zones. Americans of Social Security could soon find the government cannot issue their checks. And, like dominos falling, US contractors, including defense contractors, would go unpaid. That would result in layoffs across the nation.

Several Republicans have advocated allowing default to occur, suggesting that these likely outcomes are not truly significant and would demonstrate the seriousness of Republican concerns over spending.

Those who hold this position are not unlike demanding to target icebergs with the Titanic with the specious claim that the ship is unsinkable. It is folly to harm America and Americans to force cuts in Medicare and Social Security.

So who will blink? Republicans and their blackmail strategy, or President Obama?

Best guess? Neither, until default happens, and perhaps for several weeks after the nation is in default.

Today the president is popular and the Republican Party is perhaps less liked than chicken pox. If Republicans take this path, and they will, their recovery strategy to win over American voters may be set back decades.

But the damage to the nation, will already be done — just to harm Social Security and Medicare.


Jim Crawford is a retired educator and political enthusiast living here in the Tri-State.


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