U.S. Must Prevent Yet
Another 'Made in America' Catastrophe
than three years after the Lehman Brothers collapse sparked a financial crisis
that nearly tipped the globe into another Great Depression, it is unacceptable
that the world may soon be plunged into another 'Made in USA' financial
With each passing day, the
unthinkable grows closer: a default by the American government on U.S. national
The deadline for the U.S. Congress
to approve raising the country's debt limit from the current $14.3 trillion is
August 2. If the legal ceiling on federal debt isn't raised by that date, the U.S.
government will run out of cash, civil servants will stop being paid, Social Security
checks won't be issued, and government services will grind to a halt.
But the most worrying thing
about a default is that it would plunge global financial markets into turmoil
and deal a massive setback to the world economy. The market still seems to find
it "impossible" to believe this will be allowed to happen and that a
last minute deal will be reached to raise the debt ceiling. But the value of
the dollar has dropped to 77 yen, and the strain is beginning to show.
Since 1917, the debt-rating
giant Moody's Investors Services has given U.S. debt its premiere AAA rating - and
for almost a century it hasn't budged. The very fact that it has been
considered the most trustworthy sovereign debt in the world for so long makes it
hard to predict what the effects of this crisis will be.
However, even as the world
sweats over the looming financial catastrophe, Washington gazes only inward, fixated
on its political game of chicken. Far from narrowing, the gap between Republicans
and Democrats appears to be widening, making a compromise even harder to reach.
The Republicans want to raise
the debt ceiling in two stages - the first this year and the second in 2012 - with
negotiations on serious budget cuts to begin with the second stage. Their goal
is to time the second stage and accompanying budget cuts to land in the middle
of the 2012 presidential campaign. They hope to shake up their Democratic
opponents at the critical time before the polls. Meanwhile the Democrats are
pushing to have the debt ceiling raised enough so that the issue won't arise
again until after the election, avoiding a pitched battle over budget cuts.
It is of course natural for
politicians in democratic countries to look toward the next election. That is particularly
true of members of the U.S. House of Representatives, who have to face the voters
every two years. These lawmakers tend to constantly play to their constituents to
improve their chances of retaining their seats. For Republicans who swept to a
majority in the House in the last midterm elections, this means taking tremendous
pressure from the conservative grassroots movement the Tea Party, which helped
propel the Republican Party to victory and is dead set against raising the debt
However, protecting the
national interest and the full faith and credit of the dollar should be a far
greater priority. An agreement on raising the debt limit is urgent, as is the
necessity of drastic cuts in the deficit. A half-hearted deal would invite a downgrade
of U.S. debt, perhaps triggering a short-term crash in the value of the dollar,
long-term hikes in interest rates and plummeting stock prices around the world.
"We can't allow the
American people to become collateral damage to Washington's political warfare,"
Obama said during an address to the nation calling for compromise. But the damage
resulting from a failure to break the impasse will not only be felt by
Less than three years since
the Lehman Brothers collapse sparked a financial crisis that nearly tipped the globe
into another Great Depression, it is unacceptable that the world may soon be plunged
into another "Made in USA" financial catastrophe.
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