Up to now, the financial markets have remained remarkably sanguine, sharing the widely-held assumption that for the United States to default on its debt is unthinkable. After all, U.S. Treasury bonds are the safest investment in the world — so much so that every major financial institution worldwide holds Treasuries as rock-solid insurance. But now, with the Aug. 2 deadline only 10 days away, negotiations stalled and no hint of compromise, the unthinkable is becoming real.
On Friday afternoon, Speaker John Boehner announced he could no longer negotiate with the president. “The White House is simply not serious,” he said. “In the end, we couldn’t connect — not because of different personalities, because of different visions for our country.” Those visions consist essentially in the Democrats’ reliance on the ability of government to protect the general welfare and especially the poor, the sick and the elderly, versus the Republicans’ conviction that the prosperity and the salvation of the country lie in a marketplace unencumbered by taxes or regulations.
Boehner left Obama “standing at the altar,” as the president said at the press conference he hastily called in response. Obama made clear his anger and frustration: “Can the Republicans say ‘yes’ to anything?” Their talks foundered, it seems, on the issue of revenue — taxes — yet again. Still, Obama knows that throwing in the towel is not an option, as does Boehner, who returned to Congress in an attempt to reach a deal. The president summoned the congressional leaders to the White House for an emergency meeting Saturday morning. That meeting lasted less than an hour. The president, aware of a warning from credit-rating agencies that the AAA rating of the United States will be downgraded unless the debt ceiling is raised in time to prevent a default, sent the leaders back to their members to find a way forward. He stands firm in his opposition to a short-term solution that would plunge the nation back into crisis within months.
The clock, as they say, is ticking, and many think that unless a deal is reached by Sunday, the markets will start to react on Monday, setting in motion a financial crisis that may be unstoppable.
The kabuki playing in Washington — the charges and countercharges, the refusals to continue negotiating, the crafting and dismissing of one unrealistic plan after another to resolve the debt-ceiling crisis — is grand farce for the disinterested bystander, if such exists. But this political theater may be a tragedy. There is no one who doesn’t have a stake in the success of the effort to raise the debt ceiling, because default will affect every single American.
Analysts are in agreement that financial markets will plummet, instantly wiping out trillions of dollars in assets worldwide. Interest rates will spike, thereby increasing the deficit, because the Treasury will owe much more in interest payments. The cost of most kinds of debt will rise: mortgages, personal and business loans, credit card debt, auto loans, hospital and municipal bonds. Obama and Treasury Secretary Tim Geithner have been discussing contingency plans, debating which payments will be made and what parts of government will have to shut down. If interest on the debt is paid and checks go out to Social Security, Medicare and Medicaid beneficiaries, and the troops are supplied, there will be nothing left for anything else. Homeland Security, the FBI, air traffic controllers, airport security staff, the Pentagon — in short, every other part of the government will shut down on Aug. 3. Millions of people will be instantly thrown out of work. We would see an economic and social cataclysm considerably worse than the Great Depression. It is not an exaggeration to say that the fate of the world is precariously perched on the shoulders of a few intransigent members of Congress.