As expected, the US debt ceiling has been reached. As expected, Republican extremists are taking advantage of this to seek to gain points under the threat of a global financial crisis.
Among Kevin McCarthy’s promises to the Republican diehards who withheld his election as Speaker of the House of Representatives was to use the raising of the debt ceiling to force cuts in some spending despite the resistance from the Democratic White House and Senate.
That moment came last Friday, when the debt surpassed the $31.4 trillion ceiling voted by Congress in 2021. It’s a complex and dangerous dance that begins.
Blackmail and hypocrisy
In the United States, the amount of the national debt is capped by a law which must be revised if necessary by Congress. For a long time, these revisions were routine, but since 2011 Republicans have used them as a weapon of blackmail.
Since the massive influx of far-right populists from the Tea Party in 2010, each increase in the debt ceiling has been the occasion to demand totally unrealistic budgetary tightening when the president is a Democrat. Donald Trump, for his part, had carte blanche to widen the deficit by reducing taxes on the wealthiest.
Even if the Republicans maintain the myth of their fiscal responsibility, they are as responsible for the increase in the debt as the Democrats. That doesn’t stop them from pushing for spending cuts they could never get through the normal legislative process by holding the global economy hostage.
The Treasury Department may continue to pay federal government bills for some time, but unless a new law raises the cap, it will eventually have to turn off the spending tap.
What would happen then? In short, it would be a disaster. Not only would the government have to close up shop, but it would no longer be able to repay its debts. As bonds issued by the United States are a pillar of the international financial system, a global financial crisis would be inevitable.
Do you remember the dizzying fall of your pension fund in 2008? This new crisis would be even worse. And why, exactly?
Towards a dead end?
The demands of the extremists who hold Kevin McCarthy by the family jewels are so exaggerated that President Biden has already opposed them.
As for the impact of a default on the international economy, they seem to ignore it completely.
In fact, the goal of these deficit Don Quixotes is to put on a show of force against President Biden to impress Fox News listeners and extort campaign contributions from them.
The simple solution to this impasse would be for Kevin McCarthy to get a spine transplant, but that’s not going to happen.
A more realistic solution would be for the reasonable minority in the Republican caucus to ally with the Democrats to circumvent McCarthy, which promises to be long and complicated.
For the moment, the markets seem to be anticipating a miraculous solution to this high-risk confrontation, but this optimism rests on very thin foundations.