One of the problems with this recalcitrant group of Tea Party Republicans in the House is that they really don’t get how interconnected the world is in the 21st century.
If they really understood that, I don’t think they would trifle with the debt ceiling. If the Tea Partiers were curious, intelligent people, they would walk down Pennsylvania Avenue this week to where the International Monetary Fund is having its annual meetings on the state of the world economy. They might actually learn something if they listened in on some of the sessions, or heaven forbid, actually read a report or two.
The Washington Post’s Howard Schneider has been doing good stories, although they’re buried in the A section, on what is going at the meetings. It’s easy to see, in reading his stories, and the IMF World Economic Outlook report, and in listening to foreign finance ministers why the U.S. still, in terms of economics, is truly the “indispensable” nation.
The IMF chief for capital markets, Jose Vinals, said this on Wednesday regarding the crisis in Washington. “I want to be very clear. What is happening is not good news,” Schneider quoted Vinals as saying. “It is completely of the essence that the U.S. political machinery gets its act together and ends this impasse.”
The IMF report states that the largest and strongest emerging economies (called the BRICS countries for Brazil, Russia, India, China and South Africa) that helped pull the rich countries out of the devastating Great Recession because they were in a growth spurt, are now having their own financial and growth slowdowns. They’re still growing, but not as fast, and as a result, going forward, the IMF states, “The impulse to global growth is expected to come mainly from the United States, where activity will move into higher gear as fiscal consolidation eases and monetary conditions stay supportive.”
OK, a little translation is probably is in order. “Fiscal consolidation eases” means that efforts to cut the U.S. budget deficit get a little less severe. Yes, in the past couple of years, because of the deals that have been cut between President Obama and Congress – the fiscal cliff and sequestration are two but there are others– U.S. government spending has been declining. The IMF doesn’t want that to happen too fast or domestic growth in the United States could slow, and when the U.S. slows so does the world economy.
And “monetary conditions stay supportive” means that the IMF assumes that the Federal Reserve will continue stoking U.S. economic activity through its unconventional easy-money policies—usually called “quantitative easing,” which it has done without inflation rising, so far. If Fed vice chairman Janet Yellen, nominated by Barack Obama yesterday to be Fed chairman, is confirmed by the Senate, that part looks assured.
But then the IMF report goes on to say that U.S.-led worldwide economic growth “assumes that discretionary public spending is authorized and executed as projected and the debt ceiling is raised in a timely manner.”
Translated, that means that Congress authorizes the government to stay open and spending money at a consistent level, and that it approves the debt ceiling hike. And if Congress doesn’t, this is what the IMF warns: “The damage to the U.S. economy from a short government shutdown is likely to be limited, but a longer shutdown could be quite harmful. Even more importantly, the debt ceiling will need to be raised again later this year; failure to do so promptly could seriously damage the global economy.”
There you have it. These are the consequences of continuing down this House Republican path. It will hurt U.S. economic growth, and worldwide economic growth, which we here in the 50 states increasingly depend on for prosperity.
If you don’t believe that repaying our debts on time is important, take a look at this chart which lists the total U.S. indebtedness to foreign countries. The top 10 are China, Japan, Brazil, Taiwan, Switzerland, Belgium, the United Kingdom, Luxembourg, Russia, and Hong Kong. All of these are major trading partners with the U.S.; they buy tons of U.S. goods and make lots of investments in U.S. companies. If we suddenly couldn’t make our interest payments to these investing countries, it could be a catastrophe very hard to repair. U.S. Treasury debt would never again be looked upon as the trustworthy investment it has always been. U.S. debt is actually one of the global oils that keep the economy churning.
These countries and the investors in them buy U.S. Treasury bills – our officially issued debt – because they are the safest most assured investments in the world. The U.S. has been so good over its entire 237 year history in repaying them on time and with good returns, they are one of the reasons this country is the fulcrum on which the world economy balances.
To undermine that in any way would be foolhardy, even felonious, and hurt millions of people around the world.