The United States Treasury has been authorized by Congress to issue such debt as is needed to fund government operations (as authorized by each federal budget) as long as the total debt (excepting some small special classes) does not exceed a stated ceiling.
According to the Treasury, the debt ceiling was hit on May 16th, and extraordinary measures have since been employed to finance the government since then; “according to their best estimates [the United States federal government] will actually run out of money to pay interest on the debt, or in other words “default”, on August 2nd.”
And with little more than a week remaining to increase the federal debt ceiling before the federal government defaults on its debts, the Republicans, who are holding raising the debt ceiling hostage to the demands of the wealthy, have walked out of talks and appear fully poised to perpetrate the greatest evil against America our nation has ever known.
Now we come to it: the great battle against an imminent evil, the real fight for America in the harsh light of day. What we are up against is essentially the jeering section of the national lunatic asylum. What America is up against is the very real possibility that the fanatic GOP jeering section will out shout the rest of us.
The Great Depression is commonly used as an example of how far the world’s economy can decline. The Great Depression had devastating effects in virtually every country, rich and poor. Personal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as cash cropping, mining and logging suffered the most.
Sound familiar? It should. Because these are some of the consequences responsible economists are now predicting for America if some kind of agreement to raise the debt ceiling is not reached – a debt ceiling that has been raised unconditionally by Republicans and Democrats 62 times, overall, and by Republicans 7 times under Bush.
Because if some kind of agreement to raise the debt ceiling is not reached now, the United States will default on its loan obligations — triggering a cataclysmic evil act against the American people that will far exceed the pain and suffering inflicted by the Great Depression.
In the first place, it has never happened before. This would be the first time in United States’ history that the U.S. would default on its loan obligations. The debt is not just numbers; it is real money that has been lent with real expectations of returned payment. The debt is owed to multi-national banks, foreign countries, and the public itself through treasuries. If an individual defaults on a loan, the debt does not disappear. Instead, the bank takes the loss. If the United States goes into default, much of the world will suddenly face the prospect of losing about $14 trillion dollars. The results will be catastrophic.
Former Treasury Secretary Lawrence Summers warned of serious consequences of a default in July 2011, including: (a) higher borrowing costs for the U.S. government (as much as 1% or $150 billion/year in additional interest costs) and (b) the equivalent of bank runs on the money and other financial markets, potentially as severe as September 2008. Bank failures and a potential bank run, curbed by government intervention, were a major catalyst of the Global Financial Crisis that caused the Great Recession.
Many of the world’s largest banks, which are still hardly on solid footing after the 2008 financial crisis, would go bankrupt due to their exposure to the United States. Credit for simple things like houses and car loans will become completely unavailable as a result. Most large companies use short-term credit to make their payrolls. That credit would disappear, and as a result, many workers would have to start going — yes — without a paycheck. There is a very real possibility that people would go to their local bank or ATM and not be able to withdraw cash from their account.
Hyperinflation will ensue as the United States dollar becomes basically worthless. The “full faith and credit” of the United States is the only thing holding up the value of the dollar, so when that credit is gone, it is hard to imagine the dollar’s surviving with it.
Falling home values: Mortgage interest rates would climb, bringing new home sales to record lows and possibly causing the still-fragile recovery in the housing market to completely collapse.
Resulting Panic in world financial markets: If the U.S. is no longer a haven, maybe nowhere else is either. Remember the financial markets in New York on Oct. 10, 2008? U.S. stocks sank, capping the worst week ever for the Standard & Poor’s 500 Index, on concern the escalating credit crises will snuff out consumer spending.
In response to the crisis, businesses would once more lay off workers, only worsening matters and creating a sharp downward economic cycle, which results in a depression. The stock market would plummet as well, wiping out the 401(k) accounts of millions of Americans.
And the Republicans are saying no big deal? Really? They’re freaking insane. No. I mean it. Frucking, freaking insane. And, a word I don’t use lightly: evil.
Everyone understands that over the long-term we have got to reduce the deficit —a deficit that was caused mainly by Wall Street greed, tax breaks for the rich, two wars, and a prescription drug program written by the drug and insurance companies. It is absolutely imperative, however, that as we go forward with deficit reduction we completely reject the Republican approach that demands savage cuts in desperately-needed programs for working families, the elderly, the sick, our children and the poor, while not asking the wealthiest among us to contribute one penny.
The GOP is willing to throw American citizens under the bus by keeping tax breaks for those making more than $500,000 a year, while cutting funding for Medicaid, Medicare and Social Security. The Republicans are unwilling to accept $1 trillion in cuts offered by the Democrats for even $200 billion in increased revenues. That’s a 5:1 ratio of cuts to revenue, and they still won’t budge.
The Republicans are unwilling to reasonably negotiate to raise the debt ceiling, and would let this country and the world economy tank in order to preserve tax breaks for the rich. It is a very nasty situation that they have orchestrated, holding the American economy hostage to benefit corporate jet owners, hedge fund managers, millionaires and billionaires, while harming middle-class families.
If the U.S. government defaults, a broad range of payments would have to be stopped, limited or delayed, ranging from obligations to foreign creditors to military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds. Corroborating this conclusion, Treasury Secretary Timothy Geithner wrote that failure to increase the debt limit would require “cutting roughly 40 percent of all government payments”, which could only be achieved by “selectively defaulting on obligations previously approved by Congress”. Geithner also in the same letter argued that this would harm the reputation of the United States so severely that there is “no guarantee that investors would continue to re-invest in new Treasury securities”, forcing the government to repay the principal on existing debt as it matures, which it would be unable to do under any conceivable circumstances. He concluded: “There is no alternative to enactment of a timely increase in the debt limit.”
The GDP will plummet. If the debt ceiling is not raised, the U.S. would have to slash spending, resulting in a decline in economic activity. Within two months, the nation’s GDP could experience a bigger drop than that experienced during the Great Depression.
It is this kind of scenario which led former White House adviser Austan Goolsbee to declare the mere talk of default “insanity.” I would go one step further and call what the Republicans are planning to perpertrate on all Americans an intentional evil act. Evil: intentionally harmful; injurious, characterized or accompanied by misfortune or suffering; disastrous.
As Goolsbee put it, the United States is not in real danger of default. While in the long-term, the federal debt certainly does pose a problem, currently the United States can still easily meet its debt obligations. If the United States goes into default, it will not be because of the economics, but because of the stupid, insane, EVIL Republican politics behind the issue.
Like the Great Depression, the consequences of the GOP’s evil political game will have dramatic effects on the United States’ economy for decades to come.
This affects us all.
We have no time left. Put on your helmets and tighten your chinstraps. Grab tight your standard, work hard and hold fast.
You are on the moral side of history. Now is the time when you must make your voice heard. Post this article and have your friends read and understand it. Contact your newspapers and use your social media outlets. Call and write your representatives in Congress to raise the debt limit now and put a halt to the GOP’s hostage taking madness.
Act today. The time is now.