The United States, an Ungovernable Country
Since its founding, the American nation has consistently spent more than it has earned, going to the markets and before investors to finance the difference. In fact, as the deficit accumulated over the decades because of the spending fever of the Americans and their authorities, their Congress — albeit partly responsible for this binging — saw fit, in 1917, to limit the total mass of this debt even if the ceiling had to be raised regularly. This has happened year after year, whatever administration was in place, Republican or Democrat
It goes without saying that, despite the good hundred times that this limit has been raised since 1917, each time the opposition has systematically taken perverse pleasure in condemning the president and the party in control of the White House — as if the money spent and the deficit were not the result of mismanagement of former administrations and former Congresses. This little political game provided regular ammunition to the opposing (minority) party, which then delighted, as it should, in exposing the expensive trends of the majority. The majority, having emptied the coffers, then called for help to get legal authorization to fund the state’s lifestyle.
However, the verbal escalation between Republicans and Democrats about raising the country’s debt ceiling has now reached its climax, with a very real threat of leading to a dead end with devastating consequences. The legal incapacity of the U.S. government to borrow more to meet its obligations would immediately translate into a historic downgrade of its [credit] rating with, on top of everything, an automatic increase in interest rates that would penalize small businesses and consumers seeking financing.
The violent and predictable drop of the dollar would exert a strong upward pressure on energy prices and raw materials, knowing that stock exchanges around the world would drop with a violence even worse than the collapse of Lehman Brothers! Finally, the U.S. government with its lack of funds would have to reduce its expenditure by about 40 percent, perform mass layoffs and induce a recession far more tragic than the one of 2007 to 2009.
Unable to agree and compromise in the interest of the country and their fellow citizens, American politicians, who are supposed to lead the most powerful nation in the world, are becoming a laughingstock. The political system of this country seems unable to actually deal with a perilous financial situation, so much so that it becomes legitimate to ask today: Is the United States of America becoming an ungovernable country?
With their budget deficit amounting to 10 percent of GDP, the United States today can no longer be financed only due to the remnants of its reputation, which actually belongs to a past that wanted the solvency of the federal state to be as strong — if not stronger — than gold. Yet, no empire being eternal, successive authorities of this country — whose only concern seems to be to shirk their responsibility to make compromises to resolve this budget imbroglio — would do better to ponder the lessons of the sterling and the inexorable loss of influence of the British Empire.
This seeming failure certainly hides a strategy on the part of both parties — that it is important to raise the stakes before reaching a compromise. However, if these leaders wish to redress the country's finances, any agreement must necessarily be credible and comprehensive. The complexity of this case precludes any hasty agreement that would be severely punished by the markets.
However, it is likely that Republicans and Democrats will eventually meet in the coming days to raise the debt ceiling, even if odds are that this last-minute deal will simply plug the holes. As a result, we expect a deterioration of the United States’ credit rating in September because the $4 trillion in budget cuts recommended by the ratings agencies for the next 8 to 10 years are unlikely to be realized. In other words, even if there is a compromise on the U.S. debt ceiling (and there will be one!), the financial health of the United States is in no way about to improve, and new shocks, which will be violent for the global economy, should already be expected.
It goes without saying that, despite the good hundred times that this limit has been raised since 1917, each time the opposition has systematically taken perverse pleasure in condemning the president and the party in control of the White House — as if the money spent and the deficit were not the result of mismanagement of former administrations and former Congresses. This little political game provided regular ammunition to the opposing (minority) party, which then delighted, as it should, in exposing the expensive trends of the majority. The majority, having emptied the coffers, then called for help to get legal authorization to fund the state’s lifestyle.
However, the verbal escalation between Republicans and Democrats about raising the country’s debt ceiling has now reached its climax, with a very real threat of leading to a dead end with devastating consequences. The legal incapacity of the U.S. government to borrow more to meet its obligations would immediately translate into a historic downgrade of its [credit] rating with, on top of everything, an automatic increase in interest rates that would penalize small businesses and consumers seeking financing.
The violent and predictable drop of the dollar would exert a strong upward pressure on energy prices and raw materials, knowing that stock exchanges around the world would drop with a violence even worse than the collapse of Lehman Brothers! Finally, the U.S. government with its lack of funds would have to reduce its expenditure by about 40 percent, perform mass layoffs and induce a recession far more tragic than the one of 2007 to 2009.
Unable to agree and compromise in the interest of the country and their fellow citizens, American politicians, who are supposed to lead the most powerful nation in the world, are becoming a laughingstock. The political system of this country seems unable to actually deal with a perilous financial situation, so much so that it becomes legitimate to ask today: Is the United States of America becoming an ungovernable country?
With their budget deficit amounting to 10 percent of GDP, the United States today can no longer be financed only due to the remnants of its reputation, which actually belongs to a past that wanted the solvency of the federal state to be as strong — if not stronger — than gold. Yet, no empire being eternal, successive authorities of this country — whose only concern seems to be to shirk their responsibility to make compromises to resolve this budget imbroglio — would do better to ponder the lessons of the sterling and the inexorable loss of influence of the British Empire.
This seeming failure certainly hides a strategy on the part of both parties — that it is important to raise the stakes before reaching a compromise. However, if these leaders wish to redress the country's finances, any agreement must necessarily be credible and comprehensive. The complexity of this case precludes any hasty agreement that would be severely punished by the markets.
However, it is likely that Republicans and Democrats will eventually meet in the coming days to raise the debt ceiling, even if odds are that this last-minute deal will simply plug the holes. As a result, we expect a deterioration of the United States’ credit rating in September because the $4 trillion in budget cuts recommended by the ratings agencies for the next 8 to 10 years are unlikely to be realized. In other words, even if there is a compromise on the U.S. debt ceiling (and there will be one!), the financial health of the United States is in no way about to improve, and new shocks, which will be violent for the global economy, should already be expected.