Obama: Head Barely Above Water

U.S. Debt to Pay Debt Motor Breaking Down

With his head barely above water, Barack Obama, president of the most indebted country on the planet, assures that the United States has always paid its debts and will not stop paying them. However, the leader has only two concrete options to keep his assurances from being empty words: reaching an agreement with the Republican opposition (by leaving the Democrats high and dry) to raise the legal federal public debt ceiling (fixed by Congress) or simply making the dollar-printing machine work overtime to avoid default — something that, once confirmed, would cut the thread by which the world’s supposed economic stability has been hanging since the crisis of 2008-2009.

The deadline for the parties to reach an agreement is Aug. 2, and if nothing has been agreed upon by that date, they will simply declare default. Such are the fortunes of the former economic motor of the planet, with a president who no longer faces firm directness but obstructions two years into his as residency at the White House. Obama has not convinced the Republican opposition of the need to raise the ceiling once it has reached the current maximum limit, a modest $14.3 trillion in federal debt or the equivalent of 100 percent of the U.S. gross domestic product, give or take. Technically, the motor is perfectly broken; moreover, it owes more than it is worth. (This total does not include other debts, such as those of the states.)

The pressing need for resources to pay public liabilities is such that (with China the number one creditor of the U.S. government) the Department of the Treasury has considered, as an emergency measure, dipping into federal pensions (Does this not sound familiar to Mexicans?) in order to cover the daily $1.5 billion that the federal government needs in order to pay off its obligations, which are far from few in number.

Obama will have to give in to the Republicans’ emphatic no, although he has highlighted something obvious: If the world’s investors believe the confidence and credit of the United States lack support, it could (once again) bring down the international financial system, something the planet is unlikely to be able to handle. Supposedly, the empire has never officially declared default, although a little over three decades back, in 1979, push came to shove, and it had to quit paying its debt obligations for less than a week. Will this be the first time? Who knows, but it was not the sacred market that corrected the problem by itself on that occasion.

What happened to the United States’ public debt that it grew to such an extreme? Simple: The U.S. government did to an unreal degree the same thing for which it criticized the community of satellite nations dependent on its economy right and left over the years. That is to say, happily going into debt to finance projects unprofitable for the nation (but profitable for friends in the business world) — wars, conflicts, interventions, as well as the salvage of the great private consortiums and the rescue of the investment barons and bankers, never believing it would run out of ways to pay.

For example, the invasion of Iraq and the intervention in Afghanistan have officially cost their gringo contributors something like $250 billion up to this point (very expensive to assassinate one man, who it may be said by the way was living tranquilly in Pakistan), when the war criminal George W. Bush promised them the cost would not surpass 60 billion greenbacks. However, more serious studies (Watson Institute of International Studies at Brown University) of the simple accounting of the U.S. government increase indicate a cost of $3.7 to $4.4 trillion, without including interest payments. In fact, as that institute points out, these figures will continue rising upon taking into account long-term obligations for wounded veterans and war expenditures projected from 2012 until 2020.

Among his many achievements, baby Bush vastly raised the U.S. public debt to finance his many foreign adventures. When, happily, he left the White House, the level of said debt was around $13.64 trillion. Under Obama, the external debt has increased some $660 billion, but as it continues, it is critical for him to raise the ceiling much higher. That is to say: Do the same as his predecessors did. In the last three decades, the nation’s public debt has registered a hair-raising increase of nearly 1,600 percent. Now come the external actors, because, whether they like it or not, China is a fundamental part of the agreement between the Republicans and the president, and they will have to reach an agreement, whatever it may be, and soon.

One can only imagine what would happen to the U.S. economy, and the world’s, if one of these days it occurred to the government in Beijing to cash out their voluminous investment in U.S. treasury bonds, and the U.S. found itself in the novel situation of being broke. Just behind follow Tokyo and London, occupying the second and third rungs, respectively, of the inventory of creditors. As if that were not enough, the member nations of OPEC, Brazil, Russia, and Canada, among others, occupy the waiting list. Even so, around 80 percent of the U.S. public debt is denominated in its dollars; thus, what is left is the old trick of putting the greenback-printing machine to work.

Obama, then, is on the razor’s edge, and the international economy along with him. The problem is that if the Republicans give in and reach an agreement, the U.S. public debt will increase to finance the same projects that generate further deficits, and so on and so forth, until the motor blows up. Of course the IMF will not get involved and neither will it impose its draconian austerity program. There are screwed-up countries for that sort of thing, as Greece and Mexico will understand.