The U.S. Risks a New Financial Crisis

The United States must raise its debt ceiling in order to settle further invoices. Yet the Republicans and Democrats are at odds. Will Obama soon be bankrupt?

The clock ticks relentlessly. If Congress does not act, the U.S. will not be able to pay any more of its bills in the next three weeks. The government must then decide whether they will deny interest and deny repaying the principal on their debt. Washington must also choose whether it will not pay out any more annuities or if it should send civil servants on a temporary leave of absence. The stock markets would probably react with shock. The whole world would bear the consequences. Never before has the world’s largest political economy had to explain its bankruptcy.

Congress can prevent that. Democrats and Republicans would have to agree to raise the debt limit and to allow the government to pick up further loans. Both parties, however, specify conditions for this. The Republicans stipulate save, save, save and no tax increases. The Democrats say no cutbacks on Social Security benefits and higher taxes for the rich. An agreement is not yet in sight. What was discussed Friday was no longer valid Sunday.

That’s the frightening thing about the circus going on in the U.S. this summer. Of course, one cannot expect that the politicians will do the obvious thing anymore. Do they not see what harm they cause? From a foreign perspective, this was carried out in a careless manner. Republicans and Democrats are persistent in their ideological positions. Thus, they risk plunging half the world into a new financial crisis.

Upon a closer view, in fact, both sides also have good arguments for their strong approaches. America’s responsibility for itself comes before its joint responsibility for the world. The United States must save — not a bit but actually a lot. In this instance the Republicans are right. A third of the current costs are now financed by new loans. The total amount of debts owed has reached $14.3 trillion, which is 100 percent of the gross domestic product. The main reason: The tax revenue in the financial crisis has greatly collapsed.

It would, however, be an illusion that one must wait for the upswing and then expect everything to run as before. America will need years to emerge from the crisis. Therefore, apart from saving, higher revenue is necessary in order to balance the budget. There needs to be a decrease of depreciation allowances and higher tax rates for the richest individuals. In this case, the Democrats are right.

The Republicans and Democrats will most likely come to an agreement in the end. But that is not certain. There remains the risk that ideology will triumph over responsibility.