Working on a U.S. Debt Solution to Avoid Worldwide Crisis

Meetings have run aground in discussion on how to raise the debt ceiling. If this continues, the U.S. will get closer to defaulting on its debts; it is quite possible that world economics and financial markets will fall into another crisis. It is time for both political parties to overcome their party differences and solve this debt crisis.

The U.S. federal debt ceiling was raised to $14.3 trillion in the middle of May. If the ceiling isn’t raised by Aug. 2, then no more bonds can be issued. It will not be possible to pay for social security to elderly citizens and wages to government workers. Also, it will be difficult to pay the interest on bonds issued.

Both political parties are gravely responsible for leaving this problem to the last minute. Fear in the financial markets is building; the influence of a weak dollar and falling stock prices is spreading across the world. Due to this, the yen exchange rate has risen to 77 yen to one dollar, at an all-time high since the Sendai earthquake. At the time of the earthquake, it looked like the yen exchange rate would grow to 76.25. It is impossible to turn a blind eye to the problem created by the violent rise in the value of the yen while the country is trying to recover.

Even with one week left, there doesn’t appear to be a solution in sight. The ruling Democratic party wants to reduce the budget deficit by $2.7 trillion over 10 years in exchange for a raise in the debt ceiling by the same amount. The Republican Party is seeking to reduce the budget deficit by $900 billion and raise the debt ceiling. In half a year, they then would seek for a complete measure to address the problem.

The opposition between the Democratic Party and the Republican Party is deep-rooted. The Democratic Party wants a plan that will ensure that a raise in the debt ceiling will last until after the presidential election next fall. The Republican Party is pressing for a two-step approach to raising the debt ceiling along with annual expenditure cuts. However, the Republican Party is being kept from compromising because of opposition from young Republican congressmen who feel pressured by the commotion created last year by the conservative grassroots tea party movement.

This isn’t the time to be focused on partisan interests. If the U.S. were to default on its debt, there is fear that it would cause a spike in long-term interest rates and a sudden drop in the value of the dollar. As their first priority, both political parties must avoid this crisis and immediately raise the debt ceiling.

During the 2011 fiscal year (from October 2010 to September 2011), the U.S. federal debt swelled to an all-time high by $1.6 trillion. If the debt ceiling is raised without a path for reducing the deficit, then there is a risk that the United States’ credit could be downgraded, even though the default would be avoided. They need to look for an agreement that also addresses this.

Japan cannot just stand by and watch. It needs to work closely with other principal countries to make sure that this crisis is managed rigorously. Private businesses aren’t just complaining about the electrical outages; they are also complaining about the raise in the yen. If there isn’t an end to the high value of the yen, then we must not hesitate to intervene by selling yen. I am worried that the authorities are negligent in their preparation as I continue to hear them say, “We are monitoring the situation.”