The U.S. Debt Ceiling: Compromise to Satisfy Responsibility for the World

Will the United States really default on its debt?

Trust in the U.S. government — the most important constituent of the global economy — is under threat due to a critical division in national politics. The debt has reached the maximum limit of $14.3 trillion, and having Congress approve a new ceiling has become more and more difficult.

On Aug. 2, the government will run out of cash. If the issuance of additional debt is not approved, leading to a default or downgrading of the credit rating, “shock waves through the entire global financial system” would be inevitably created, said Federal Reserve Chair Ben Bernanke. Congress must make necessary compromises immediately.

The U.S. faces an unprecedented amount of accumulated debt. The new debt ceiling is being discussed along with financial restructuring policies for the next 10 years.

However, Congress, divided after the midterm election last fall — with Republicans controlling the House and Democrats controlling the Senate — has made the negotiations difficult.

An agreement was almost reached on July 21 but failed due to differences over whether or not to raise taxes and amid political maneuvering for next year’s presidential election. The situation worsened after each party submitted its own plan.

Little difference can be found between the two parties with regard to cuts. What separates them is that the Democrats’ plan would allow a $2.4 trillion increase in the ceiling, covering most of President Obama’s remaining term, while Republicans seek a two-step process, which temporarily raises the limit by $900 billion until a renegotiation at the end of the year. Looking toward the presidential election, the GOP would probably use a rehash of the debt ceiling issue to its political advantage.

The biggest obstacle is the influence of the tea party within the Republican Party, which opposes raising the debt limit with the slogan of “smaller government.” About 60 tea party members currently exist among Republicans in the House, and the GOP would lose the majority without them. The fact that the chair of the Tea Party Caucus leads in the race for the Republican presidential nomination is another reason for such an uncompromising stance.

Financial markets have grown impatient, resulting in selling on the New York stock market and lowering the value of the dollar. Japanese currency has reached a postwar high of 76-77 yen to the dollar. It is important for the U.S. Congress to recall the worst-ever stock plunge in 2008, led by its rejection of a bill dealing with Lehman Brother’s fall.

It does make sense to emphasize taxpayers’ rationale against loose fiscal management. Yet, jeopardizing the world economy by doing so would be putting the cart before the horse.

As crises in Europe demonstrate, confidence in government debts is wavering globally. Congress should grow out of this gambling, petty political game immediately and regain its desired balance and sense of good.