Debt, You Fool!

The United States is no longer on the edge of collapse. On Monday, Congress raised the debt ceiling by $2.4 trillion in return for budget cuts amounting to $2.8 trillion in the coming decade.

Although the threat of U.S. insolvency has been removed, a stain on the country’s image will remain. For two weeks the world has been living in suspense, wondering if the United States would fall into payment difficulties. Investors believed in the possibility of the country’s credit rating, which is the highest possible one, dropping and the United States themselves gave a display of political sclerosis, until now observed only in Europe.

Just like in Europe, the relief is only temporary. The fuss over the debt limit undermined the presumption of America’s unconditional solvency, a presupposition that allowed the country to have a low cost of servicing the public debt. If interest increases, budget cuts will not be enough to stop the continuing increase of debt and the United States will have to tighten their belt much more and much faster than if Congress had raised the limit without so much delay. The spectrum of substantial savings, together with the threat of another recession, reduces Obama’s chances for a second presidency. And that is precisely what this whole situation was about.

The fuss over the debt ceiling was not a clash between Republicans and Democrats, but between the Tea Party movement and Obama himself. This right-wing populist movement wants to prevent his reelection at all costs and, along the way, take the helm of the opposition. To achieve these goals, the Tea Party novices in Congress unseated the House Republican Leader, John Boehner, and then led the country to the brink of collapse in order to force the White House to adopt their logic of fighting off the deficit: reduction of expenses without increasing the taxes. The only good news for Obama is that his 50th birthday ball will be held as planned.