On the Brink of Bankruptcy: Who is to Blame for the American Debt?

For the third time in three years, Washington is in the midst of a similar situation: The United States may reach a state of insolvency, all because of an argument between Congress and the federal government about the extent of the loans the federal government is allowed to take. The American debt stands today at $16.7 trillion. The Obama administration is interested in extending this by a further several hundred billion to fund expected commitments, such as Social Security and soldier salaries.

To approve further loans, the government requires the approval of Congress. In the Senate, controlled by the Democrats, there is no issue, but the House of Representatives is under the control of the Republican Party, which has in recent years made the war on the ever-growing debt part of its motto. All of this while its representatives link more issues from the agenda onto the debt ceiling, such as Obama’s health reform, increasing U.S. energy independence, expanding the use of the oil fields in North America (the Keystone pipeline) and various other topics.

A Solution Will Eventually Be Found

Politicians in Washington are busy blaming one another. The Democrats accuse the Republicans of cynically exploiting the situation and endangering the American economy to the point of insolvency, all just to embarrass President Obama or to gain political achievements in spheres completely unrelated to the fiscal issue. A harsher criticism is thrown against those lawmakers who are part of the “tea party,” accused of wanting the insolvency, as well as the federal government shutdown, in order to demonstrate or teach the American public that the government is unnecessary and that it is even possible to get by without it.

The Republicans on the other hand claim that President Obama is the problem. According to them, compared to previous governments and presidents, he dismisses them and is not prepared to have any discussion with them about the deepening debt and finding a settlement. Moreover, they claim that he is utilizing their ideological stance, with apocalyptic forecasts such as damage to the credit rating or a new economic crisis, and even with heartbreaking stories that took place following the shutdown. All of this to increase public pressure on Congress, in order to divert from the real fundamental issue in their eyes: the size of the debt and its necessity.

But the truth is that the real culprit of this crisis is not President Obama or the Republican Party. The fault lies with the debt itself, or more precisely the way in which the debt ceiling is calculated. In a manner different from the rest of the world, the American debt is calculated in an absolute way, based on its size, which currently stands at $16.7 trillion. This is completely disconnected with the size of the state budget, the gross domestic product, or the growth data. Using this method, despite the fact that America’s economy is growing, and even though the debt-to-GDP ratio is falling, the American calculation remains static and in order to loan any additional money, the approval of Congress is still required.

Every side clearly knows a solution will eventually be found, and that exactly like three years ago, and many other times in history, the formula will be found at the last minute and the Democrats and Republicans will find their way to a compromise. This is also the tragedy in the American story: It is not that the debt ceiling is getting higher or lower while politicians argue whether it is at the correct height for this time. The debt ceiling is simply crooked.