The Magic Circle of Politics

The same politicians who led to the largest crisis in three generations in 2008 can push America into recession again.

How serious is this?

“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession,” warned International Monetary Fund Managing Director Christine Lagarde.

Leaders of the most important U.S. business partners, including China and Saudi Arabia, also have made the appeal for common reason.

If Democrats and Republicans in Congress fail to agree on raising the debt ceiling of $16.7 trillion by Thursday, then for the first time in history, the U.S. Treasury will have no money to pay its creditors interest, which amounts to $100 billion a week. As of Nov. 1, U.S. authorities would have no money to pay other key liabilities: veterans benefits, jobless benefits and other social payments.

Congress Does Not Change Much

On Sunday, Republican, Democratic and White House leaders did not reach any compromise. In exchange for increasing the debt ceiling, Republicans demand lower funds for “Obamacare.” Democrats refuse to agree.

“A large number of the participants in these discussions are the same people who were responsible for the supervision over the financial system that crashed in 2008. Now, there is a different issue, but the results can be truly serious,” Sanford Garland Henry, American policy expert at Chatham House in London, told Rzeczpospolita.

It Is the Government’s Fault Too

Despite the crisis, voters are not willing to change Congress much. In the latest election, only 82 out of 435 representatives were elected for the first time. It is quite similar in the Senate, where only 12 out of 100 are new senators.

Even the leaders of the main parties do not change too often. John Boehner, leader of the Republican majority in the House and main opponent in the negotiations with President Obama, has served as party leader since 2006. His Democratic counterpart, Nancy Pelosi, has been second in command since 2002.

The Senate is no different. Democratic Majority Leader Harry Reid was minority whip in 2001; his Republican counterpart, Mitch McConnell, has served in this position since 2003.

In a report published in January 2011, the Financial Crisis Inquiry Commission concluded that that the recession could have been avoided if Congress had not voted on the regulations liberalizing the stock market and not lifted the strict oversight over the largest financial institutions in the country.

However, according to the authors of this report, the representatives are not the only ones to be blamed. Ben Bernanke, Federal Reserve chairman since 2006, failed to foresee the crisis and did not prepare the central bank to counteract.

“Bernanke not only made the decision to bail out the banks, but also continues the easy money policy that led to a huge housing bubble,” The New York Times reported.*

Obama Kept [Robert] Gates

The White House is not without fault either. Barack Obama wanted to appoint to the Fed Larry Summers, former deputy to the secretary of the treasury and later secretary of the treasury in the Clinton administration, and leading author of laws liberalizing the U.S. financial market. However, a strong objection from the left wing of the Democratic Party stopped him from it a few weeks ago.

Between 2003 and 2009, Timothy Geithner, secretary of the treasury until January, was president of the Fed’s New York branch — one of the most important in the country.

“The American political establishment is much more closed compared to Europe’s, but this does not only apply to the economy. After winning the election under the call for removing the army from Iraq, Barack Obama decided to keep the head of the Pentagon, Robert Gates, despite his being responsible for leading the same operation under George W. Bush,” says Henry.

The new piece in this puzzle is the tea party, the radical wing of the Republican Party. They demand a significant reduction in the country’s spending. Boehner has only limited control over this group, but experts agree that so far tea party ideas have not led to solving the debt issue. On the contrary, they have only complicated it more.

*Editor’s note: This quotation, accurately translated, could not be verified.