Risky Summer Theatrics

The clock continues to tick relentlessly. If Congress doesn’t act within three weeks, the United States may not be able to pay its bills. The entire world would feel the consequences of that.

The government must then decide whether to furlough government employees without pay and stop sending out retirement checks or default on paying the principle and interest on loans it already has received. Markets would be shocked; the whole world would feel the effects. Never before has the world’s largest economy had to explain its inability to pay.

Congress can prevent that but Democrats and Republicans have to reach agreement to raise the statutory debt ceiling so the United States is able to borrow more money. Both camps have imposed conditions on doing so. The Republicans demand to save, save, save with no increase in taxes.

Democrats insist on no reductions in social services and higher taxes on the wealthy. There is no agreement in sight. What was promised on Friday was already forgotten by Sunday.

That is the frightening thing about America’s summer theater 2011. One can’t expect anything more obvious than politicians doing the obvious. Don’t they see what harm they may conjure up? Seen from this side of the Atlantic, it’s nothing short of recklessness. Republicans and Democrats hang on to ideologically extreme positions and thereby plunge the entire world into a new financial crisis.

Upon closer inspection, both sides have valid arguments for their intransigence. Shared responsibility for their own country must take precedence over responsibility for the whole world. The USA needs to save; not just a little but a whole lot. The Republicans are right on that point. One-third of current expenditures have to be financed with new loans. The deficit has risen to $14.3 trillion, 100 percent of GDP. The main reason: Tax revenues lessened dramatically due to the financial crisis. But it would be delusional to think that all that need be done is to wait for the recovery and everything would go back to normal. America will need years to recover from this crisis. That’s why higher revenues are needed now to balance the budget. Those would come from closing tax loopholes and raising rates on the wealthiest people. The Democrats are right on that point. Both parties will probably reach a compromise in the end, but that’s by no means certain. There’s always a residual risk that acting ideologically may win out over acting responsibly.