Honoring Debts

Once again, the U.S. government finds itself cornered by the ghost of failing to honor its financial commitments with, among others, its officials and Treasury bond creditors. This, while facing the overflow of public expenditures on top of the debt ceiling and the refusal by the Republican-led House to increase it.

Currently, the debt limit established by the U.S. Congress is $16.4 trillion, an amount already surpassed by expenditures on the last day of 2012. The treasurer has found statutory legal financial mechanisms to have money available for a few more weeks. However, the term cannot be extended and it is estimated that by the end of February the resources to pay the state’s bills will be depleted, unless Congress increases the debt ceiling.

Although such an increase is not new in the U.S. (in fact, there was an increase during most of the previous presidencies), since the advent of the Tea Party Republicans to Congress (currently the majority in the House and two years ago also controlled the Senate) this process has become a real nightmare both for the Obama administration and also for this first power economy.

If this dilemma cannot be settled, the U.S. government would have to stop paying its officials, physicians who attend social security cases, the military and retired people. In addition, the government would be forced to file for bankruptcy because it would not be able to honor the interest on its sovereign bonds.

This situation would not only generate mistrust among foreign investors, but also in the stock markets, and it would inevitably engulf the entire international financial system in a foreseeable economic paralysis. In summary, as Obama himself has pointed out, this would be a disaster for both the U.S. and the world economy.

Predictably, sooner rather than later, House Republicans (who require the elimination or at least reduction of the costs of major social programs to give a green light to this procedure) will need to accept this budget extension because if they do not, as stated before, they will lead their nation into bankruptcy, and with it, many other countries around the world.

It is interesting to note their eagerness to impair the Obama administration, even at the expense of the welfare of the American people (for example, following a similar clash last July, the U.S. debt was downgraded by some rating agencies.) This, by the way, is typical of the self-interest displayed by most of the world’s politicians, who are unable to see beyond their own interests.