Obama and the Ghost of American Debt

America loves to make itself scared. After narrowly avoiding the threat of a “shutdown,” now it’s the spiraling of the federal debt that’s upsetting all the markets. Even more serious. Even if it’s not without precedent — Moody’s already did this during Clinton’s administration in 1996 — Standard and Poor’s putting the Triple A note of America under negative surveillance is not something to take lightly. Not that a reclassification is being forcibly acquired. But the sign has come back to contest the incontestable: the dogma of the “infallibility” of the American signature. Above all, the warning shot came less than a week after the announcement of Barack Obama’s anti-deficit campaign, considered to be a major turning point in his first term. It once again brings into question the credibility of his debt reduction plan, which is at the center of his campaign for 2012.

“The era of big government is over,” Bill Clinton announced on Jan. 27, 1996, after having already reduced by half the American public debt in three years. “Congress should act responsibly and stop playing politics with America’s good name,” he added in denouncing the hesitations of the elected to vote in favor of lifting the ceiling of the American federal debt. Secretary of the Treasury Timothy Geithner is saying the same thing today. History is repeating itself. Except that the debt level has tripled over the last 15 years (from $4.9 trillion to $14.3 trillion today). In his typical fashion, Barack Obama has also declared this an hour of “sacrifices” by proposing, on April 13, an economy plan that reduces the debt by $4 trillion in under 12 years with the goal of bringing the federal deficit (9.8 percent of the GDP in 2011) to an acceptable level. “Ultimately, all this rising debt will cost us jobs and damage our economy,” stated the American president, in reminding us that at the rate we’re going, the interest rates alone of the federal debt could exceed a billion dollars by the year 2020. After having just barely avoided the “shutdown” (the stopping of all administrative services), Barack Obama, the “mediator in chief,” is guaranteeing budgetary orthodoxy in the hoopla of his announcing his run for a second term. But all it took was for a rising star in the Republican Party, Paul Ryan, chair of the Budgetary Committee of the House of Representatives, to unveil his own “ambitious” plan for massive debt reduction in the beginning of April for him to decide upon his own counter-attack on the subject of combating the debt.

“We must get our fiscal house in order,” we constantly hear from both sides of Congress. The annoying part is that Standard and Poor’s remains relatively skeptical when it comes to the chances of an agreement about effectively implementing budgetary cuts before 2013. According to Edouard Tétreau, who has authored an essay about the American debt, Standard and Poor’s decision could reveal itself to be a “formidable trap” for the Republicans by forcing them to compromise on the fight against the debt and by depriving them ipso facto of their main electoral soapbox. But the warning shot also reinforces the pressure on the Obama administration to put an aggressive deficit reduction plan into action even before the November 2012 presidential election.

15 years later, the ghost of the debt is resurging in American political life. Except that the situation is more precarious today. Obama is doing what Clinton did, but this time without a safety net. According to the calculations of Standard and Poor’s, the level of the American federal debt could become as high as 90 percent of the GDP in 2013, as opposed to 65 percent today. Without question, there’s a good dose of electoral tactic, inspired by the centrist policies of Bill Clinton in 1996, in Obama’s plan announced on April 13: Trying to win over the independents without traumatizing the left-wingers in the party. That’s why Barack Obama is insisting today on the end of tax relief for high-earners — “Warren Buffet doesn’t need another tux cut” — after having consented, in December, to … allowing these tax breaks inherited from George W. Bush until the end of 2012! Timing is everything. To justify these changes, Barack Obama is explaining that he needs to “use a scalpel, not a machete,” so as to not compromise the resurging economy. He will need to cut the costs in the health care system, which remains one of the main sources of the American cumulative debt, without once again putting the “fundamental benefits” of Medicare and Medicaid in danger. On paper, his economic plan of reducing $4 trillion in 12 years (of which $1 trillion is composed of tax increases) is more realistic and more coherent than the “Ryan Plan” (a mix of tax decreases and drastic cuts). But he remains wishy-washy on the crucial question of explosive spending for health care and social security, which are at the heart of the debate on the deficit.

Long ago, the “exorbitant strength” of the dollar would have allowed Washington to pay off its deficit from other countries without worrying too much about its debt. Times have changed, judging by the last predictions of the International Monetary Fund, according to whom the brutal American public debt could reach as high as “110 percent of the GDP by 2016.” By preferring the scalpel to the machete, Surgeon Obama is taking the risk of being rapidly jerked back to reality by the gong of notation agencies.