A Discussion about America’s Debt Upper Limit

There seems to be no reason why foreigners focus on America’s properties with great passion. Early in 1880, investors from the United Kingdom, Germany and Netherland bought $2.5 billion in U.S. securities, mainly railway shares and bonds, until the year 1894, when a quarter of America’s railway announced bankruptcy, causing European investors to suffer heavy losses.

In the 1980s, when Japan’s economy was at the summit of its power, an institution under the Mitsubishi Group bought Rockefeller Center in Manhattan at a ridiculously high price. At last the Japanese institution bankrupted because of its failure in to pay off $1.5 billion in debt. In 1999, Japan’s Softbank Group made a significant entrance into America’s technology Internet stock market, spending $275 million acquiring the online grocery store Webvan, which turn out to be for naught.

In 2002, HSBC spent $14.2 billion in acquiring America’s Household International, entering America’s sub-prime market and becoming one of the largest sub-prime lenders in the U.S. The acquired Household International became HSBC Finance, but the business practices were still as controversial as before, and it became a target of the U.S. civil rights’ movement.

The famous economist Xie Guozhong said that the global economy was moving toward another crisis, and this time it focused on a government debt crisis. He stated that the world was not stable because decision makers did not want to deal with constructional problems.

Let us look at America’s debt problem again. After Moody’s Credit Rating Agency suggested that the U.S. cancel the debt limit, the American billionaire, the “Oracle of Omaha,” Warren Buffett offered the same suggestion in order to eliminate the disagreement between the White House and Congress. Facing the bickering deadlock between the U.S. executive branch and Congress regarding whether to raise the limit of debt, Buffett held that human-made national debt was the cause of the White House and Congress’ falling out, that haggling about the topic was a waste of time, and that the U.S. government had better free itself from the shackle of a debt limit.

Obama and leaders in Congress all know, and people around the world also know, that the U.S. national debt cannot break its contract on Aug. 2, otherwise credit rating organizations will degrade the level of the U.S. national debt, which has had the best credit up until now.

During Obama’s election year, he said in a speech that the financial crisis, which was one of two wars Americans were fighting, was the most difficult challenge in their lives. Those words are still ringing in our ears. Whether the U.S. economy is facing a heavy government debt crisis is unknown, and it is still too early to tell.

Because of this, Obama was perturbed by the Republicans, and the White House spokesman was bothered by reporters. Because of the debt limit issue, the White House was in chaos. Although Obama had been meeting with the same group of congressional leaders for five consecutive days and held two press conferences in one week, the situation did not change.

What effect would the degradation of the U.S. national debt bring to other countries in the world? Take China for example: When a bond loses its original value, major creditors of the U.S. like the Chinese mainland, Hong Kong and Taiwan would be affected negatively. Everybody knows that the Chinese mainland is America’s top creditor, Hong Kong is the seventh largest creditor, and Taiwan is the ninth largest.

Next will be Americans themselves. Since the U.S. will have to borrow money to pay debts, but its credit is no longer good, it will have to pay more interest to borrow money, and who will pay the interest? Of course it will be the Americans themselves. By the time interest for buying cars and houses increases crazily, Americans, suffering from the economic crisis, will be less daring in spending money. By that time, I am afraid that Obama himself would say that the U.S. economy would probably fall into another recession, and an even worse one. Such a situation would mean that creditors around the world would have to pay for America’s debts. Can you remember the spectacle from three years ago? The countries that relied on American exports especially suffered from America’s economic depression.

But knowing does not mean anything. America is at the edge of falling into breaking contracts, because now, at the time of the two parties’ impasse, Americans do not realize that they are facing a disaster.

It is said that most political leaders in the House proposed that they should pass a short-term plan in the face of the increasingly closer debt limit and the larger deficit cutting plan could be discussed later. However, in order to continue in office, Obama could not stand leaving the pending issue unresolved. He lost his temper in front of all the congressmen, pushing a chair aside angrily, leaving the others stunned. Of course, this is the Republicans’ version, and there is an even more exaggerated version among the people in which he smacked the table, kicked the door, but all was denied by the Democrats. According to them, Obama left before them after the meeting and even said, “See you tomorrow.”

What is scarier is that even Americans themselves do not know how terrible breaking contracts is. This so-called breaking contract means that the U.S. has borrowed money from creditors and does not pay it off after spending all of it. Many Americans are unclear that parts of America’s national defense cost and social welfare are supported by debt and now the money is used up. The Americans who do not realize the current situation still do not think that the U.S. should raise the debt limit.

What they do not understand is that raising the debt limit is to pay off what they have already spent and that more borrowed money will not go into their own pocket. However, the two parties do not seem to be in a rush to explain this to voters; that is why as much as 60 percent of Republican supporters hope that they do not raise the debt upper limit, while two percent of Democrats support this and 50 percent of independent voters agree.

What is puzzling is that about 40 percent of Americans even think that once they are unable to raise the debt limit, they should not pay back the money and interests to international creditors and only ten percent said that they should first stop paying social welfare, etc. In other words, the debtor thinks that he could put off paying back the money but he cannot leave himself hungry. Although this seems to be humane, the U.S. is a country not a human. A human who owes money can escape, but the U.S. has no place to hide.

America’s democratic system is praiseworthy, but keeping checks and balances does not mean dragging each other about and making no compromise, and it definitely does not mean doing so at the expense of America’s own precious credit, the American people’s future and welfare, making fun of money made by people from countries like China, Hong Kong, Taiwan, Japan and the U.K. or selling America’s problem like the subprime crisis to the rest of the world, making people around the world suffer along with the U.S.

Obama said in his first presidential speech that America’s leadership position ushered in a new dawn; whether this will turn out to be a supreme irony, we will have to wait and see.