U.S. Default Is Not the End of the World

The American political elite are in a surprising state, the likes of which I’ve never seen before. They are depressed and they lack faith in how the future may unfold, and this is, for America, categorically uncharacteristic. American political culture has largely been defined by historical optimism, assurance in the correctness of their intentions, and confidence that America will always solve its problems and remain the standard-bearer it considers itself to be.

Now, uncertainty about the future, to put it mildly, is observable in the political corridors. It is not so much connected with the fact that the reality of the economic situation is less optimistic than earlier predictions, when Obama introduced stimulus measures in 2009. Apart from numerical figures, there exists a sense that the fabric of the political process has been torn. An estrangement is developing between politicians and parties. The polarization of opinions is reaching an acute phase. While the Republican Party has always had a healthy conservative mainstream, some people now set a tone of radical-conservatism or radical-libertarianism. Both groups converge in their utter rejection of Obama’s enlargement of the role of government: the economic stimulus (an injection of money that is not very typical of the U.S.) and healthcare reform aiming to expand the government’s obligations to poor citizens — all this is seen as undermining the foundations of the American idea that the less government and the more space for self-expression, the better. America was founded on this from the very beginning. They paint Obama as a person who is muddying the ideals of the founding fathers.

In response, Democrats have also radicalized, depicting Republicans as cave-dwelling wackos, something like neo-Bolsheviks in reverse, who for the sake of their own dogmas and political interests, are prepared to act according to the Bolshevik principle that worse is better. The faster everything collapses and the socialist (as they think) authorities leave, the faster America will begin to recover.

All of this is concentrated in the problem of the U.S. default, which is anticipated to occur on Aug. 2. The problem is technical. The American federal debt has reached gigantic proportions; it has surpassed $14 trillion. In U.S. law there is the concept of a debt ceiling, which has been raised several times. Under Bush, I think, it was raised 10 times. The unwinding of the debt mechanism began namely during the Republican Bush Administration. Under Obama, it has intensified because of the economic stimulus and healthcare reform.

Everyone expects that the debt ceiling will be raised yet again. That is to say, everyone understands that there will be a major problem if this doesn’t happen. Here is where the Republicans have dug in their heels and said they won’t raise the ceiling anymore. Now, they will only raise the debt ceiling in exchange for radical budgetary concessions and reduce government expenditures on social needs, which Obama prioritizes. On the other hand, Obama also says that they must reduce spending, firstly through the elimination of tax cuts for the rich. This is an ideological collision between the two crusades. Time goes by and the parties remain entrenched in their positions.

This very question about the U.S. defaulting would have been unheard of five years ago. No one would have even thought that the U.S. might face a lowered credit rating. Nevertheless, today it is a direct challenge, and the risks are enormous.

A U.S. default would not be the end of the world, but it would complicate many problems for Americans. The unwillingness to understand each other, the diverging parties, the people’s distrust in the political elite — all of this is perhaps the most distasteful thing for the U.S. Does this mean that Obama’s reelection is doomed, although it is too early to say that the Republicans have no alternative? If everything continues on its current, terrible course, then Obama will face a real problem when the elections come. He might be reelected if things don’t get worse and if he doesn’t have a standout challenger. But this won’t resolve any problems.

America faces a fundamental challenge and an imperative to rethink its politics, both domestic and foreign. Obama won’t likely be in the position to make these changes. I think that the most interesting elections won’t be in 2012, but in 2016. That is when the country will actually decide its strategic path, and then it will be quite interesting to watch for what will appear on the horizon.