U.S. Debt May Hurt U.S. Moral Image

The issues of American and European debt have become important topics in people’s recent conversations. In fact, these are two totally irrelevant problems because the core issue of the U.S. debt has been about raising the national total debt limit so that the government is allowed to continue to borrow money in a deficit situation, while the essence of the European debt crisis is that some countries like Greek and Portugal have lost the ability to pay off their debts and therefore are simply unable to pay due debt. In regard to the downgrading of the U.S. debt rating by Standard & Poor’s, in the short term it should not damage the U.S.’s ability to borrow money, not to mention that it certainly would not hurt the U.S. dollar’s reserve status because the U.S. dollar itself is the debt certificate signed by the U.S. Treasury. The interest rate of U.S. bonds is so low but is still treated as every nation’s reserve capital, the bottom line has to do with the U.S.’ incompatible political and military strengths, and this absolutely cannot be matched by countries like Greece, Portugal, Italy and Spain. As Buffett and Obama have said, “No matter what some agency may say, we've always been and always will be a AAA country.” Don’t ever think that these were just angry words.

However, has the United States been able to avoid any damages at all after this fight? I, as an author, think that this time the United States has sunk deeply into the debt vortex, and therefore it has already hurt the moral image that the U.S. has nurtured with great effort. In the long run, this will become an issue with a long-term impact.

First of all, the power struggles between the executive branch and the legislative branch implicated other countries in the troubles, and constituted suspicion of neglecting international responsibilities. What led to impeding actions between the two branches and the fighting between the two parties this time was of course caused by core differences in directions and interests adopted by the congress and the government. Congress wanted to possess the power to determine the U.S. federal government’s highest limit of its total debt, and thus interfere or control the federal government’s budget and spending; meanwhile, the government wanted to gain more space in policies in a relaxed environment to be able to borrow more capital under a deficit condition through the increase of the limit of total debt, push for economic recovery and eventually carry out the goal of deficit reduction.

However, the Democrats wanted to link other complicated issues to the subject of increasing the national debt limit with its own wishful thinking to see all around results in many areas such as revenue increases, spending cuts and the tax system. This actually led to further complications and intensifications of the problems and conflicts. For example, the Democrats became entangled in issues like different tax brackets between different income groups in the country, threatening to greatly increase taxes on the rich and therefore directly hurt Republicans’ fundamental basis. This has led to a power struggle between the two parties so that legislation that should have been voted on was not voted on and no one could quickly come into line. Looking at it from this perspective, we can call the U.S. debt issue an “artificial crisis.” Both parties, especially the Democrats, who bet with the U.S.’ reputation this time, will increase outsiders’ suspicions about their ability to carry out responsibilities and directly affect the country’s credibility.

Secondly, the traditional concept of living within one’s means was abandoned, and the habit of eating tomorrow’s grain today will lead to a deficit hole that is very difficult to fill. The United States was a country built on Puritan core ideology, and observing good faith was the basic religious belief. Based on this belief, the United States should not allow outsiders to worry about its capability to pay off its debts. Historical experience has shown that in 1812 the war between the U.S. and Great Britain made the U.S. government owe a huge debt, but the then U.S. President Jackson swore that the U.S. government would pay off all debts at any price. After this promise was carried out, the United States’ international image was greatly improved. Of course, the United States has participated in many major wars since then, which has led to repeated increases of U.S. national debt and numerous adjustments and raising the limit of the national debt until the formation of an international economic system in which the Americans demand and spend like crazy, while foreigners manufacture and supply nonstop. Today, spending with debt has become every American’s habit as well as the nation’s habit. Such habit covers up the tradition of observing good faith with the desire to spend, and politicians even intentionally or unintentionally neglect the necessity of balancing deficit. One such example was the health care system reform that Obama wholeheartedly promoted after he entered the White House. This reform did not fully consider the U.S. financial tolerance, so in this round of the debt crisis, the just-passed health care reform package was immediately brought up by Republicans as a bargaining chip for spending cuts. Looking at Obama’s not-so-confident promise of deficit reduction, the Democrats will not be capable at all, as every one expected, of achieving the goal of reducing the deficit by four trillion dollars. All Democrats want is a smooth re-election, and the huge U.S. financial deficit is in no way to be effectively reduced in the next four years.

What is worth of consideration is that at the time the U.S. has deeply sunk into debt controversy, some international organizations controlled by this most powerful country in the world, such as the International Monetary Fund and World Bank, were indifferent and could not present any constructive ideas. This can’t help but make people doubt that the international economic stabilization mechanism guided and established by the U.S. has any ability to provide support when the U.S. economy itself faces serious challenges. In the past, these two organizations adopted some measures and pointed figures when problems exploded in other countries. They were seen as an extension of the United States’ international influence. However, if both organizations are incapable of doing anything when the U.S. faces problems, then this proves that they are just the United States’ dependents and lack any actual power to maintain stability. This will further weaken the United States’ influence in the international economic sphere.

To sum up, the existence of the above factors will not lead outsiders to eliminate any suspicions on the instability of the U.S. debt issue. Such suspicions are damaging the image of integrity that the United States established in the last two hundred years. They will also make the U.S. lose confidence based on tradition and morals when it talks to every national creditor.