Friday, July 22, 2011

EDITORIAL >>Pray there’s no default

We are now three months into the gravest economic crisis to have faced the country since 1929 and only 10 days away from the cataclysm that will befall us if the United States defaults on its debts and its contracts with vendors and the American people. It is the first such crisis in memory brought about entirely for the singular purpose of defeating an American president in the next election.

Let us hope that wisdom and true patriotism—that is, putting the country ahead of party—prevail in the short time remaining.  Let us further hope that, however it is settled, all Americans will resolve that no group will ever again be permitted to hold the country hostage for political gain.

Everyone by now knows the dilemma. The U.S. government reached its debt ceiling of $14.294 trillion back on May 17 because Congress for the first time in history refused to raise it. Congress raised it regularly in the eight years of President George W. Bush to cover the government’s binge of tax-cutting and increased spending on defense, medicine and domestic security. The Treasury Department avoided default on May 17 by some creative bookkeeping so that the country could continue paying the bills. It will run out of leverage the morning of Tuesday, August 2. Starting that morning, the government will only be able to write checks on the amount of cash in the treasury that day or else have them bounce.

Most of the handwringing so far is over the prospect of not making timely payments to the holders of U. S. debt securities, both in this country and abroad. The first payment of $29 billion will be due Aug. 15 and it will need to roll over $500 billion in expiring short-term securities, but it is projected that the government that day will have accumulated no more than $22 billion in cash, and then only by reneging on billions of other obligations to American citizens. Failure to make the interest payments would upset the whole global financial system, dash international confidence in the United States and speed the end of the U.S. dollar as the global-reserve currency. Borrowing costs for individuals, businesses and the government would skyrocket.

That is only part of the scenario. The government would have to choose, insofar as the law permits it to choose, whom to pay and whom not to pay each day. Does it delay Social Security checks for a month? Stop payment to hundreds of thousands of contractors, from hospitals, doctors and nursing homes to the men of the military and defense contractors? Or would it not pay government employees, from food inspectors to veterans medical services?

State and local governments would feel the brunt of the fiscal distress. Even Arkansas, which almost alone among the states has kept its head above water since the economic calamity settled on the country in the winter of 2007–08, would see its little surplus disappear instantly and it would be unable to pay highway contractors, hospitals and other medical providers, nursing homes and thousands of vendors for state-federal programs. Unemployment would soar far into the double digits within weeks.

A band of ultra-conservative congressmen, many elected in the uprising in 2010 and including our Arkansas freshmen members, has held the Republican Party hostage. They have demanded that the party and its leadership reflect their demands, and so far the party has done so. The same party leaders had rallied the members to raise the debt ceiling repeatedly when Bush was president, but they all sensed a chance to sink the Democratic president, which both the Senate and House leaders had sworn to do.

The congressmen behind the charade—let’s name the Arkansas participants: Tim Griffin of the Second District and Rick Crawford of the First District—insist that it’s no big deal to keep the debt ceiling intact. They have maintained that if the elderly and disabled don’t get their Social Security checks, if the states can’t pay for nursing-home care, if the mail isn’t delivered, if the government defaults on its debt, or if anything sad happens it will be because President Obama made bad decisions about what bills to pay. Social Security checks would not have to be delayed unless the president chose to delay them, they said.

You see, if anything bad happens, people will blame it on the president. If there is a depression, the president and his party will be blamed. That is how the game has always been played, isn’t it?
But you figure it out. On Aug. 3, the first Wednesday of the month, $23 billion in checks must be mailed to Social Security recipients (actually, most are deposited directly into recipients’ bank accounts), but only a fraction of that sum will be in the treasury that day. But if people want to blame Barack Obama for the checks not arriving, they will.

We can see why Crawford would not think defaulting on the country’s obligations would be no big deal. Before being elected to Congress last year, he was famous for defaulting on his own debts by filing for bankruptcy and then lying about paying off his debts. If Crawford could welsh on his debts and escape the consequences, why couldn’t the United States?

Griffin and Crawford (our new Third District congressman, Steve Womack, seems to have backed away from this madness) were standing in front of the White House earlier this week toting signs and making little speeches blaming the president for that big $14.3 trillion debt and for not resolving the crisis.

But let’s backtrack a ways. During the past decade, Griffin was a low-level political aide in the Bush White House when he was not an operative of the Republican Party in Washington. How much of the $14.3 trillion debt did they run up? Exactly $6.1 trillion. Did Griffin go outside and wave a sign demanding that the boss stop his reckless spending?

And how much of the debt was accumulated under the previous Republican administrations, Ronald Reagan and George H.W. Bush? Remember that when Reagan took office in 1981, the accumulated U.S. debt was only $997 billion. When they left office, they had grown the debt to $4.4 trillion, so they account for $3.4 trillion of the current debt. That adds up to $9.5 trillion of the $14.3 trillion of obligations. The eight years of Bill Clinton added $1.4 trillion.

That leaves roughly $3 trillion under Obama, a little over half of which is the result of collapsed government revenues in the recession and the rest due to extended unemployment insurance, anti-recession spending and a continuation of the heightened military spending of the Bush years.

Calamity has not yet befallen us because there is widespread confidence in this country and abroad that the U.S. Congress is not mad and that there are enough wise and patriotic representatives who will stay the hands of the fools, if only at the last minute. Let us pray that it is so.