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Understanding ‘Debtageddon’ Tuesday

Denis Campbell: Many economists predict a failure to act before Asia markets open Sunday or Monday night could see an immediate stock market loss of up to 5% and wipe out 10% of US GDP by Tuesday night. It’s that serious.

If you get your US news from FOX or SKY, you have a SPIN on the debt ceiling debate that strains reality to the breaking point. What’s at stake on Tuesday is the “full faith and credit” of the United States in a completely ‘politician-manufactured’ crisis.


The effect, though, is very real. If it seems likely the US will default on its debt obligations, global stock markets on Monday or Tuesday could tank, the USA could lose its AAA credit rating from Moody’s, S&P and others and interest rates would precipitously rise around the globe (think steroidal Greece).

Many economists predict a failure to act before Asia markets open Sunday or Monday night could see an immediate stock market loss of up to 5% and wipe out 10% of US GDP by Tuesday night. It’s that serious.

The Republican/Tea Party have but one oft-stated goal: the defeat of President Barack Obama on 6 November 2012 (yes, 16 months from now). The USA was on target to slowly raise itself from recession with a modest, but low and slow growth rate. The manufactured ideology-focused austerity kick of the UK became a cause celebre to the previously spend-drunk GOP. This is the same GOP that had no problem supporting George W. Bush’s two wars and an unfunded Big Pharma trillion-dollar prescription giveaway.

They raised the debt ceiling seven times in eight years for him and 17 times under their free-spending God, Ronald Reagan. Indeed they raised it five times under Bush the father. It was always an acrimonious political debate where the party out of power looked on with mock horror, everyone made great speeches (quickly forgotten) and the ceiling was raised. Job done.

Whenever Bill Clinton needed funds raised after he lost control of the Congress in ’94 it was still a fight but Clinton left office with a $200 million surplus and had put systems in place to take it to a $5 trillion surplus that would address all the entitlement program problems of an aging population everyone feared back in 2000.

Enter the cowboy W. (Insert your joke here.)

No sitting US president has ever been re-elected with a jobless rate of 8% or higher, but as the only adult in any room in Washington and faced with an opposition field of dwarfs, Obama was likely to cruise to re-election victory. Many were even predicting another wave election where control of the House, many state Governorships and legislators would swing back to Democratic control.

The Democrats had a history of accomplishment. The previous Congress (the 111th) led by Nancy Pelosi and Harry Reid passed some significant and important bills. Almost 600 cleared the House in its two years. Through six months of the GOP led House, 48 bills made it out, most if not all focused on women’s reproductive freedoms and amongst those were the ludicrous post office renaming pieces of legislation used by Speaker John Boehner to stall Friday night because he had not done a good whip count for his plan.

The only way to stop Obama was to cravenly find a way to make the economy worse than it is today. So, for a month, the fight has raged over raising the US debt ceiling. What is the debt ceiling? It is a remarkable creation of the founding fathers. Well, not really.

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Congress has the authority and ability to raise funds to pay the US’ bills via appropriations. Until the 1990s this was a relatively simple process, the Defense Department would come to the Congress and say, “we need $500 billion.” There would be hearings, review and the measure would pass in a vacuum. It was never a coincidence that major defense plant expenditures took place in the districts of the most powerful Representatives and Senators in Congress. This is how things were done and no one objected.

The debt ceiling was something the US would occasionally bump up against having already spent the money and where bills exceeded the amount of money taken in from all sources. The budget would operate in a deficit and Congress would vote to simply raise the amount of debt the US could enter into, i.e. print the money to cover it. The US benefitted by being a safe financial haven for the world. Governments and people invested in the rock solid “full faith and credit” of a US system that always paid everyone on time.

And the 14th Amendment to the Constitution clearly states:

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned…

Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

The theory is Congress having not done its duty in Section 5 will give the President (The Executive branch) the ability to issue an executive order to enforce the repayment of all debts under Section 4. Dodgy legal territory for certain but the US Supreme Court has a history of staying out of political disputes between The Executive and Legislative branches. The theory is his actions would stand. That would not though prevent the Congress from engaging in another mindless bit of political theatre — impeaching the President and putting him on trial in the Senate during a re-election thus affecting everyone through a now patented waste of time and money. The bar for impeachment is, thankfully quite high as 2/3 of the members of a body under democratic control, the Senate, would have to vote him out of office after that trial.

The debt ceiling was the moment when the government tallied up everything it had already spent and realized, whoops, we’ve over-committed on our expenditures and need to raise the ceiling to accommodate all we have spent. It has nothing to do with appropriations or making a decision to not spend as much.

The GOP/Tea Party used this much like the Tories to rail on about the cost to our children and grandchildren. Suddenly, because they were no longer in power… all this debt was a very, very bad thing. It resonated in the Tea Party and thus a false equivalency and meme was born and carried to ridiculous extremes by the official party television network FOX News.

Because President Obama is a conciliator by nature, many think he will likely sign a bill on Monday with a gun pointed to his head. The already flimsy US safety net for seniors and others will be shredded in the process and the GOP will have partners in the crime and a set of election talking points to blunt the Ryan budget plan of the spring.

dennis campbell

What’s the right thing to do? Veto any bill that so blackmails the Executive branch and, at the same moment, sign an order invoking the 14th Amendment of the Constitution. Send them all packing and force the Congress to defeat him in the courts.

The world is watching to see what he does.

Denis Campbell
UK Progressive