It is increasingly possible that the catastrophic unraveling of the Industrial Age may begin in two weeks, not because of global warming or oil shortages or water wars or natural disaster, but because of a stupid political ploy by the Know-Nothings who are now ascendant in the US Congress. Instead of “starving the beast” — by which they mean disabling government by preventing it from raising revenue — they have discovered that they can kill the beast by preventing it from borrowing revenue. Gleefully, they are threatening to refuse to raise the technical limit on US debt, by which means they may throw the government into default on or about August 2.
Granted, the technical limit on US debt is a stupid law. It’s passage was just another way legislators pretend to do something without actually doing anything; it’s as if a club of fat people passed a resolution to go on a diet in two years — every two years. It’s dumb, but a hell of a lot easier than going on a diet.
However, the debt ceiling is not a resolution of a private club, it’s the law of the land, and as it stands, as of Tuesday, August 2, the federal government will not be authorized to borrow any more money. Thereafter, with the ceiling in place, not only will all current bills have to be paid out of the revenues that appear on that day, but bonds that come due will have to be paid in their entirety, instead of simply being rolled over into new ones.
On August 3, according to the Washington Post, the federal government expects to receive $12 billion in revenue, and must pay bills of $32 billion, including $23 billion in social security and disability payments alone. Another $10 billion in bills come due on August 4, offset by just $4 billion in revenue. And on that day, $100 billion in Treasury bonds are due to be retired.
It is this latter number that the Know-Nothings are ignoring when they claim that defaulting would be no big deal. Widows and orphans and soldiers and the elderly and the sick and unemployed denied the money they need to eat — that’s a price the Know Nothings are eager to pay, on the chance, apparently, that Obama will get the blame. Among the things they do not understand is that, if they do this, they may well kill the faith and credit of the United States government.
Don’t take my word for it. Yesterday afternoon, Moody’s — one of the premier credit-rating services of the financial world — announced that because of the machinations of the Know-Nothings (okay, Moody’s didn’t say it exactly that way) it was placing US triple-A bonds on review for possible downgrade. The action also involves financial institutions connected to the federal government, such as Fannie Mae, Freddie Mac and Federal Farm Credit Banks.
To say that such an action, if taken by Moody’s and similar agencies, would mean that the unavoidable cost of borrowing money, by the government and by everyone else in America, will skyrocket, thus lengthening and deepening the recession and making impossible any balancing of the federal budget in the foreseeable future — is not even to begin the plumb the depths of the ensuing catastrophe.
The real casualty will be that full-faith-and-credit thing. Right now the investors of the world, Chinese and otherwise, are happy to get essentially no return on their investment in Treasury bonds — the one per cent or so interest rate is usually less than the rate of inflation. What they get, instead, is safety in an uncertain world. The US economy is still the largest in the world, the dollar still the default currency of the world, and the US record of responsibility and resilience in financial matters is long and stellar. After default, no more.
Once it is clear to the world that petulant five-year-old egomaniacs are steering the ship of state, there will be no faith and no credit to be had. US Treasury bonds will be sub-prime mortgages, and the US will take its place in the ranks of third-world countries.
This will happen if the Know Nothings, by which I mean the tea-party, right-wing demagogues of the Republican Party, have their way. This is the acme of their years-long effort to prevent the duly elected government of the United States from functioning.
In a world where words had not lost their meanings, such activity was called by its proper name: not politics, but treason.