Herald-Sun guest columnist
Most Americans agree democracy is the best political system. People empowered to oversee the powerful keep governing systems in check. The only problem is that there is no check on the will and wants of the people -- that is, no check except a full-blown economic crisis.
Just look at modern-day Greece -- the world's first democracy. This week, the island nation faced violent riots and political upheaval as its parliament debated a package of tax hikes, job cuts and spending reductions demanded by foreign bondholders. Though the Greek economy is smaller than Michigan's, its debt crisis has rippled through Europe and rattled financial markets.
As this train wreck played itself out across the Atlantic, U.S. politicians flirted with a potential sovereign debt crisis of their own. Now members of Congress are suggesting they may allow what would be the first U.S. debt default in history. The drop-dead deadline for increasing the debt limit is Aug. 2, but negotiations have so far been futile and politicians are talking about allowing a temporary default. That means the government would not be able to issue more debt securities to raise funds to pay off current lenders.
It's not the first time Congress has resisted an administration's request to raise the debt ceiling. Congress balked seven times to defy President George W. Bush's requests, often pushing the issue to the wire of default. Those challenges rarely, if ever, made front-page news. Even the most astute financial reporters dismissed the issue of congressional authority for the debt limit as immaterial -- something that would inevitably happen regardless of congressional floor speeches condemning it.
The first time a Congress challenged a president on raising the debt limit was in 1953. Former Democratic Sen. Robert Byrd, a man known for his brazen attacks on executive-branch authority, flatly refused President Eisenhower's request. Byrd successfully led a Senate revolt by arguing it was the administration's duty to economize. After all, he said, a president does not have to spend every dollar Congress appropriates to it.
Eisenhower shot back that the legal restrictions on government borrowing acts as a straightjacket that made it hard for the government to pay its bills. The same is true today. Though Republicans are leading the revolt this time, it is still a question of paying the bills we have already accrued.
The difference is that today there is a sense of urgency. Foreign lenders are taking notice, and the financial markets are reacting to the real possibility of default. On Monday, prices for Treasury's 30-year bond fell, increasing the cost of borrowing, as investors fretted about the potential of a rating downgrade on U.S. debt. Chinese central bankers are beginning to view the dollar as a bad investment and are making adjustments to their foreign reserve holdings.
In Eisenhower's day, senators said increasing debt-limit authority would only encourage the government to continue to go into deeper debt. They were right. In 1953, the debt limit was $275 billion. Today it is $14.3 trillion.
We've been able to amass huge amounts of debt because up until now, investors have viewed U.S. Treasuries as the world's safe haven. They invest here even when the return on the investment is minuscule. That, ironically, has only fueled our voracious appetite for deficit-spending, especially in the last decade. U.S. politicians have been able to cut our taxes, increase spending programs and leave retirement benefits untouched all while fighting two wars.
Today, the free ride is nearly over. Only three years after the worst economic crisis of our time, we are facing the potential for an even larger catastrophe. Is crisis the only check on democratic indulgence? Recent polls show that majorities of the American public still want it all: They want more take-home pay, more retirement security, more health benefits, more money for education and a bigger military. Yet a recent CBS poll showed that 63 percent of American oppose raising the debt limit.
The trouble with that logic is that budget decisions -- and the spending itself -- has already been made. The congressional uproar over the debt limit has come too late.
The debt limit is about cash flow, not tax and spending decisions.
U.S. politicians know politically unpopular tax and spending decisions are needed, and they are looking for a scapegoat to force their hand. Unfortunately, the scapegoat they are turning to is the stability of the economy. It is irresponsible for U.S. politicians to even think about defaulting on our debts, let alone use that possibility as a tool to gain the upper hand in negotiations with the White House. It's politics at its worst. Capital markets are volatile and can turn on a moment's notice. Congressional Republicans are playing with fire, and they know it.
If the markets begin seeing the "full faith of the dollar" to be unfaithful, they will not be forgiving. Politicians must raise the debt limit now and make painful budget decisions later. It is better to have to ask forgiveness from voters than it is to ask it from the markets. The thing that we truly cannot afford is another economic crisis.
Patti Mohr, a former tax and budget congressional reporter, specializes in globalization and economic development. For more information, see www.patriciamohr.com.
