Having just come through the government shutdown and the debt ceiling deadline, it is critically important that we must not lose a true sense of what was actually most at stake financially.
American exceptionalism — the idea that we are the “best country” in the world, the one whose values and stature supposedly all others aspire to — is a commonly held belief in the U.S. If true, the natural response should lead to a national sense of gratitude and humility for the great privileges, and consequent responsibilities, that we enjoy. What we must continually watch out for is the human ability to morph such a high-minded opinion of our situation into arrogance and a sense of entitlement.
Having just come through the government shutdown and the debt ceiling deadline, it is critically important that we must not lose a true sense of what was actually most at stake financially. Especially since the deal only funds the government through Jan. 15 and raised the debt limit through Feb. 7.
No it was not the win-lose political blind-alley arguments that many congressmen and their emotional constituents focused upon that mattered most. As Spencer Jake wrote in The Wall Street Journal on Oct. 12, what was really at stake was "...the Full Faith and Credit" of the U.S. government.
We take our financial dominance and credibility so for granted that we lost sight of just how much it really means to us. And to the point of this column, we lost sight of just how much any tarnish on that full faith and credit can cost each of us in increased interest rates — that means you and me.
Because the U.S. dollar is the default currency of the world (a surprising 85% of all international transactions, Jake says), and U.S. Treasury bonds are the world's largest and most liquid pool of securities, our nation's bonds have become the very definition of what is considered "risk free." So, as a partial result, people and nations are "forced," as some say, to buy bonds from us for their "safety" and subsidize our government at lower rates than other nations and entities have to pay in interest.
But if our internal dissension leads to an actual future failure to make good on those bonds (read: debts) even once, even for a short time, for the first time in our long history, then bad things will happen. There will still be a line to purchase our debt because there is really no viable alternative. But we will have to pay a higher interest rate because we will no longer be as credible in our promise to re-pay those loans. And when you owe some $16 trillion (yes, with a "T") even small raises in rates will cost us untold billions.
And no matter how future politics shake out, we would never be able to go back to our traditional status of trustworthiness having once driven over the cliff. Once we have driven over that cliff, our shaken credit will lead, in some measure, to both fewer services and higher taxes. And a slower economy, fewer jobs, lower quality of life and so on down the cascade of bad results.
Some say that there are no rules in bargaining. But even in war we have the Geneva Conventions. The bottom line should be that despite the temporary working agreement Congress passed, we should demand our legislators pass a law forbidding any such future extortionate acts of governmental suspension or debt ceiling blocks, by either party, that endanger all of our economic futures. Maybe, like the cardinals in a papal election, we should just lock Congress in a room until it hammers out an agreement.