I really hope that by the time this column goes to print, its content will be irrelevant because the issue will be sorted. But, based on the way American politicians are behaving as I write, I’m not altogether confident.
I am referring of course to the negotiations around the US debt ceiling and the partial shutdown that President Obama has had to implement.
We have witnessed similar political stand-offs in recent years – remember the fiscal cliff negotiations towards the end of 2012 and the debt ceiling discussions in 2011? The negotiations are often fierce with both Democrats and Republicans making the most of media sound-bites to publicise their political stance and blame the other party for not acting reasonably.
The debt ceiling is the upper limit on the amount the US government can borrow. Right now, it’s at about $16.9 trillion. It exists to stop Congress spending more money than is responsible – though arguably, spending any money in excess of what they receive is irresponsible! Because the US government has been spending up large in recent years, trying to generate economic growth, the debt limit needs to be revised fairly regularly. It usually comes up for a vote each year and in most years, it passes easily … but it hasn’t been easy since 2011.
The current impasse is complicated because a small group of Republicans are trying to tie the debt ceiling negotiations with other legislation concerning healthcare. It is this aspect of the negotiations that has riled many American citizens and indeed politicians on both sides of the political divide.
Chief executives and commentators have spoken out about the recklessness of using the debt ceiling to advance other political hobby horses. Warren Buffett says that it is “deeply immoral and ought to be unthinkable that members of Congress with pet projects would use these discussions as a lever and fight about America paying its obligations”.
Indeed Buffett was so incensed at the impasse that he suggested that such political posturing “should be banned, like nuclear bombs – too dangerous to use”. He pointed out that in not reaching agreement on the debt ceiling, the US would effectively be breaking its promises to people around the world as well as its citizens, and that the US would lose its position as the most important economy in the world and the reserve currency.
To put it in perspective, Congress needs to reach agreement on the debt ceiling by October 17, because at that date, America will have US$30 billion in the bank, but will need to pay creditors some $220 billion in the following month or two.
Given the magnitude of the issue, it is likely that an eleventh hour compromise will be reached. Meantime, financial markets have got the heebie jeebies, American citizens are ropable, and the rest of the world looks on anxiously.
As I said at the outset, we can only hope that common sense will prevail. To quote Buffett again “we will go right up to the point of extreme idiocy, but we won’t cross it.”