Stock prices rose and economists sighed with relief yesterday as US lawmakers ended their theatre-of-the-absurd showdown over the maximum size of the US government’s debt.
Without the deal, America’s dysfunctional politics would have propelled the global economy into uncharted waters.
For decades, Uncle Sam has been able to keep running up debt, to a level forbidden to other states, because America, cornerstone of the world economy, has been universally seen as “too big to fail” – a notion some in Congress seemed willing to test to the limit.
The US debt exceeds $16 trillion (Dh59 tr), more than a third of it held outside the US. The risk of default by even tiny Cyprus, last March, rattled financial markets; nobody wants to contemplate all that US debt losing value. But the self-inflicted wound of pointless crisis has rubbed the world’s nose in its cheerful acceptance of the myth that America can keep borrowing forever. This week people began thinking the unthinkable: Fitch, a rating agency, decreed a negative outlook for US debt.
Relief over the deal in Congress is mistaken, because the fine print means the whole silly show might repeat in January. Nothing about it addresses the two related underlying problems: the bitterly partisan deadlock at the top of the government, and the country’s addiction to debt.
The real crisis will hit when interest rates begin to climb again. In fiscal 2013, just 6.2 per cent of federal spending was to pay interest; that can only go up.
For decades, the US has lectured the rest of the world about fiscal probity, both directly and through institutions it influences, such as the International Monetary Fund. Now it is time for America to heed the message the rest of the world is delivering, in chorus, about this problem.
American politicians appear oblivious to the way in which endless red ink and political brinkmanship are threatening America’s stature and influence. “The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites,” China’s government-controlled Xinhua News Agency said this week. “Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.”
The whole world needs a prosperous US with stable finances and effective decision-making. Until US leaders shed their bad habits of spending and squabbling, these crises can only recur and intensify.