Hallelujah! The fiscal cliff has been averted and America is saved. Yes, I am laughing too. For one thing, the deal that our leaders cut only buys us a couple of months until automatic spending cuts kick in, or in other words, they need to reach another deal by then or it will be déjà vu all over again. For another, we all know that the 'cliff' hanger was just the opening salvo for a much bigger drama about to unfold in Washington -- this time over the raising of the debt ceiling.
Prudently, the president tried to eliminate this looming threat to our economic security by tying it to the fiscal cliff debate but the Republicans sabotaged that idea. Not surprising, since the debt ceiling is the biggest weapon that the Republicans have in their arsenal right now and since they are still desperate to derail Obama before the economy really improves and he can get well-deserved credit for it.
The reason this is so bothersome is not just because Congress, and the House of Representatives in particular, can't seem to get any business done, but because the debt ceiling is not some pork barrel program that our politicians are welcome to knock themselves out fighting over. The debt ceiling impacts the very solvency of our country, and as such any gamble with it is a gamble with our survival as a nation and individually. To put it more bluntly, the stunt that the Republicans are about to pull is personally directed against all of us.
First let's get clear about the debt ceiling. If the ceiling is not raised, as it has been dozens of times in the past -- through presidents from both parties, it will basically be the equivalent of the United States of America declaring bankruptcy, which will lead to a shutdown of our government, vanishing of all financing sources for anything, a crippling market crash, business meltdown, widespread unemployment, global economic crisis, and catastrophic chaos also known as "the end of the world."
From the above it should be clear that not raising the ceiling is not an option under any circumstance, regardless of the deficit. Then why would the Republicans pick this particular fight, knowing full well that they will have no choice but to relent in the end?
Simple. Because the debt ceiling is a loaded and cocked gun to America's head with the safety off. One false move and the damn thing could go off, which means that America dare not even breathe against the wishes of the GOP. It's called the politics of blackmail and the Republicans have been perfecting it ever since Bill Clinton was elected to office. The actors may be different today but the play remains the same.
The problem is that the Republicans are out of fresh ideas, even bad ones, and cannot think of a single viable way to balance the budget without gutting our nation's infrastructure and cutting social safety nets like Social Security and Medicare that are critical to the welfare of millions of Americans. At the same time, the GOP is so beholden to its wealthy corporate sponsors that any compromises it makes with the Democrats is sure to backfire for them at the time of the midterm elections in 2014. The powerful lobbies that fund the Republican party machine have a single-minded agenda, and that is to take government completely out of the equation so that the working class winds up at the total mercy of the business sector and to permit the creation of an oligarchy that can control America. Finally, the constant threat of primary challenges by tea party extremists looking to unseat any Republican with the least bit of sense is making it nearly impossible for the GOP to govern responsibly.
President Obama wants to be bipartisan, and that is a noble goal. But he needs to recognize that no matter what he does, a party that is bankrupt of ideas and having its strings pulled by special interests and fanatics has no choice but to resort to blackmail in order to get its way. The trouble with blackmailers, moreover, is that once you pay them off, they will come back for more, and the precedent that the White House sets at the beginning of this new term will determine the tone for the next four years.
I don't blame the president for compromising on the fiscal cliff, but the debt ceiling is a whole other matter. Given the severe consequences of a potential default, there is no end to what the GOP might demand, and if the Democrats allow them even a minor foothold, the GOP will use their leverage to rip the heart right out of our government -- for nothing less will satisfy them. The Republicans, partly due to their overwhelming thirst for power and partly because of pressure from the fringes of their party, have lost the ability to be even mildly objective about any issue. Whatever Obama wants, the Republicans will automatically want the opposite, and they will happily blackmail him to get their way.
The irony, of course, is that our deficit has been increasing for decades and that George W. Bush added $5.1 trillion to the deficit during his presidency with the cooperation of his own party. Of that $5.1 trillion, 35 percent of it arose from tax cuts which were gratuitous and designed to disproportionately benefit the rich, and another 17 percent from the wars in Iraq and Afghanistan. The deficit under Obama, on the other hand, has risen primarily due to the financial stimulus package (which was necessary for our economic survival after the market crash of 2008), an extension of the Bush tax cuts (which could not be reversed in the middle of an economic crisis), and mandatory spending that the president had no control over. In this context, our current deficit is primarily the creation of the wasteful policies of the Bush administration and so it is atrocious for the Republicans to hold our economy hostage over it now.
In my previous piece on Republican obstructionism, I discussed the GOP's thinly veiled strategy of deliberately slowing down our economic progress in order to discredit the Democrats. This strategy will reach critical mass in the showdown over the debt ceiling, and there will never be a better time for the president to shut down the Republicans' policy of blackmail. The debt ceiling might be a big problem but it is not an unsolvable one. The president has legal options to go it alone and while they may be contested later, he can avail himself of those options in the near term to remove the only bargaining chip that the Republicans have and to get their unending blackmail to finally stop.
If that sounds high-handed, consider this -- the Republican politicization of the debt ceiling can only lead to one of two things: 1) Rapid and deleterious shrinking of our economy just when it is starting to improve; or 2) The decimation of our freedom and the creation of an oligarchic order in which the entire nation runs for the prosperity of a select few and according to their dictates. Compared to these grim outcomes, a little bit of partisanship is a welcome alternative, and the president would be doing us all a favor by holding the line.
The Republicans will fight back, naturally, and threaten to let the U.S. economy collapse for the sake of false principle, but if they do that, they will finally have revealed just how low they have sunk and how little they actually care about the American people; and that in turn will lead either to the party's expedited demise or a genuine rethink of their policies -- both of which can help American politics become functional again.
SANJAY SANGHOEE has worked at leading investment banks Lazard Freres and Dresdner Kleinwort Wasserstein as well as at a multi-billion dollar hedge fund. He has an MBA from Columbia Business School and is the author of two financial thrillers, including "Merger" which Chicago Tribune called "Timely, Gripping, and Original". Please visit his Facebook page for more information.
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