George Kerevan: Why America won’t collapse

Picture: AP
Picture: AP
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It isn’t only the Tea Party extremists who are blocking a budget deal. President Obama is playing hardball for party political ends too, argues George Kerevan

If you’ve been following the BBC this past week, you’ll know the world is scheduled to end next Thursday,. On that date, claims virtually the entire British media, if Tea Party Republicans don’t come to their senses and vote to lift the legal ceiling on what the US Treasury can borrow, America will default on its £10 trillion national debt. Result: global economic chaos.

Why should the Tea Party risk such a dire outcome? Because, we are told, they are hopeless ideologues bent on sabotaging President Obama’s attempt to give Americans an NHS, so-called “Obamacare”. Worse, according to some, half the Tea Party in the House of Representatives are from the Old South. Their unconstitutional attempts to sabotage Obamacare are nothing but veiled racism towards America’s first black president.

There is one tiny problem with this apocalyptic vision. Not only is the US government not on the brink of defaulting, a certain Barack Obama has a track record of doing exactly what the Republicans are now doing to him. Back in 2006, Obama was a first-term Senator and a rising star of the Democratic Party. In March that year he and his fellow Democrats voted against a proposal from the Republicans to raise the debt ceiling. Here is what he said then:

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the US Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies … Instead, Washington is shifting the burden of bad choices today on to the backs of our children and grandchildren. America has a debt problem and a failure of leadership.”

In opposition, Obama had no compunction about threatening the very fiscal Armageddon he now claims will befall America if the Republicans don’t vote they way he wants. As was the case then, he knows there is no reason whatsoever to think the US Treasury won’t be able to pay its bills after 17 October. That threat is a giant political fib. Why? Because incoming US tax revenue is actually ten times the federal government’s interest payments.

The Democrats are putting it about that the US Treasury does not have the “technical ability” to prioritise interest payments over other revenue obligations and that the Republicans are therefore “deficit deniers”. But with a staff of 117,000 and an annual budget of £7 billion, it is hardly credible the US Treasury cannot manage expenditures like any ordinary business. Besides, the constitution gives the president full legal powers to manage the national debt. It’s just that Obama wants to use this manufactured crisis as a stick with which to bash the Republicans.

Which explains why we have seen the iconic Lincoln Memorial in Washington needlessly barricaded off from public access – this is political theatre designed to make the Republicans look mean. Proof: the Pentagon originally sent 350,000 civilian workers home, ostensibly because of the budget impasse. But it soon realised it had overdone matters and brought them back. Funnily enough, the salaries to pay them magically reappeared. Why were they sent home to begin with? Answer: as blackmail to force the Republicans to vote through a budget on Obama’s terms.

Barack Obama learned his politics in Chicago, where the Democrats play dirty. Which is why we should take with a big pinch of salt his attempt to paint all the Republicans in the House of Representatives as Tea Party extremists. In fact, the Republican leader in the House is a moderate, John Boehner. Centrist Republicans like Boehner are outraged by the Democrats’ blank refusal to come up with any sort of plan to get America’s unsustainable deficit under control, except by raising taxes.

Hence Boehner’s demand that he will only consent to lifting the debt ceiling if Obama agrees to discuss “a significant structural plan to reduce government spending”. But that would mean the Senate Democrats – who are as far to the left as the Tea Party is to the right – accepting cuts to welfare entitlements. The Democrats won’t play ball, preferring to shut down the federal government and blame the Repubicans for not sanctioning yet more borrowing. As for President Obama, he doesn’t have to fight another election so he has nothing to lose by being intransigent rather than trying to broker a sensible compromise.

What about Obama’s claim that the Republicans are refusing to pass a budget bill unless it de-funds his health legislation? In fact, the last budget bill the Republicans sent to the Senate before the government shut down stripped out most of the anti-Obamacare clauses. The Republicans were prepared to vote funds for Obamacare – John Boehner accepts it is the President’s legacy legislation.

True, the Republican bill wanted to delay implementing individual health insurance mandates for 12 months. This is the legal requirement on the 20 per cent of Americans not already covered by state or employer’s health insurance schemes to purchase their own – and be subsidied if they can’t afford it. This proposed delay was purely symbolic and, anyway, only synchronised individuate mandates with a concession the Democrats had already given to big business. Hardly worth risking global economic meltdown – if you believe in the meltdown theory.

Yet the Senate Democrats hastily voted down the compromise in their rush to shut the federal government and blame it on the Republican “extremists”. This is no sensible way to run any government.

The Republicans are no saints but neither are they the only sinners in this affair. Barack Obama did not get to the White House by being a lily-livered liberal. He is a tough Chicago street politician who is playing poker with the credibility of the US economy for party political ends. But the House Republicans have called his bluff. My instinct says there will be a last-minute compromise and the world won’t end next Thursday.