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October 24th 2013 print

Peter Smith

The GOP’s fools on The Hill

There was never a moment's doubt that, after much posturing and fury, a Republican backdown would see the US meet its debt obligations. They don't call it the Stupid Party for nothing

The recent Congressional impasse in the United States over raising the federal government’s debt limit caused some gyrations in financial markets. Every dip was a gilt-edged buying opportunity. I am sure George Soros, Warren Buffet, and company, made their killings. Me, I have no spare money, unfortunately.

There was zero probability that the debt limit would not be increased. Even the Tea Party crowd in Congress would have blinked — if they hadn’t known that the wets among the Republicans would blink first. No-one would want to carry the responsibility of bringing the United States into ruinous disrepute; and then there is the ‘small’ matter of bringing down the international monetary system.

Of course, the biggest poseurs in the history of the world — the rating agencies – made noises about lowering their ratings on US debt. It’s worth me repeating for those who don’t get it: Unlike the debt of other governments, the debt of the United States is all denominated in the currency for which it (the US government) has unlimited issuing rights. It can issue / print dollars at will. Ergo, the United States cannot default unless the Congress suffers a collective bout of insanity and refuses at some point to lift the debt ceiling. I think we can rule that out.

If I am right, and I am, why in the world would Republicans, or a large body of them, ever think it was a good idea to use the debt ceiling as leverage to get concessions from the President and/or Democratic congressmen on Obamacare or anything else? The epithet, ‘The Stupid Party ’, often attached to GOP by friends and foes alike, is surely fitting on this occasion.

Total debt is the final cumulative rolling tally resulting from all of the expenditure and taxation battles won and lost over past years. You can’t undo the past – nor all thy piety nor wit can lure it back to cancel half a dollar; nor all they tears wash out a cent of it (with due acknowledgement to Omar Khayyam).

Why adopt a negotiating stance which even a half-wit could see was patently untenable and unwinnable? It was nothing short of Lois Lane threatening to feed Superman kryptonite unless Lex Luthor desisted from his criminal activities. It is feasible to leverage off the budget or particular expenditure or taxation measures that the Democrats have set their bleeding hearts on; but not the debt ceiling.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [3]

  1. Davidovich says:

    A renowned American economist, Thomas Sowell, maintains that the Republican-controlled House of Representatives voted all the money required to keep all government activities going — except for ObamaCare. Whether ObamaCare is good, bad or indifferent is a matter of opinion. But it is a matter of fact that members of the House of Representatives have a right to make spending decisions based on their opinion. As for the Republicans closing down the Government, we actually do know who had the option to keep the government running and chose not to. The money voted by the House of Representatives covered everything that the government does, except for ObamaCare. Truth was a casualty in this political skirmish but Sowell goes on to say that “Perhaps the biggest of the big lies is that the government will not be able to pay what it owes on the national debt, creating a danger of default. Tax money keeps coming into the Treasury during the shutdown, and it vastly exceeds the interest that has to be paid on the national debt. ….. Even if the debt ceiling is not lifted, that only means that government is not allowed to run up new debt. But that does not mean that it is unable to pay the interest on existing debt.” The Republicans main failing, it would appear, has been their inability to properly explain their position.

    • Peter says:

      True, I think, in theory but not in practice. The budget deficit is still adding over $700 billion a year to debt and this simply can’t be turned off at will. Therefore the US government would be in the parlous position of either having to renege on past debt to make room for new debt or of issuing new debt for which it had no authority and which, because of this, might be regarded as worthless. Peter Smith

      • Ehrich says:

        The underlying objective behind the strategy of some Republicans (this included a few Democrats) was to show they didn’t support Obamacare. Considering the boondoggle that Obamacare this seems to have been wise.

        The tragedy of the Republicans wasn’t the shutdown but that the establishment turned on it’s own. It’s sad to see that Peter Smith is in the same camp as Karl Rove.