I Hate to Tell You This, But the Most Destructive Force on the Planet Is the GOP
What the Standoff Over the “Debt Limit” Really Means, And Why It Matters More Than You Think
by umair haque
Right about now, you might be wondering: what happens if the Republicans win their game of chicken over America’s debt limit? And who’s the game of chicken even against?
The answer to that question goes like this: the Republicans aren’t playing chicken. They’re playing Russian roulette. With the world. With the future of all of us. And there aren’t just three bullets in the gun, there are five. The stakes are…well…I don’t mean to be dramatic, but…they couldn’t be bigger.
Let’s start at the beginning, for a little bit of context. Every so often, America hits its “debt limit.” Now, the limit is often misunderstood. It’s not given by God, by the financial markets, or by economists. There aren’t legion of bankers sitting down and calculating a thing called a “debt limit.” The debt limit, or “ceiling,” is a Congressional agreement. In other words, a political construction. That’s crucial to understand. Because many people who don’t understand it think the debt limit is some kind of hard economic constraint, which, if you go a penny over, all hell will break loose in the world economy.
Wrong. The precise opposite is true.
Think of the, well, quality of America’s politicians. They’re not exactly the sharpest tools in the shed. There are some brave and noble ones, true, like, say Jamie Raskin, who lost a son, got cancer, and still fought with a seemingly bottomless reservoir of strength for democracy, helping lead the Jan 6th Committee. But then there are figures like, say, Rand Paul, who appears to have read a couple of economic pamphlets by places like the “Von Mises Institute” — sheer crackpottery — and is now the economic equivalent of Scalia, judicially, a fanatic, trying to impose his nutcase mythology on the rest of us.
So. To start at the beginning. The “debt limit” or “ceiling” is a fiction, a political construction — not some kind of actual economic thing-in-the-world. Now. That’s not to say that the world doesn’t have a debt problem, or even that America doesn’t. They do — but we’ll come back to that, because these aren’t remotely the same thing.
Now. Because the debt limit or ceiling is a political construction, and an economic fiction, guess what happens when Republicans win power? Each time they do, their “showdowns” over it, as the media likes to call them, get more ominous and fanatical, because that’s exactly the direction the GOP’s grown in. But these aren’t showdowns with, say, the other political side. This is gambling, recklessly, with the future of the world and throwing a match onto the rickey house of human civilization.
Why is that? Think about where the world is right now. It’s in dire shape. Don’t take it from me, take it from Antonio Guterres, the Secretary General of the UN:
Guterres is one of a very, very few leaders we have worthy of the word. He doesn’t mince words or mess around. What else did he have to say? Try this on for size.
He’s not done.
Now. That’s not just penniless people in far-flung places that us rich Westerners, mostly, can ignore. Think of towns in Arizona running out of…water. Think of even the rich West’s rivers running dry and its crops failing. We are playing dice with the future of human civilization. Guterres is one of the very, very few leaders on this planet who gets it, and will say it out loud, even to the kinds of soulless beancounters that inhabit the alternate reality known as Davos.
So. What does that have to do with the GOP? With America’s debt limit? Well, everything.
In this chaotic, dystopian age, the improbable happened. America emerged as a leader, under Biden. It did that because of Bidenomics, whose plan is to make America a net exporter again, specifically of stuff that has a chance — just a chance — of doing something about impending climate catastrophe. Not even impending — already here, but I digress. Bidenomics explicit goal is for America to revitalize its economy by becoming the world leader in green and clean everything, manufacturing, energy, production, systems of all sorts. Brilliant, noble, beautiful, smart, necessary.
That’s not just necessary for some kind of moral reason, to be a righteous greenie. It’s necessary for the sake of your pocketbook. You might not have connected the dots yet, but the reason you’re paying astronomically more for everything from food to water to energy? It’s climate change, in a nutshell. Prices for everything from sugar to coffee to bread have skyrocketed because we are hitting the limits of our ability to produce the basics. Our basic infrastructure — basic as in “food, water, energy, and medicine”, not even “roads and bridges and technology” — is now already at the point of critical failure in many places, and that failure is visibly spreading from the periphery to the core of even our richest nations. Go ahead and tell me how the American West survives without the Colorado River, or Europe does if crop failures continue at double digit levels.
It’s in that context that the GOP’s “debt limit showdown” should be understood. American media does this awful thing of turning politics into sport. But it’s not the NFL. The loser of the Super Bowl isn’t exactly going to take human civilization with them. But if the GOP keeps it up, it just might. How so?
Let’s imagine that the GOP does what it wants to do: force America to default on its debt. The results would be caaaaatastrophic, and I don’t use that word lightly. What would happen next would make the Great Recession of ‘08 look like walking your dog. The first thing that’d happen is that risk premia would soar, for everyone, for everything, or, in plain English, interest rates would skyrocket. They’re already ruinously high — enjoy paying an extra $500 on your mortgage? I didn’t think so. Now double it, at least, because there would be the greatest interest rate shock in modern history, because of course, when the world’s richest country won’t pay its debts, everyone else’s risk rises that much more, too.
The truth, though, is that you’d be small fry. Like many people, you’d find a way to scrounge and get by, or maybe, if you were unlucky, you’d lose what you have. But next would come what’s known as “financial contagion.” As risk premia rise, what happens? Households and business and even countries can’t pay their debts anymore. Those go bad. Bang, now banks begin to fail, because they have to write off those debts. How many people wouldn’t be able to pay their mortgages at twice today’s interest rates? How many businesses would have to shut down. Shudder.
But even that’s not the last step. As banks fail, those bad debts have to be absorbed onto the public’s books, like it or not, or else the banks have to go under. Better to absorb the debts than have the bank go under, because when that happens, then a crunch ripples out across the whole economy — now there’s one less lender, even more loans to call in, and so forth. And what does that do? It makes investing in anything else — like stuff we actually need — much harder, because now there’s less left over to do that.
So. What would happen if the Republicans win their game of chicken? Well, it’s not chicken, it’s Russian roulette, because what would happen is a massive, worldwide financial crisis, that’d make ‘08 look tame. Households would go broke, businesses would shutter their doors, banks would go bust, there’d have to be public support for all that, which would drain the public purse.
But this isn’t just any juncture in human history. It’s one of the most crucial there ever has been. Remember what Guterres said? The most crucial part of his comments was the point about us being on track for 2.8 degrees of warming — 1.5 degrees being already here, more or less. Guterres came right out and said it, but let me cite him again.
He’s not kidding. It really would be devastating. Because as you should already know, that level of warming isn’t an equilibrium. Around there, probably well before, at around 2.5 degrees or so, tipping points are hit, which accelerate warming even further. The icecaps melt, and slow the ocean currents’ ability to disperse heat. The northern forests burn, and permafrost thaws, triggering even more warming.