This weekend’s news cycle was either an indication that we have become over the top self-absorbed or more accurately, a really good indicator of how much trouble the U.S. economy will be in if we falter and default on our obligations, even if it only lasts for a few days.
It’s an amazing moment in journalism when a terrorist bomb and a mass slaying of children in Norway can get trumped on U.S. news channels by brief announcements that U.S. debt talks have broken down, yet again between House Republicans led by John Boehner and President Obama.
The social mediums of Twitter, Facebook and now Google+ were faster at reporting and sharing the details of the Norway news, which may be an indicator that even TV journalism is becoming outmoded but that’s a different discussion.
Major news outlets were leading with the sound bites that nothing had been resolved and the debt ceiling was still closing in as August 2nd approaches. The White House even called an unusual Saturday morning meeting to get everyone back at the table and they came but that too ended in recriminations from both sides and no progress.
Another indicator of just how deep our troubles are that cuts in Social Security, the hallowed third rail of politics, is on the table and neither side is balking at all.
The reason the approaching debt deadline is getting so much attention is because the potential consequences will make the Great Recession look like an ice cube in comparison to the collision with this new financial iceberg.
U.S. Treasury bonds account for two-thirds of the $14 trillion debt, which is currently the largest in the world and the rest is considered Government Account securities or debts owed by the government to itself, such as Social Security payments. Treasury bonds are owned by mostly foreign investors with the biggest debt-holder being China who let us run up such a huge tab so we’d keep buying their exports.
If that sounds a lot like enabling, you’re not too far off the mark but that’s hindsight and a little too late. If our standing in the world market, in other words our perception falters and the U.S. is downgraded then it will become more expensive for us to do business both here and abroad. Other economies will suffer right along with us and those that are fragile may slide into another recession or this time, a depression.
It will not matter to foreign governments how much we helped them out in previous financial arrangements or how much we spent in military operations to protect their sovereignty or democracy.
Given our own slow response to creating meaningful numbers of jobs it’s not out of the realm of possibilities that we could be pulled back in as well and this time it could be worse. We will feel the consequences of our collective decisions and we will all bear them together.
Another reason that has everyone taking all of this very seriously is the current debt is equal to 95 percent of our Gross Domestic Product or GDP, which was $14.7 trillion in 2010. That means as a country we are the same as the guy who buys on credit far more than his paycheck will ever be able to cover. He has to either cut back on his spending and sell a few things or stand in his driveway while they repossess his truck, wondering how that happened.
Twice in less than five years as a country America has had to face down a serious financial crossroads and make some very complicated decisions. In 2008 the decision was made to bail out financial institutions and major corporations such as GM in order to prevent a much worse skinning of everyone’s ability to make a living, feed their families and get on with our lives.
The decision to raise the debt ceiling while coupling it with an actual plan that spells out the cuts is not only realistic it’s necessary. Some of the cuts or even possible tax raises will be a bitter medicine but these are the consequences for our recent spending.
If you still think it’s possible to spend our way out of something take a good look at the housing market that is still adjusting backwards to a new baseline reality of pricing or the job market that continues to lose almost as many jobs as it’s gaining.
We are not out of the woods yet. My hope is that our elected officials can rise to the occasion regardless of their general political stance and listen to their better angels for the sake of our country and emulate their predecessors of 200 years ago.