BY CHRISTINA KOSTOPOULOU
For weeks there was much optimism that a deal for raising the debt ceiling is about to be reached. And then last Thursday the talks led by Biden broke down with Republicans saying Obama should come afresh to accept changes in the next round of talks. Geithne’s deadline on August 2nd is coming up pretty fast and along comes the worry of what’s going to unfold if they don’t reach an agreement.
Most likely, they will come up with a solution the last minute. The political show will shut down and they’ll find a way to walk through it. Maybe the U.S. government will delay some payments but there’s no way is going to default as some folks say out there. Of course it makes sense to be worried whether there’s going to be a “Lehman Brothers” moment, where all of a sudden you ran out of money and the system breaks down in a way that nobody foresaw. And what would happen in the U.S. intentionally doesn’t pay its debt or defaults? Based on its treasuries, America can now borrow in such low rates in the market that it makes absolutely no sense to default on debts that it can actually pay. It’s absolutely ridiculous to even contemplate that America would chose not to pay its debt.
And yet, some people feel like the 1937 moment, when in the middle of the depression everybody was serious about cutting spending and putting the debt under control. But by passing austerity measures and new laws to regulate you don’t solve the problem. By looking at countries like Greece and Spain, it’s obvious that when you radically cut spending and jack up the taxes in such weak economies, the revenue comes down and kills the economy. What Democrats and Republicans need to do is to figure out a long term plan; how they will go through their crisis within the borders and how they will respond to a potential Greek default without blowing everything up like it happened in 2008. Radical cuts won’t last for long. America needs to both raise revenues and cut spending. The Republicans walked out of the talks because they wouldn’t accept any tax raises at all. But now Obama takes center stage and today is meeting seprately, with top Senate Democrat Harry Reid and Senate Republican leader Mitch McConnell, to talk about an impasse that involves taxes, spending, the $14.3 trillion federal debt ceiling — and the prospect of a government default after Aug, 2.
