We need an intervention on the debt limit. It’s embarrassing to admit, but it’s true.
Even if Harry Reid and Mitch McConnell “succeed” with a deal to open the government through January with the power to borrow until February, a great nation can’t operate month-to-month and remain great. Unfortunately, as I’ve argued before, America has stumbled into a perfectly dysfunctional political equilibrium that has the ability to perpetuate itself. In theory, voters could end this stasis, but between gerrymandered congressional districts and public ignorance and confusion, we’d be foolish to count on an electoral correction anytime soon. We therefore face a debilitating carnival of fiscal cliffs and debt ceiling showdowns that repeat themselves every quarter, or year or 18 months — indefinitely.
The only sure way out is an intervention staged by those who have both cause and power to change Washington’s behavior: our global creditors.
We’ll get to how mortifying this is in a moment. But start with how an intervention might actually work. The rest of the world may not care if our two political parties are unable to agree on the role of government and on associated levels of spending and taxation. That kind of squabbling is par for the democratic course. But what China, Japan, Brazil, the OPEC nations and other big buyers and holders of Treasury bonds can’t tolerate is when our political class flirts seriously (and repeatedly) with the prospect of default. Collectively, they have the power to change this.
A global intervention would go beyond the mere verbal alarms that were sounded at the International Monetary Fund (IMF) meetings over the weekend. “It is perhaps a good time,” the official Chinese news agency said the other day, “for the befuddled world to start considering building a de-Americanised world .” As a practical matter, that could take decades, but the world can easily take the risk out of America’s reckless behavior right now.
Here’s what they should do. The top foreign holders of American debt — perhaps operating through IMF chief Christine Lagarde as their messenger — would send a joint public letter to President Obama and the congressional leadership. This letter would put the United States on notice that as of (say) Feb. 15, these countries will no longer buy new Treasury debt unless America’s debt limit statute has been repealed . They would note (in a way bound to improve U.S. media coverage of the issue) that no other leading nation has a debt limit that functions separately from its normal budget process, and is thus subject to being hijacked for negotiating purposes.
The message from foreign bondholders will be clear: You Americans can shut down the government to your heart’s content, but there will never, ever again be any threat that you will not honor credit instruments that are central to the global economy. At least not if you want us to lend you money.
You wanted a debt ceiling ultimatum, Ted Cruz? Now that’s what a real debt ceiling ultimatum sounds like!
The truth is that being compelled by foreigners to scrap the debt limit would be a great thing for America as a matter of policy. The debt ceiling’s existence in an era of divided power — and in a capital thus starved for “must-pass” legislation to commandeer for broader goals — is the only reason we’re going through this insane rush to the precipice today.
Once Republicans changed the rules of the game in 2011, and made the bona fide threat of default a negotiating tactic, it may only have been a matter of time before events came to such a humbling pass. It would be better if President Obama explained to the country that the debt limit is an anachronism that now serves no purpose save to provide grounds for political extortion — but scrapping the debt limit (like voting to raise it) doesn’t poll well, so the president won’t risk this route.
If Obama won’t campaign publicly to abolish the debt limit, and the GOP wants to use the threat of default as a means to its ends, there’s no exit from this dangerous cycle unless outside forces save us from gutless and reckless leaders.
If the scenario I’m sketching sounds vaguely familiar, there’s a reason. In the old days, when the economic shoe was on the other foot, if some distant country’s instability threatened American holdings there, we’d take action. Maybe we’d arrange a coup. Or dictate terms to tottering republics who wanted our aid. Today, at least, a foreign intervention to scrap the debt ceiling would not only be nonviolent, it also would be doing us a favor.
Still, can anyone imagine a more pathetic affront to our national pride and self-image? Even if abolishing the U.S. debt limit would be a boon for global economic stability and American political sanity?
It seems surreal to look to foreigners to save us from ourselves by humiliating us. But then no one said the road to American decline would be pretty.