“No corner of the global economy will be spared,” was what Mark Zandi, the chief economist at Moody’s Analytics told AP News in a recent interview.
He was talking about what would happen if the United States defaulted on its massive debt because of a failure by President Joe Biden and his Democratic Party to come to a reasonable deal that would allow for the House Republicans to vote to raise the debt ceiling.
The Republicans have made clear their aims: to reduce the debt over the long term by lowering government spending. Republicans also want to stimulate economic growth by cutting taxes. They’re not going to get the latter part of their desires.
While the GOP is playing Russian Roulette by insisting that the debt ceiling not be raised without spending cuts, the fact remains that it is well within its rights to make such a demand.
Plus, the Republicans are divided and their majority in the House is tiny.
Republicans Fighting Back
Nevertheless, McCarthy has led his raucous caucus well, all things considered. His polling numbers (for now) are competitive when compared to President Biden’s toileting numbers. Thus, McCarthy and the GOP have some—very small—wiggle room.
On top of assuming Republican weakness, the Democrats assumed that they didn’t have to negotiate in good faith with the House Republicans because, if the country defaulted due to the GOP’s calls for reduced government spending, the voters would blame the GOP, and the Democrats would gain even greater majorities in the federal government.
That is certainly still a possibility.
Republicans, after all, historically tend to be blamed. And if former President Trump is the GOP nominee in 2024, he will have difficulty appealing to independent and women voters—the very same voters who traditionally blame Republicans for financial crises. The last thing the GOP should want is to complicate its already tenuous appeal to independents more than it already is complicated.
Something, though, has changed. Democrats, for the first time in this process, appear unnerved.
With less than two weeks remaining before the debt ceiling vote is set to be had, Biden reversed his original course and sat down with Speaker McCarthy. Nothing has been determined and Biden seems to have hardened his position that there should be a “clean” vote on the debt ceiling – meaning Biden and the Democrats get everything they wanted, and the Republicans get nothing.
But if they were so convinced that they could walk away the victors in the debt ceiling fight, why is Biden now threatening to use an unconstitutional interpretation of the Fourteenth Amendment of the US Constitution, in which he as the chief executive could supposedly unilaterally raise the debt ceiling?
They’re worried on the Left. And they should be. So, too, should the Republicans. Because any failure to raise the debt ceiling by June will eventuate in a catastrophic economic collapse in which everyone—save for the wealthiest few among us—will suffer.
It is no guarantee that the Republicans will be blamed, especially because it is a Democrat, Joe Biden, who sits in the Oval Office. Then again, the Republicans aren’t exactly safe from the righteous wrath of the voters should the default occur next month.
What might happen if we default on the debt and fail to come to a consensus on how to raise the debt ceiling in a timely manner?
Expect What No One is Expecting
First, most economists believe that even if the debt ceiling is not raised after one week of having failed to do so, the U.S. economy would contract at such a clip that the country would lose 1.5 million jobs. If it lasted months, a U.S. debt default would lead to a significantly shrinking economy, in an already turgid economic environment.
Nearly 8 million jobs would be lost, with most of those losses being felt in the most disadvantaged communities. We’re talking from around 3.5 percent unemployment to almost 10 percent.
Again, forget about the possible political advantages that may arise for whichever party can effectively cast blame on the other side for the collapse. Think about the human costs that this will have across the board – and the globe.
It’s sick that we’re even here. The entire U.S. political elite—both parties—should be put up on charges if it comes to that. And it looks like it very well might come to that in just less than two weeks. Enjoy America, it’s been nice knowing you. Because once the default happens and everything collapses, we will not only be in a poorer and weaker country but the entire world order will have been reorganized.
Do you like interest rates where they are?
Well, they’ll go higher and stay high for a while until the debt ceiling vote is resolved. Inflation, already at astronomical levels, will go higher. That means those of us just barely hanging on are going to be sent off that fiscal cliff first. Nearly $10 trillion of household wealth will be lost as the stock market crashes, too.
Oh, and all that talk about the de-dollarization of the global economy gets put into hyperdrive. Even the naysayers recognize that the threat becomes suddenly real if the U.S. defaults on its debt. Why would anyone or any other country want to be dependent on a national currency—such as the U.S. dollar—that is beholden to such an ineffective and, frankly, insane government? It’s more of a threat than anything else to those foreign holders of the U.S. debt.
Where does this lead?
America’s Chickens Come Home to Roost
The diminishment of American power globally. Forever. All those hawks standing firm against Russia should be very concerned because our ability to sanction and apply economic pressure on America’s foes will be greatly reduced, if not erased entirely.
Other currencies will suddenly become competitive—including the Chinese yuan, especially as the Kingdom of Saudi Arabia starts trading more in the petroyuan rather than the petrodollar.
Many nations with unstable domestic currencies globally trade exclusively on the U.S. dollar. These dollars will not be available after a default, causing these “basket case” nations to go crazy and become key conduits for global instability as their societies will undoubtedly collapse.
I’d hate to evoke Reverend Jeremiah Wright, but if we choose to default on the national debt, America’s chickens really will come home to roost. And you and I—not Joe Biden or Kevin McCarthy—will end up paying for it forever.
What’s more, potential presidents, such as Donald J. Trump, are cheering for the default to take place this summer rather than when he’s president – and possibly so that he will become president.
How’s that for perverse?
The Republicans and Democrats need to stop the madness and make a deal now. This isn’t the last debt ceiling vote of our lives. There’ll be another one at least a year after this one. So, the GOP has plenty of time to hold the line at the more opportune moment—which is not in the run-up to an already contentious presidential election.
A 19FortyFive Senior Editor, Brandon J. Weichert is a former Congressional staffer and geopolitical analyst who is a contributor at The Washington Times, as well as at American Greatness and the Asia Times. He is the author of Winning Space: How America Remains a Superpower (Republic Book Publishers), Biohacked: China’s Race to Control Life (May 16), and The Shadow War: Iran’s Quest for Supremacy (July 23). Weichert can be followed via Twitter @WeTheBrandon.