Four days to go and the debt ceiling agreement is still not there. Washington has disclosed an emergency plan in which, in the event of a lack of agreement, the priorities are established: the first to be skipped would be the payments of pensions and public salaries, to protect investors who have American public securities. Yesterday the Chief Executives of the 14 major American banks signed an appeal, inviting Congress and the President to find a solution as soon as possible. The markets are also starting to get alarmed and are monitoring the situation very carefully. But, truth be told, they still show no serious signs of strain. Indicates that they trust a last minute deal. It also seems that the cash balances would allow the Treasury to move the deadline of August 2 a few days later, perhaps up to the 10th. In any case, Congress has numbered days to avert the risk of default hanging over the country.
Article 1 of Section 8 of the Constitution in fact reserves the power to borrow money in the name of the United States to Congress. Which separately authorized each single debt issue from its foundation until 1917, when, to guarantee more flexibility in the financing of military operations during the First World War, it established an overall limit on the amount of debt securities that could be issued. Limit that by August 2 will have to rise above the threshold of 14.300 billion dollars, which is set today and which has already been exceeded. Remains in the background, in case the agreement in Congress fails, also the hypothesis of unilateral action by President Obama, on the basis of the fourteenth amendment to the American Constitution, according to which the validity of the public debt can never be questioned.
However, the controversies of the Republicans show no signs of stopping. Their filibustering plan even provides for internal squabbling regarding deficit recovery strategies. Supporters of the Tea Party have in fact declared inadequate even the proposal put forward by their party leader John Boehner, a more moderate Republican, who, aware that he did not have the numbers to pass it, decided to withdraw it. The proposal envisaged raising the debt ceiling by 900 billion immediately and 1.600 next year, as well as spending cuts of approximately 1.000 billion immediately and 1.800 next year, judged however insufficient by the conservative wing. The Democrats, for their part, had in any case already affirmed a possible rejection of the proposal in the Senate, where they are in the majority.
The dislike of the Republicans is mainly political, albeit potentially capable of causing serious damage to the country's economy. The basic objective is in fact to hit President Obama in such a way as to ensure his defeat in the 2012 elections. Their stubbornness in affirming the unsustainability of raising the debt threshold and the need for immediate cuts cannot be explained otherwise. to the question without considering that the size of the measures necessary to avoid default would entail serious risks for the recovery of the economy.
And even historically it is difficult to understand why so much hostility towards a measure, that of raising the debt ceiling, which, although no one denies it should only be a prelude to a structural tax reform, is considered by many to be inevitable. In fact, since in 1917 a maximum limit was set for the American public debt for the first time, the increase of the latter has been carried out regularly. So much so that in 94 years there are: 102 total speeches, more than 70 since the 60s, about ten in the last decade, 18 by President Reagan, 7 by George W. Bush, the last by Obama on February 12, 2010, when Congress voted to raise the cap by nearly $2 trillion to the current $14,3 trillion. On the other hand, raising the debt ceiling is necessary to allow for the repaying of expenses already approved by Congress and the President and does not concern future long-term spending programs.
However, taking a good look at the historical evolution of the debt ceiling, perhaps some concern should arise (see photo). The ceiling set in 1917 was $11,5 billion, which adjusted for inflation is now about $193 billion. Far from the 14,3 trillion which are no longer sufficient. It is clear that inflation is not enough to explain the continuous increase in recourse to debt. The dynamic then is far from being linear, looking more like an exponential curve. The ceiling of one thousand billion was in fact reached only 30 years ago, in 1982. Even more interesting is the dynamics of the public debt-GDP ratio (see photo). This allows us to compare how much the United States borrows versus produces, isolating the effect of inflation. As the graph shows, the public debt-GDP ratio is dangerously approaching the 100% mark, which had never been reached since the Second World War. If Congress finds agreement for the increase, an increase of 700 billion dollars will be sufficient for the public debt to exceed the GDP estimate for the first quarter of the year.
Therefore, although it is hoped that Congress will be able to reach agreement on the increase in the debt ceiling by 2 August, the doubts raised by the Republicans about its long-term trend should not be underestimated. It is true that their action is purely political strategy, taking shape as the first move for the campaign in the 2012 presidential elections. And it is true that the Republicans themselves should do some self-criticism, considering that one of the main culprits of this situation it's George W. Bush, during whose tenure the debt grew by 80%. Yet America is borrowing as if it were in a world war. Yet it is not. From which emerges the absolute need to cure the dependence on recourse to debt, working as soon as possible on a serious program for the reduction of future public spending.
