By A.B. Stoddard - 07/27/11 10:00 PM EDT
In his address to the nation Monday night about the dangers of a default, President Obama warned that “the entire world is watching.” The leader of the free world then described just how the troubled U.S. economy would fall off a cliff in the event of default, how Republicans are holding the economy captive and how Americans are offended by their leaders. The world watched the president’s campaign speech be rebutted by House Speaker John Boehner (R-Ohio). It will watch next week to see if the United States government succumbs to total political paralysis and invites a historic and calamitous default.
Countries struggling with austerity, as well as those working to stay on solid footing, are watching America dither. The U.S. government is gambling with our AAA credit rating, which is under threat of downgrade should we default or pass a short-term patch that fails to address our long-term structural debt. The Treasury Department has warned that a minimum of 70 million payments won’t go out in August to veterans, Social Security recipients and more Americans who would immediately cut back on or simply stop buying food, gas and more. Spending cuts indeed. Higher interest rates, from a credit downgrade, would make borrowing more costly. And as it dried up, even more spending would as well. The downturn would come at a terrible time, as unemployment benefits extended last December expire at year’s end, along with the payroll tax cut. All of it will only drive up unemployment — and ultimately government debt.
Just days away from the deadline for default, the two parties have come up with new plans — Senate Majority Leader Harry Reid’s (D-Nev.) plan, which doesn’t have the votes to pass, and Boehner’s plan, which doesn’t have the votes to pass. But no one watching the speeches Monday would know. The president spoke of the need for the wealthy to pay their fair share in taxes, though the Democratic proposal Obama supports to avert default — Reid’s plan — doesn’t raise any taxes. Boehner touted the “Cut, Cap and Balance” proposal five Democrats voted for as bipartisan, and never mentioned it already had died in the Senate. The speeches didn’t reflect what actually was happening in the debt crisis, but they managed to waste another evening.
Aware he must sign whatever bill Congress passes to avert default, Obama then reverted to yet more posturing Tuesday. Though the president now is out of options, the White House pretended he still had some, and released a statement declaring that the president’s advisers would recommend a veto, should Boehner’s plan pass both chambers of Congress. The threat couldn’t come from the president, because he wouldn’t carry it out, but it made people giggle. On Wednesday, reports the Treasury had more cash than initially estimated made hardliners believe they had more time before the default deadline, and made Americans trust the government even less than they did last week.
An unthinkable default is unlikely; Congress still is likely to approve a cliffhanger deal to avoid it. But for most Americans, just coming this close, and learning just what jeopardy their national leadership has placed them in, also was once unthinkable.
Stoddard is an associate editor of The Hill.