By Mark Mellman - 07/26/11 11:40 PM EDT
Descriptions of the ravages resulting from default have naturally focused on the economy, with far fewer examinations of the international political repercussions, which, while perhaps less dramatic and immediately visible than the economic fallout, would still be devastating.
Indeed, if Republicans push the country into default, they will have done more damage to the leadership position of the U.S. than any group of elected officials at least since the Civil War.
America’s power does not rest exclusively on our military, but it is a critical component of our clout. Napoleon once observed that an army marches on its stomach. In today’s world, something more than food is required — money.
International investors’ almost unlimited willingness to finance U.S. government debt has paid for our ability to project military might abroad. Ironically, while the Chinese and the Russians vote against policies like the Iraq war in the U.N., they nonetheless underwrite those policies by buying our debt.
Default would leave foreigners far less willing to purchase U.S. debt, making it a great deal more difficult to finance America’s military might.
Our central role in the world economy derives in part from the fact that the dollar is the world’s reserve currency. Demands to demote the dollar would escalate sharply in the wake of default. China and Russia are already urging an end to the dollar’s domination. Others would certainly follow suit after a default. It’s a call that would resonate. A 2010 McKinsey Global Institute survey found less than 20 percent of business executives worldwide expect the dollar to be the global reserve currency by 2025.
As The Wall Street Journal opined two years ago — long before the current crisis erupted — “The dollar’s status as a reserve currency gives the U.S. enormous advantages, and it should be protected ferociously by our public officials. It means we don’t have to repay our debts in foreign currency and that our borrowing costs are cheaper. To the extent that the rest of the world follows a dollar standard, it also gives us far greater global sway.”
That global sway also rests on the power of the American example. For nearly two centuries, the world has reacted to America the way Rob Reiner’s mother responded to an orgasmic Meg Ryan dining at Katz’s delicatessen in “When Harry Met Sally,” exclaiming, “I’ll have what she’s having.” Our strength is derived from our appeal. (OK, the orgasm was fake, but America’s appeal has been quite real.)
It’s hard to imagine anyone, anywhere, watching the spectacle unfolding in Washington and demanding, “Give me the system they’ve got!” The attraction of the American model, of separated institutions sharing power, will be irretrievably eroded by default. No one will want to imitate a system so poisoned by contentiousness and conflict that it cannot agree to pay what it owes.
A decade ago, Jonathan Sacks, a British philosopher and the nation’s chief rabbi, wrote that “the strength of a democracy can be measured by the extent to which we are able to deliberate reasonably together.” By that judicious standard, American democracy looks weak today. Default will render it orders of magnitude weaker.
Great nations pay their bills. And if America stops paying its bills, we will no longer be seen as a great nation.
At stake in this debate is not only our recovery but our reputation; not only Americans’ pocketbooks but America’s power. Sacrificing these inheritances on the altar of politics or extremist ideology would prove us no longer worthy of the greatness our forebears earned through their sweat and sacrifice and smarts.
Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the Majority Leader of the Senate and the Democratic Whip in the House.