By Denny Gulino
WASHINGTON (MaceNews) – Those knowing think pieces and Op-Eds by veteran graybeards, scoffing at the super-hyped headlines about the dangers of a pending debt-limit impasse, should be reassuring. They’ve seen it all before, the six dozen or more times Congress allows the nation’s Treasury to start borrowing again, often at the last minute.
There are so many reasons for that smug smile, as if America would allow a law it passed that accomplishes nothing other than allow past debts to be paid, to jeopardize its standing in the world. Maybe “jeopardize” is too soft a word. No matter.
Does history of human events not show that self-interest always wins in the end, that suicidal impulses are always bested by rationality and an orientation to the future? Does history not show that miscalculations and human error are always overcome at the last minute, that cooler heads prevail, that chaos is self liquidating?
If Congress resolved the debt limit 78 or 80 times, of course it can be assumed it will do so for No. 81 and then in a couple of years, for No. 82 and so on. Optimism is a wonderful quality, at the heart of America’s understanding of itself.
Then there’s overconfidence and continuation bias. And stubbornly uncooperative history. There’s Centerville Heights. And a nation that came close to destroying itself.
You remember Centerville Heights? Ignore all those pictures in the history books of well-dressed adventurers from Washington watching with opera glasses from their stylish carriages the Union Army about to make brief work of a regional rebellion’s rough-hewn militiamen.
It wasn’t exactly like that. The throngs of sightseers were actually too far away to see the actual fighting that day in July 1861. The battlefield was only distant smoke. So the thousands of sightseers on holiday were very surprised when finally they found themselves blocking the way of a stampede of retreating Union soldiers. With the First Battle of Bull Run, or if you were a Virginian, the Battle of First Manassas, over with, the Civil War had begun.
The default of the United States of America would be ambiguous at first. Did it happen at midnight? Didn’t the executive order, the capitulation at the last moment, the financial accounting maneuvers, the abrupt substitutions and so much more, didn’t all that save the day?
Confusion would grow. Little cracks in the financial infrastructure, the repo markets, the dollar swap lines working in reverse, would mean nothing to begin with. The emergency Joint Session of Congress, the reassurances of the European Central Bank, even the support from the central banks of China and Japan with so much in U.S. Treasuries at stake, seemed to hold back the tide. Until the cracks began to spread.
Eventually there would come the day after default, when Republican and Democratic hatreds would suddenly mean so little, when being a net debtor nation would mean so much. It would take weeks and then months for the change to trickle into the everyday lives of Americans. Most would not completely absorb what had happened, especially when so many of their leaders would be telling them nothing important had happened.
Industrial might, technological superiority, the rule of law, and vast natural resources, a highly educated workforce and a long history of a solid currency all remain, they would say. And yet, there would be troublesome financial debris that seemed newly embedded in international transactions that could not be ignored. Benchmark interest rates would make the front pages.
The political class and the business class would be at war. Political parties and their chosen ones would no longer be given any benefit of the doubt. Things that would have been taken for granted – home ownership, startup capital, construction loans, capital investment and the social safety net – would begin to recede out of reach for some, then many.
Contact this writer: denny@macenews.com.
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