As the US federal government shutdown drags on, an even more crucial point is approaching. The US government will hit its debt ceiling in ten days. If that happens, the results will be cataclysmic. But the Republicans who control congress hardly seem to care. Having gone nuclear already over Obamacare by shutting down the government, they can’t back down over the debt ceiling.
If the ceiling isn’t raised (or abolished) the Treasury won’t be able to issue additional debt to cover the government’s outgoings and raise cash to pay maturing bondholders. The US will be in default. That will trigger a cascade throughout the global financial system, which US Treasury bonds have underpinned for generations. The warnings are that the result would be worse than the Global Financial Crisis.
To avoid default, the US government may have to start issuing scrip, IOUs, to hospitals and other contractors in place of money so that it can use its revenue inflow to keep on paying staff and avoid issuing more bonds. The last time a major economy relied on scrip was post-World War 1 Germany. It’s not exactly a good thing to have the world’s largest government issuing IOUs rather than paying its bills.
And it’s all in the hands of Republicans. Especially the millennialist Tea Partiers. It would be a mistake to think that these people will allow for rational compromise or shy from crisis in the interests of the country. These people believe the end times are upon us and they welcome it.
What’s happening in the US reminds me a lot of what you read about the end of the Roman Republic and its replacement with the Roman Empire. The factions became increasingly willing to use whatever tools they had available to hurt their political opponents. Divisions of power that had been created to preserve the Republic by stopping any one person controlling everything were, instead, used to paralyze the government in the face of disaster to try to force the other side to back down.
The Roman Republic symbolically died when Caesar crossed the Rubicon into Italia with his army, breaking the separation of powers designed to put the stability of the Republic first, so that he could punish his political enemies. In ten days, the Republicans will reach their own Rubicon. Will they cross it?
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