Listening to the BBC you could get the impression that the tea party minority in the Congress has the power and the wish to wreck the world’s financial system. We heard stories about how their refusal to vote for a Republican compromise threatened world bond markets, banks and the world economy. A day later a Republican proposal did pass the Congress. The Democrats then imposed a veto on that in the Senate, but did not get the same blame for threatening the financial system.
Let me begin by saying I am no card carrying tea party Republican. They propose different remedies for a different country. I myself do not think a western democracy is able to cut public spending by 10% in cash terms in a single year, given the politics and the way western governments are run. Companies and individuals sometimes have to do that and do do that, but different rules seem to apply to governments. When it comes to cutting spending by around 10% of GDP, that’s a very tall order indeed. That’s what it would take to cut out the whole deficit in one go.
Nor, however, is it right to say it is just the tea party members who are holding an otherwise sane world to ransom. They are making at least two fair points. They are saying that the problem of too much borrowing can best be solved by spending less. They are arguing that if the US goes on boosting spending and borrowing with never a thought for tomorrow or how you might pay it back, it will all end in tears as it has in Greece and Portugal.
The BBC should apply its critical faculties to the Democrat position as well. Why doesn’t the President lift the spectre of world banking and market melt down by saying that whatever happens on the debt ceiling, the US will of course honour its debts and pay the interest on its bonds? He could do that now, immediately. The US collects huge sums in taxes, that cover the bulk of the state ‘s spending. Surely he could indicate that the tax revenue will be used to ensure no default? He says default is a bad idea, so why doesn’t he rule it out? He could also reassure key state employees that their wages will be paid from the tax revenues. There are plenty of other items of spending that could be deferred or cancelled.
He still needs to argue with Democrat and Republican Senators and Congressmen about the pace of introduction of sensible spending controls, and any tax revenue rises they think they need. This need not be done under the pressure of a threatened default. The truth is the tea party minority do not have the votes to veto a higher debt ceiling and higher spending. The Democrats need to set out various budget proposals, and settle for the highest spending version which moderate Republicans will accept.
The USA, like most other western governments, is spending and borrowing too much. The sooner it takes action to rein it in, the better. Fiscal stimulus is no longer working to boost the western economies. It is increasingly dragging them down by the weight of the debts, and the growing fears that some countries will be unable or unwilling to repay them. The US is just adding to the tensions by this foolish posturing.