【Text/Rebecca Spann Translation/Observer Network by Guan Qun】
For now, at least, the U.S. Senate has averted a federal debt-ceiling crisis. Some Republicans in the Senate have reluctantly agreed to help Democrats extend the debt ceiling until December. The confrontation over this issue has been repeated in the United States Congress, and it is almost certain that it will be repeated in just a few weeks, and as many other commentators have pointed out, it is absurd. If you're in the golden age of your life, have a good job that's stable, and you need money to make your beautiful old house safe and comfortable, would you take out a loan? Especially at this time, you still find that the lender is eager to lend you money at about 0% interest?
The United States is not such a homeowner, but it is perfectly capable of borrowing money. If the debt ceiling set by Congress cannot be raised, it means that the United States will not deliver on the repayment promises it has already made. This completely unnecessary bankruptcy crisis will always loom, not because the country is unable to pay its bills, but because there are too many powerful people in this country who will not let it pay. In the past, similar mistakes have caused catastrophes.
Yellen claimed that the issue of extending the debt ceiling could trigger a political crisis in the United States
As a historian of the French Revolution, I can't help but think of France in the late 1780s, when France was in crisis precisely because the country was about to go bankrupt. In terms of the "economic base", pre-revolutionary France was in good shape: it had the largest population in Europe, and it also had a thriving agriculture and manufacturing industry, and its effective tax rate was much lower than that of Britain. However, the French have been in conflict for decades over the size and role of the central government, which means that debates about budget deficits and national debt have become the subject of public debate in France. For years, the French royal family has been active in taxing the super-rich; in response, many aristocrats, unlike ordinary people, who have not traditionally paid poll taxes, have denounced such acts as tyranny. A small privileged elite, which claimed to represent all the French, had blocked all plans to tax them, and they had resorted to public opinion to achieve their own ends. Who else but them will defend the rights of all French nationals and prevent the ever-expanding "big government" from violating the rights and insatiable greed of the people?
We can say that the many Norman nobles and Parisian administrators were the magnates of the time: they were determined to maintain their position by inciting populism at the grassroots level.
They succeeded in blaming the French royal family for its extravagance (even today, don't we think that French money is spent buying clothes and cakes for Marie Antoinette?). This makes the problem of national finances a moral, not a political one. Like many critics in the United States today, those who criticize the centralized monarchy are expressing their political views in words that appear to be fiscal or budgetary. These self-serving aristocrats had no intention of starting a revolution. But by obstructing the necessary tax reforms, they provoked a political showdown that eventually turned the summer of 1789 into an unprecedented social, cultural, and economic crisis. Of course, there are countless differences between 18th-century France and 21st-century America. The United States has established a series of mechanisms, including the establishment of a federal reserve system and the setting of regulations that must be passed by the Basic Budget Act to stabilize the functioning of the economy and protect the normal functioning of the government. But they can only function if officials consciously activate these mechanisms.
Recently, the opposite seems to have happened, especially as Republicans are turning the previously routine administrative moves into opportunities to pursue partisan support. (Republicans have struggled to avoid confirming the outcome of the presidential election as another similar example.) These developments threaten not only democracy, but also procedural guardrails designed to protect democracy. Almost everyone, including the millions who don't care about the debt ceiling and see it as "nothing more than a political issue," agree that the United States will eventually avoid catastrophe. This assumption actually increases the risk. Crises can only be controlled before they occur, and all Americans should be wary of political activists who shirk their responsibilities and believe that it is someone else's job to avoid the worst.
In fact, the federal government's finances are far better than fictitious homeowners who can borrow money at no cost. The United States is not a living person with a limited lifespan, it does not need to save money for retirement; it is a country whose constitution vows to establish a just order and promote the welfare of ordinary people. As long as the country's people are politically united and pay on time, large institutional investors will be more than happy to lend it money.
The debt ceiling was traditional, beginning when the United States first attempted to sell bonds to the public, the Free Treasury Campaign of 1917-1918. Because the cost of the War I far exceeded all previous conflicts, and the progressive new tax proposal was difficult to pass in Congress, the United States turned to the sale of bonds (Britain, France, and Germany had already successfully sold their own bonds). A cap is set on the total value of bonds sold in order to create scarcity that inspires enthusiasm for buying. Free public debt is the most important part of bond advertising in magazines, selling bonds through women's clubs and boy scouts, selling bonds in movie theaters and department stores, and selling war to ordinary Americans. (Recall that then-Socialist Leader Eugene Debs was jailed for making anti-public debt speeches.) Free bonds helped the government pay off the war bills, but more importantly, they measured the people's attitude toward the war and made the people widely support the war. The larger size of government debt reflects the growing prosperity of the country (who would have thought that so many bonds could be sold out so quickly), which in turn means that the people have greater patriotic fervor.
The U.S. government used a variety of means to market free public debt in 1917-1918
Over the past century, Congress has repeatedly raised the country's debt ceiling. Lawmakers have suspended consideration of the issue for two consecutive years, from 2019 to now; the other day, Republicans agreed to temporarily extend the debt ceiling. In a month and a half, the economic losses that will cause more public uproar will be severe; in the event of a debt default, the payment of Social Security benefits, federal employee wages, Medicare company bills, and much more will be immediately cut off. Because, as the legal scholar and Harvard professor Chris Desan likes to say, money is one of the key mechanisms for ensuring the formation of a polity, and the repeated political posturing of the debt ceiling reflects a real constitutional crisis — as severe as the repression of voters or the reorganization of the three powers of government almost entirely in partisan lines. Article 1, Paragraph 8 of the Constitution gives Congress the power to "borrow money in the name of the United States," but Republicans in Congress have consistently refused the government to use this superpower.
Today, there are no economic or financial obstacles to further U.S. borrowing, just political and legal obstacles, which may be a relief, but it also shows that the United States is increasingly capable of inflicting economic harm on itself. Capricious foreign policies, the country's inability to respond to the COVID-19 pandemic, and countless ongoing civil rights crises have severely tarnished America's reputation. If there were arrears in payments in early December, even if remedial measures were introduced later, it would further damage the credibility of the United States. Restoring America's credibility will become very difficult. Unfortunately, the appeal to make political gestures and draw lines with me is once again as great as it was in 1789 – or perhaps even greater due to the massive expansion of the media ecosystem and attention economy.
Karl Marx believed that revolution must borrow the verses of the future, because revolution will bring about a world that never existed. Strangely enough, the value of money also comes from the future — from what you can do after borrowing money for tomorrow, next month, and next year. This explains why money is a store of value and why chronic hyperinflation can be so terrible. Whatever the physical form of money (coins, paper, metal blocks, computer code, or shells), it is only valuable if it is accepted by others. Now, almost everyone is willing to accept dollars, and U.S. Treasury bills (like the previous Free psyches) are still considered the safest investment in the world. If the U.S. does default, that's likely to change permanently.
Money and the monetary system are always changing, even if the rationale for making changes is to create stability once and for all. The adoption of the gold standard in the United States in 1900 did not prevent the crisis of 1907, nor did the creation of the Federal Reserve prevent banks from collapsing during the Great Depression, and the postwar agreement on the international monetary system known as the Bretton Woods system (the dollar was priced in gold, and other currencies were pegged to the dollar) could not withstand the pressure of globalization and the unprecedented growth of the global economy after 1945.
Like the political system, the monetary system is constantly evolving; the value of money, like democracy, is under constant construction. But democracy has at least one conceited cost (the people elect leaders so that they can benefit the people in their name), and that is that it allows for a possible change in the situation. While agreeing to extend the debt ceiling, Senate Minority Leader Mitch McConnell is poised to spark another constitutional crisis and do more damage to the country's actual functioning. But there is a better way to avoid this: lifting the debt ceiling once and for all.
(Observer Network translated by Guan Qun from the Atlantic Monthly)
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