America’s brinkmanship

The U.S. government barely avoided a potentially dreadful default on its debt thanks to the House of Representatives’ passage Wednesday night of an earlier Senate bill on next year’s budget and the national debt - just an hour and half before the deadline the U.S. Treasury had been warning of. Otherwise, the bitter fight on Capitol Hill that shut down the U.S. government could have caused an even bigger disaster in the world economy than the global financial crisis in 2008.

But the problem didn’t end yesterday. The congressional vote is nothing but a temporary postponement until early next year of another vote on the snowballing national debt and whether to raise the debt ceiling. The federal government will be paralyzed again unless Congress hammers out a bipartisan budget agreement by Jan. 15. The time bomb will start to tick again if Congress fails to raise the debt ceiling - currently fixed at $16.7 trillion - upward by Feb. 7.

This deplorable situation primarily stems from an intense political battle between the Democratic Party and the Republican Party. Both sides appear to regard each other as enemies rather than political partners, based on the stubborn conviction that compromise translates into defeat. The Republican leadership in particular fell short of demonstrating mature statesmanship after being led by the nose by the so-called Tea Party loyalists, a minority hardliner group in the Republican Party that is against both big budget deficits and passionately against President Barack Obama’s health care reforms.

But the political fight in Washington does not end in the United States. Such is the power of the largest economy in the world and the country that controls the currency that other countries trade in and use for their reserves. The standoff on Capitol Hill was fully capable of pushing a recovering world economy into a ditch. In August 2011, the protracted lifting of the debt ceiling due to similar political bickering contributed to the lowering of the sovereign credit rating of the United States.

America’s financial industry expects the country’s growth rate in the fourth quarter to drop 0.6 percent to 1 percent lower than expected. If the default had really occurred, it could have had far starker repercussions than Lehman Brothers’ bankruptcy, particularly given China’s rise as the largest holder of U.S. Treasuries worth $1.28 trillion. Washington can hardly ignore Beijing’s criticism that America is abusing its superpower privilege to nudge the world economy into chaos and confusion.

Rome did not fall due to external factors. It fell because of its fiscal policy and severe political divisions. The invasion of German tribes was merely the final blow. Ceaseless battles in Washington not only hurt America’s leadership, but also endanger the world economy. It is time for U.S. politicians to do some serious soul-searching.