The debate is raging throughout the world as to what will happen if the US defaults on its debt. China is the largest holder of US debt; its leaders are worried about dollar denominated assets, and they have started considering building a de-Americanized world. Europeans are also worried but for a different reason; because in case the US delays in ending its fiscal deadlock, it would adversely impact their ability to come out of economic stagnation. And it could spell doom on their economies. Since the US discovered the borrowing till 1917, each new bond issue had to be voted on; and debt ceiling was introduced as a way to make financing the First World War easier. It has been raised frequently since then, under presidents from both the parties. This time round, US government partial shutdown may be unusual phenomenon, but bickering over raising the debt limit is a routine affair, whereby Republicans and Democrats when in opposition have been opposing the increase in the US government’s borrowing limit.

In 20th Century, the US had raised debt ceiling at least 90 times. From 2001 to 2013 the debt ceiling was raised 14 times – 7 times during Bush era comprising two stints, and 7 times during President Obama’s tenure. In 2007, the credit limit was $8.965 trillion and with the increase over four years, it was $14.39 trillion in 2011, which was increased to $16.7 trillion in 2012. On 19th May 2013, the Congress had approved a short term increase in debt ceiling. As usual, negotiations over the debt ceiling would be held till the last moment, and Republicans and Democrats would make a deal at the last minute to overcome the crisis. Democrats had forced Ronald Reagan to reduce military spending; Republicans secured cuts in Obama healthcare. One can infer that Republicans and Democrats would not let America default on its debt, because in that eventuality America would be on the road to perdition, and not only both the parties but also all Americans stand to lose. But how America has been brought to the present pass?

For quite some time, Americans have been earning less and spending more, producing less and consuming more, with the result that both America and Americans have become technically bankrupt. In view of recession coupled with fiscal crisis, the entire balance of global economic power could shift, since economic strength is basic to remain predominant military power.

America has indeed a great past; its traditions of freedom, democracy, human rights and human values date back to American founding fathers when they fought war of independence. It is, however, unfortunate that most successors negated the principles upheld by them. In the past, the US had resorted to unilateral use of force ostensibly to promote democracy in Haiti, Nicaragua and in Latin America. It had intervened forcibly to change regimes, restore order and preach democracy. However, on becoming President in 1933, Franklin D Roosevelt abandoned the policy pursued by his predecessor President Woodrow Wilson. He treated his neighbours with respect, acknowledged past American blunders, and saw that constitutions alone did not guarantee a democratic outcome. It is true that President has to look after the global interests of the super power but it was expected that he would not be as ruthless as his predecessor was. It has yet to be seen whether President Obama can steer the crisis by changing the course or he will also go down in the history as a war president. 

The question arises as to how long foreign banks would continue investing in dollars? And they might weigh the advantages of keeping wheels of their industry running with the risk that the US economy might one day falter because Americans as well as their government are enjoying on the savings of other nations who toil day and night. The panic is that if the US economy goes into the tailspin the major sufferers will be its creditors and those who have invested in US bonds and treasury certificates.

The writer is a political analyst and freelance columnist.