DURHAM -- Asked about legislation pending on the Senate floor, a wise and wily Southern politician once said, "Either we win the vote, or we win the vote."
The senator's point was that the fate of the pending bill mattered, but not as much as the fate of the next election. A legislative loss now would mean a win in terms of campaign funds and voter turnout down the road.
Congressional leaders seem to have this same strategy in mind today as they clash over raising the nation's debt limit. Nearly everyone agrees on the need to cut deficits, but politicians are stuck in the same tax-hikes-versus-spending-cuts debate that plays so well to their bases. With a presidential election just around the corner, the political stakes are high. Unfortunately, the economic stakes are much higher.
For the first time, the United States stands to lose its status as the world's safe haven for savings. Since it has never happened before, no one can accurately predict the consequences of a U.S. default. But some things, such as a spike in interest rates, a decline in the stock market and a decline in the value of the dollar, are almost certain.
It also goes without saying that veterans, retirees and federal contractors will not be able to count on receiving checks in the mail if Treasury runs out of cash.
President Barack Obama suggested the scenario would amount to economic "Armageddon." Not everyone agrees. North Carolina Republican Sen. Richard Burr, for example, says he doubts up-to-the-wire dealings in Congress will impact the economy.
"Worst case scenario, we have got some federal workers who are furloughed - some individuals who get some time off that they weren't expecting," Burr told WWNC's Jerri Jameson on Tuesday. "I also don't think we are going to see Armageddon as it relates to the financial markets."
Why the optimism? It may be that Burr's top concern is the ballooning $14.3 trillion national debt - a figure expected to top $17.8 trillion by the end of the decade. The senator says tough actions, like entitlement program reforms, discretionary spending cuts and tax reform, are essential. And he's right. The problem is no one running for re-election seems willing to take them. Instead they are relying on gimmicks like constitutional amendments, no-tax pledges and promises to leave Social Security and Medicare untouched.
It appears many politicians are willing to push the issue of U.S. borrowing authority the limit of or even past Aug. 2. Unfortunately, that strategy puts our economic stability and interest rates in jeopardy. As the 2008 fallout from the Lehman Brothers collapse shows, markets can be brutal and unforgiving.
The dollar is already losing credibility. Though the greenback has long held the privilege of being the world's anchor currency - the note most widely held in foreign exchange reserves - it is in real danger of losing that status as national bankers now search for other options.
As for the Washington gridlock, there is plenty of blame to go around. House Speaker John Boehner has faced revolts from the tea party faction of his party and has been unwilling to work effectively with Democrats. (Only five House Democrats supported the first GOP "Cut, Cap and Balance" bill.) Democratic Senate Majority Leader Harry Reid has been pushing a partisan measure that addresses neither the need to curb entitlements nor that to raise revenue.
For his part, Obama failed to take the lead on this issue earlier this year. He introduced a budget that would add $1.2 trillion to the national debt in FY 2012. And rather than setting the stage for bipartisan talks on much-needed tax reform, Obama framed the tax issue in terms of a class warfare argument - something that only appeals to his own base.
What is most needed now is an honest approach to budgeting and a promise to pay our debts. Congress must decouple the debt problem with that of annual deficits, and it must do so today. We have seen enough lawmaker pledges on tax and spending. Now they must pledge to restore U.S. credibility.
