Speaker of the House Kevin McCarthy made a ransom demand. The hostage is America's economy and credibility. Mr McCarthy has threatened that House Republicans will refuse to raise the federal government's debt ceiling, potentially triggering a global financial crisis, unless President Biden agrees to massive cuts to education, health care, food aid for poor children and other services.
Mr. McCarthy repeatedly called threat of Chinese competition as justification. The speaker is right that this debate has significant national security implications – not so he says.
With Russia's brutal invasion of Ukraine entering its second year, tensions with China steadily increasing and global threats looming, from a future pandemic to climate change, the world is looking to the United States for strong and stable leadership. Congressional faux pas in debt ceilings sends the opposite message to our allies and foes alike: that America is divided, distracted, and unreliable.
Let's start by dispelling the myths. The debt ceiling debate is not about authorizing new spending. It's about Congress paying the debt it incurred. Refusing to pay would be like passing up your mortgage, except with global consequences. Because of the central role of the United States — and the dollar — in the international economy, defaulting on our debts could trigger a world financial crisis.
Republicans in Congress have consistently voted to raise the debt ceiling with little drama when fellow Republicans have been in the White House — including three times under President Donald Trump. But during Democratic administrations, they weaponized the debt ceiling to squeeze concessions, despite the danger of default.
I was secretary of state during the 2011 debt ceiling crisis, so I saw firsthand how this partisan attitude undermined the credibility of our nation around the world.
I distinctly remember walking into the Hong Kong ballroom that July for a conference hosted by the local American Chamber of Commerce. Republican members of Congress refuse to raise the debt ceiling, and the prospect of default is getting closer by the day. I was mobbed by nervous businessmen from all over Asia. They bombarded me with questions about the fight at home over the debt ceiling and what that means for the international economy. The regional and global stability that America has ensured for decades is the foundation on which they have built their companies and wealth. But can they still trust the United States? Are we really going to trigger other world financial crisis? And the question no one wants to say out loud: If America faltered, would China step in to fill the void?
I tried to reassure those businessmen the same way I talked to anxious foreign diplomats all that summer, confidently promising that Congress would eventually reach a deal. I repeat the quip sometimes apocryphally attributed to Winston Churchill: You can always count on Americans to do the right thing, after they've tried everything else. Personally, I'm crossing my fingers and hoping it's true.
Later that day, I went to a villa in mainland China to meet my colleague, State Councilor Dai Bingguo. Over the years, I have heard Mr. Dai's monologues about America's many wrongs, his critiques sometimes very cynical but usually delivered with a smile. So I wasn't surprised when he, too, turned the conversation toward the debt ceiling, barely holding back his delight at our self-inflicted wounds. I'm not in the mood for college. “We can spend the next six hours discussing China's domestic challenges,” I told Mr. Dai.
Fortunately, Congress and President Barack Obama finally reached an agreement to raise the debt ceiling before it slid into a fiscal precipice. But The S&P is still down 17 percent, consumer and business confidence plummeted, and the government's credit rating was downgraded for the first time. After another crisis in 2013, the lesson is clear: Negotiating with hostage takers will only embolden them to do it again.
Fast forward a dozen years, and Republicans are playing the same game. Except now, the risk is even higher.
Currently, the competition between democracies and autocracies is getting tougher. And undermining America's credibility and dollar advantage, the fight over the debt ceiling is playing squarely into the hands of China's Xi Jinping and Russia's Vladimir Putin.
American leadership around the world depends on the strength of our economy at home. Defaulting on our debts could cost seven million jobs in the United States and plunge our economy into a deep recession. Instead of a “democracy arsenal” capable of defeating our rivals, dominating future industries like microchips and clean energy and modernizing our military, America will teeter.
Even setting aside this economic carnage, this faux pas over the debt ceiling reinforces the autocrats' narrative that American democracy is in total and unreliable decline.
Trust matters in international affairs. We often ask other countries to put their trust in the United States. Our military will be there to protect allies, our financial systems are secure, and when we warn about compromised Chinese telecommunications equipment or an impending Russian invasion, we speak the truth. Threatening to break America's promise to pay our debts calls all that into question.
When I became secretary of state, a large part of my work was rebuilding trust in the United States after the George W. Bush administration. It's not easy. Senior Chinese officials rarely miss an opportunity to suggest that the United States is to blame for the 2008 global financial crisis, and they love to highlight our problems in Iraq and Afghanistan. The more dysfunctional or untrustworthy America looks, the easier it will be for Chinese propagandists to demonize democracy and brag about their own authoritarian system.
America's credibility today will help determine whether nervous Europeans continue to stand with us and support Ukraine or seek accommodation with emboldened Russia. It could determine whether more Asian countries welcome American military bases and troops to deter Chinese aggression, as did the Philippines recentlyor submit to Beijing's intimidation.
There is more. Playing around with the debt ceiling jeopardizes the dollar's pre-eminent position in the global economy and the strength that the United States exerts.
All over the world, people, companies, and governments conduct international transactions in dollars, invest in US Treasury bonds, and rely on US banks because they believe that America pays its debts, upholds the rule of law, and guarantees stability. The centrality of the dollar gives the United States far-reaching influence. It allows us to impose crippling sanctions, like the ones I negotiated against Iran during the Obama administration and those the Biden administration used to respond to Russia's invasion of Ukraine. This is why Fareed Zakaria recently declared in the Washington Post's opinion that “the dollar is America's superpower.”
It is not surprising that Mr. Xi and Mr. Putin are eager to disrupt the domination of the dollar and lift American sanctions. At their recent summit in Moscow, Putin suggested Russia might start selling oil around the world using Chinese yuan rather than dollars, which it actually is. already done for delivery to China. The two countries are also trying to build a cross-border financial system to allow them to bypass US banks and hold fewer reserves in dollars.
If Congress continues to play games with defaults, calls to strip the dollar as the world's reserve currency will grow louder – and not just in Beijing and Moscow. Countries around the world will start hedging their bets.
It is a sad irony that Mr. McCarthy and many of the same Republican congressmen who seem intent on sabotaging America's global leadership by refusing to pay our debts also position themselves as tougher Chinese hawks than you. They talked about a good game against Beijing, but they handed the Chinese Communist Party a big win.
Republicans need to stop holding America's credit hostage, assume their responsibilities as leaders and raise the debt ceiling.
Hillary Clinton was the US secretary of state from 2009 to 2013.
Photo credit by Rawf8 and Patcharapong Sriwichai, via Getty Images
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