The Stakes in the Debt Ceiling Debate | HughHewitt.com | 07.18.11

If you want to pinpoint when the United States became a global power, you could do worse than pick 1917.  That was when U.S. government first received a Triple-A bond rating.  The rating is now in jeopardy and could be lost by the beginning of next year – but not for reasons that the Obama administration claims.

It is hard to overstate how critical the Triple-A rating has been to our national security.  Through two world wars, the Cold War, and the current family of conflicts, it allowed us to do more for less than any of our opponents.  It offset the waste that our government seems so proficient at generating.  It enabled us to take on global responsibilities without crippling our economy.

Imagine the past 94 years without this not-so-secret American advantage.  Imagine the nation carrying the weight of extra borrowing costs into all those conflicts.  For all its spending during World War II, the Roosevelt Administration kept its eye on the money costs of the conflict more closely than most Americans recognize.  Major strategic decisions repeatedly went to the option that carried the lowest price tag.

The same was true throughout the Cold War, including during the Reagan defense buildup that brought that period to an end.  In its final stage, the long twilight struggle became a fundamentally financial contest.  The Reagan Administration pushed the Soviet opponent into bankruptcy.  Critical to this strategy was taking advantage of the very low interest rates the United States government could command to spend the Soviets over the brink.  True, the Soviets had their empire, which in sophisticated and not so sophisticated ways they plundered.  But plunder had its price, including in pushing up the cost inflicted by internal resistance. It is a fair bet that the funds the Soviets extorted from their Eastern European vassals came at a higher rate than those the U.S. borrowed on the open market.

The financial struggle has, of course, been central to dealing with post 9/11 challenges.  Among the Bush Administration’s first acts after the attacks was to start identifying and cutting off the sources of al Qaeda funding.

In other words, costs are critical to national security and no cost so much as the one that is incorporated into every purchase, the cost of money.

Now imagine the next 94 years without that advantage.  The current struggle will presumably be resolved in the next four years, whoever is president.  It must be, for there is a major danger gathering in the increasing financial strength and, as a result of it, military strength of the Peoples Republic of China.  In the short term, one of the central features of the Pax Americana – freedom of the seas – is under increasing Chinese challenge.

Much like the Triple-A rating, freedom of the seas is an unseen foundation of global prosperity, particularly American prosperity.  It has allowed a knitting together of the international economy, increasing incomes everywhere and countering incentives for conflict with the incentives of trade.

China has recently been asserting a claim on the longtime open waters of the South China Sea, among the busiest shipping sectors of the world.  The U.S. has been working with the Philippines, Vietnam, and others to frustrate those claims.  But it is clear that the Chinese military would like to push the U.S. out and assert hegemony over navigation in the region.

What I am saying is, if only for reasons of national security and global peace, we will need that Triple-A rating in the century ahead.

According to the administration, the prospect of default should the current budget talks fail is why the bond rating is in danger.  This is simply wrong.  As early as May 2009, long before the current budget talks began, in an article in the Financial Times (here: http://tinyurl.com/3vobmht ), former comptroller general of the U.S. David Walker argued that the nation was already jeopardizing its bond rating.

Walker argued that two actions by the Obama administration could lead to losing the rating.  The first was enacting a vastly expensive health care reform, which the administration and Democratic Congress went ahead and did anyway.

The second was “failure by the federal government to…  send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.”

By announcing that it was reviewing the U.S. government’s rating, Moody’s has brought the long-simmering debt-rating crisis to a boil, but the fire was set years ago.  The clear and present danger is NOT of temporary default.  It is that the talks will produce nothing in the way of substantial spending cuts, confirming the growing global perception that the United States government cannot bring its spending in line.

To maintain – or, actually, regain – the confidence of global financial markets, the administration and congress must bring out of the current debt ceiling talks tangible and substantial budget cuts, not the phony cuts of a few months past.  It would be better if those cuts were to come without a default, but come they must.

Our national security, global peace, and so much else, depend on it.

P.S.: In the comments to my Wall Street Journal article on this topic this morning, I found the following, which I thought worth passing along: “The House can pass a series of 10 debt ceiling increases at $100B each: $100B cut in green energy spending for $100B increase; $100B cut in high speed rail for $100B increase, etc.  Shift the tough call to Obama, and the blame. If he and/or the Senate do not pass any, then it is their fault and it is their program that caused the ‘default’.”