The short-term American budget crisis has been averted, but the long-term picture looks very grim.
This week, President Barack Obama and the U.S. Congress managed to cobble together an unbalanced plan that will let it borrow money to finance its needs for the next year.
Failure to agree on a deal to raise the U.S. debt ceiling would have decimated America’s stellar credit rating.
Loss of confidence in the U.S. greenback would have had dire consequences for almost every nation on Earth.
Interest rates would have risen; investment would have contracted in lockstep; economic growth would have halted; jobs would have been lost and the emerging generation of adults would have faced grim long-term work prospects.
None of these dire consequences have been comfortably averted by the congressional deal struck in Washington last Sunday.
The downturn in global stock markets this week shows how nervous investors are about American prospects going forward.
What happens in the United States matters to almost everybody around the world.
It is by far the world’s largest economy, representing $15 trillion a year, one-quarter of total global economic output.
America matters especially to Canada, because our economies are so closely integrated.
That’s doubly so for Albertans, because the overwhelming majority of the products and services we export go to the United States.
So what matters to us is not just the fact that Congress has raised the U.S. debt ceiling by $2.5 trillion, but how that deal was achieved.
Even a cursory look reveals some ugly facts. That deal was achieved with the promise of $2.5 trillion in government spending cuts over the next decade.
Given the inability of legislators in America to deliver on budgetary promises, that’s a highly suspect pledge.
Equally troubling is the refusal of American legislators to commit to raising revenue through new taxes.
The wealthiest Americans will feel no extra pinch, no new burden to help sustain the economy that has made them rich beyond imagination.
In his televised address to Americans as the debt-ceiling crisis unfolded last month, Obama cited affluent hedge fund managers as an example of citizens who are not sharing their load.
Why should these millionaires pay a lower share of their income in federal taxes than their secretaries, the president asked.
Why indeed?
Last year, the 25 most successful American hedge fund managers earned, on average, $800 million.
They pay 15 per cent off the top in income tax, a lower percentage than average working stiffs.
By one estimate, making them pay even an average U.S. income tax rate would generate $20 billion for the U.S. treasury over the coming decade.
The American economy is going to need all that money, and more, going forward.
Trouble is, America’s Republican Party has been hijacked by an anti-tax faction that sees government spending cuts as the sole path to prosperity.
The conservative Tea Party takes its name from New England revolutionaries who dumped shiploads of tea into Boston’s harbour in 1773 to protest British taxation without representation.
Today’s Tea Party fanatics — generously funded by secretive millionaire and billionaire campaign donors — insist that America’s only path back to prosperity is by cutting $1.5 trillion in U.S. government spending every year. That’s equivalent to shutting down the entire annual output of the Canadian economy.
It’s unsustainable but fractured American politics make it a real threat.
For federal American politicians these days — incumbent and prospective — the trick is not so much to win a legislative seat as to win the party nomination.
Many U.S. electoral districts have been so gerrymandered over the years that few change party affiliation from election to election.
Most Democratic seats are staunchly Democratic from year to year and the same is true for Republican districts.
The greatest threat to incumbent Congressmen and Senators is not losing the next election, but losing the nomination to represent their party.
On the right, Republican stalwarts must now cater to the hard-line conservative ideology of Tea Party activists or risk losing the right to contest the next election.
Even Congressional veterans like Arizona Senator John McCain, who led the Republican ticket in the last presidential election and used to pride himself for thinking and acting independently, seem to be running scared of the Tea Party.
It’s a tough time to be an American politician, and an even worse time to be an American employee, praying that political ideology will not destroy the life you have laboured long and hard to build.
Tens of thousands will lose their jobs because of what happened in Congress in the past week.
Grimly, President Obama now seems likely to be one of them.
Joe McLaughlin is the retired former managing editor of the Red Deer Advocate.