The politics behind the US debt crisis

The current US “debt crisis” dominating global business headlines may be difficult for most South Africans to understand. The gist of the problem is this: America is about to bump up against its legal borrowing limit of $14.3-trillion. If the US Congress does not raise the limit soon, America will either default on its debt or be forced to drastically reduce government spending.

Either outcome is likely to unsettle global markets and send economic shockwaves reverberating around the globe. Without speculating on specifics, let’s just say that most analysts agree that it wouldn’t be pretty (higher interest rates, declining markets, recession, and etcetera). So if economists almost universally agree that failure to raise the country’s debt ceiling would result in economic calamity, why haven’t US politicians simply raised it? The answer, unsurprisingly, is politics.

Republicans, who control the House of Representatives, argue that government spending levels are too high and that raising taxes would cause America’s fragile economic recovery to falter. For these reasons, they believe that the national debt should be reduced through spending cuts alone. President Obama and the Democrats in Congress agree that spending must be reduced, but want to enact tax raises as well. They argue that tax “loopholes”, which they believe primarily benefit corporations and the wealthy, should be closed to raise additional revenue as part of a debt reduction agreement. Ok, you might say. The philosophies differ, but why can’t the two parties’ leaders compromise?

To answer that question, we must first take a step back and look at the differences between the South African and American political systems. Unlike South Africa, where parties make lists of candidates to put before voters and parliamentary seats are allocated to each party in proportion to the total number of votes that the party receives, Americans elect their representatives directly. This means that individual politicians are not beholden to a central party structure for their continued survival but rather to their local constituents.

Candidates for each seat stand for election as either a Republican, Democrat, independent, or member of a “third party”. The overwhelming majority of candidates stand under one of the two major political party banners, Republicans (generally right of centre) or Democrats (generally left of centre). For these candidates endorsement of the party is gained through a primary election. Anyone who is a registered Republican, for example, can pursue his or her party’s nomination by standing for election before party members within his or her district. The winner of this election stands in a later general election against those candidates who received another party’s endorsement or is running as an independent candidate. The winner of this second election — in which all residents of a district are eligible to vote — goes to Washington.

This decentralised election process — unlike South Africa’s system — means that some districts will elect representatives who do not adhere to the same beliefs as the party’s nationwide “establishment” leadership. Last year, this happened en masse. In the run-up to the 2010 Congressional elections, a new political force entered the American political stage, the Tea Party.

Contrary to what the name suggests, the Tea Party is not an actual political party, but rather a loosely organised, grassroots political movement. Its followers — the majority of whom are Republican or Republican-leaning voters — coalesced around certain core principles, including limited government spending, lower taxes, and lower deficits. They were, and remain, significantly more conservative than the Republican Party’s national leadership. They unseated several long-serving, more moderate Republicans in both the House and Senate in 2010. As a result, many Republicans are afraid of facing Tea Party challengers during the next primary election cycle if they appear too soft on big government. This fear is a big part of why a compromise on raising the debt ceiling is proving so elusive.

Although national Republican leaders like House speaker John Boehner have expressed willingness to compromise on raising the government’s debt ceiling, Tea Party sympathisers are vehemently against doing so without massively reducing government spending. Despite the assertions of President Barack Obama, corporate leaders and most economists, Tea Party backers firmly believe that the consequences of raising the debt ceiling are worse than any hypothetical problems that might occur should the US Congress fail to do so. In short, they do not want to “write government a blank cheque” and they have sworn to punish those who do so at the ballot box.

For negotiating purposes this is Boehner’s fundamental problem as he himself pointed out on Monday. “I agree with the president we cannot allow our nation to default on our debt but to prevent a default a Bill must pass the Congress.” That will not happen, he believes, unless the Bill includes spending cuts that exceed any increase in the debt ceiling. President Obama and the Democrats for their part believe that they have compromised as much as their electoral bases will allow and will not go further.

A poll conducted in mid-July by the independent representatives, non-partisan Pew Research Centre for the People and the press revealed the American public to be as divided as their leaders. Forty percent of those surveyed agree that it is “absolutely essential to raise the debt ceiling by August 2 to avoid an economic crisis” while an almost equal 39% felt that the US could go beyond August 2 without a crisis. Digging deeper reveals stark partisan differences.

Among Republicans and independent voters that lean toward Republican candidates, 53% believe that failure to raise the deadline by August 2 will not present a major problem. Perhaps more importantly, only 19% of Tea Party supporters said they were more worried that “not raising the debt limit would force the government into default and hurt the nation’s economy” than they were that raising the debt ceiling would “lead to higher government spending and make the national debt bigger.” Until these polling numbers change, a grand bargain is going to be very difficult to craft and we’re all in for a very bumpy ride.

Matt Quigley was divisional director at the US Treasury Department’s office of the comptroller of the currency, and former fiscal policy analyst at the Federal Reserve Bank of Boston.

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Matt Quigley
Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at

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