Outside of Treasury Secretary Janet Yellen, it doesn’t seem that anybody in Washington or our national media is taking seriously the House Republican threat to crash our economy if Democrats don’t agree to gut aid to higher education, the EPA, Social Security, Medicare, and Medicaid.
But the situation is worse than most people realize. McCarthy’s goons really intend to follow through on their threat to cripple America if Democrats won’t go along with cutting entitlements for average working people and regulatory agencies.
And the consequence, if history is any guide, could well be a worldwide depression that might even throw us into World War III.
House Republicans are doing this for two reasons, both fraught.
First, House Republicans think it’ll help them politically.
And it’s true this kind of brinkmanship will probably goose another few million campaign dollars out of their billionaire donors who’d like nothing better than to see the “big government welfare state” collapse so, if we ever start collecting income taxes from them, they won’t have to pay up.
After all, when House Republicans tried the same stunt in 2011 during the Obama presidency, billionaire investors made out like bandits on the back of the crisis. Warren Buffett, for example, bailed out Bank of America with a $5 billion cash infusion in exchange for preferred shares and other debt instruments with a guaranteed 5% return that are now worth well over $35 billion.
Financial crises — while they wipe out working class families leading to divorce, suicide, homelessness, and poverty — are great opportunities for morbidly rich investors to make big money.
The world’s 10 richest billionaires, for example, doubled their wealth since the pandemic started.
In the 1930s, most of America’s dynastic fortunes grew substantially: times of crisis are great buying opportunities.
Second, House Republicans have no sense of history.
A default could throw us into a second Republican Great Depression that, as the Treasury Department argues, “could last for more than a generation.” But there’s not a single person in Congress who personally remembers the last Republican Great Depression of the 1930s.
Arnold Toynbee is often quoted, probably apocryphally, as explaining the consequences of this loss of actual memory among legislators:
“When the last man who remembers the horrors of the last great war dies, the next great war becomes inevitable.”
In other words, nations whose leaders forget the lessons of history are doomed to repeat them.
The last great war ended in 1945, seventy-eight years ago. To remember that era, a person would be in their mid-to-late 80s or 90s today, and that generation is dying out. And even the senior statesmen and -women among them who do speak out are increasingly ignored by the House Republicans who view our nation’s credit rating so cavalierly.
In 1997 William Strauss and Neil Howe published The Fourth Turning: What the Cycles of History Tell Us About America's Next Rendezvous with Destiny, arguing that roughly every eighty years America confronts a severe crisis followed by a major war. And it always happens, they assert, because the generation that remembered the mistakes from 80 years earlier has died out or lost any political power.
— We became a democracy after the Revolutionary War, which was kicked off in part by a worldwide economic panic in 1767-1770 that provoked England to desperately try to raise revenues by imposing new taxes on the American colonies. The Townshend Acts were followed by the Stamp Act, Tea Act, and the Coercive Acts leading to, and in response to, the Boston Tea Party of 1773.
— Eighty years later we experienced The Great Panic of 1857, when the Ohio Life and Trust Company collapsed causing banks across the country to fold, wiping out depositors from coast to coast and exploding unemployment. Across the South, demagogic politicians used the Panic to claim that “Northern bankers” were trying to destroy the South and ultimately intended to enslave working class white people, leading Senator James Hammond to make his infamous “King Cotton” speech in the Senate on March 4, 1858. Within four years we were embroiled in the Civil War.
— Eighty years after the Civil War, Republicans crashed the economy in 1929, leading the entire world straight into a financial panic. That crisis was exploited by Mussolini, Hitler, and Tojo — variously telling their people that Jewish bankers and western powers were mercilessly profiting from the crisis — leading humanity into World War II.
In two short years it’ll have been 80 years since we won WWII, and it’s apparent Republicans in the House of Representatives have no sense of this history and the dire consequences their actions could bring.
The economic crisis of the 1930s led rightwing dictators around the world to attack their fiscally weakened neighbors, assuming the west, preoccupied with the Depression, wouldn’t act.
If the billionaire-owned “Freedom Caucus” decides to throw the US and much of the rest of the world into a Second Great Depression it might, along those same lines, help Putin conclude it’s a great time to launch a full-out and possibly even nuclear assault on Ukraine, or Xi might decide it’s an opportunity to seize Taiwan.
Not to mention the domestic damage.
The last time House Republicans seriously threatened the full faith and credit of the United States was during Obama’s presidency (they almost never do this when a Republican is in the White House, per Jude Wanniski’s “Two Santas” theory of politics).
That single stunt — just having House Republicans walk us up to the edge of default, resulting in a downgrade of our nation’s credit rating — cost the country a literal fortune and caused widespread pain for average working people.
As the Treasury Department noted in 2013, looking back on that 2011 experience:
“In 2011, U.S. debt was downgraded, the stock market fell, measures of volatility jumped, and credit risk spreads widened noticeably; these financial market effects persisted for months.
“From June to August 2011, consumer confidence fell 22 percent…
“The S&P 500 index of equity prices fell about 17 percent in the period surrounding the 2011 debt limit debate and did not recover to its average over the first half of the year until into 2012.
“Between the second and third quarter of 2011, household wealth fell by $2.4 trillion. …”
The US government has never, in our country’s entire history, defaulted on its debt. Neither, in recent history, have most other advanced democracies. Debt default is very much a Third World kind of thing.
That’s why the US dollar and US government treasuries are at the core of the international financial system.
If the GOP takes us into default — even for a matter of hours — the consequences will be dire.
CBS News reports that Moody’s Analytics’ Chief Economist Mark Zandi says it would wipe out as many as 6 million jobs and destroy $15 trillion in household wealth. Unemployment would rapidly spike, he notes, to at least 9 percent and the stock market would fall by a third.
We’ve known how bad it could become for a while. The Treasury Department, back in 2013, noted that:
“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth—with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression.
“Considering the experience of countries around that world that have defaulted on their debt, not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation.”
Back in 2011 John Boehner managed the negotiations around the debt ceiling, leading to a deal with Democrats that saved us from default (after causing all the pain noted above).
In his autobiography, Boehner notes that he passed over Kevin McCarthy as Speaker when he retired, choosing Paul Ryan instead, because McCarthy wasn’t willing to go along with the deal.
“[That] really pissed me off,” Boehner noted in his book.
So here we are in 2023.
McCarthy, whose willingness to burn the nation down in 2011 led to Boehner replacing him with Paul Ryan, seems perfectly willing to try another high-stakes game of chicken.
Although this time, multiple members of his caucus assert, they’re not going to raise the debt ceiling unless Democrats agree to massive cuts in entitlements and other programs.
And Democrats are adamant: as the White House declared last week, there will be no negotiations with political terrorists who’d hold our nation hostage just to get lower future taxes for their billionaire patrons.
House Republicans are playing with fire and appear to be blissfully ignorant of how destructive it could become.
Will this be our entre into Strauss and Howe’s “Fourth Turning”? Will House Republicans provoke a worldwide repeat of the Republican Great Depression that, history suggests, could easily lead the planet into another world war?
Anybody who thinks cooler heads will prevail like they did in 2011 doesn’t know these Republicans.
If they’re willing to offer excuses for Trump trying to overthrow the government of the United States, there truly are no guardrails to protect our nation from their avarice, stupidity, and willingness to destroy America for personal and political gain.
Buckle up. We’re in for a wild ride.