The hysteria of Armageddon, once reserved for apocalyptic super disease, invading aliens, or meteor extinction, has found its way—via the American president—into the debt debate. And with the deal for the American debt ceiling floundering, it seems reasonable to assume it will take a bit more time to get to some kind of consensus on how America will face its self-styled 'Armageddon.' That this debt is a colossal problem for America, and for the international financial system, is without question. But its urgency and panic, argues Terence Corcoran in the Financial Post earlier this week, has been exaggerated to the point that it now impedes the process of reasonable consideration and compromise.
This is not the first time the United States has adjusted its external financial obligations in favour of domestic concerns. Other, more seemingly sanitary devices, like currency manipulation or—for example—the abandonment of the gold standard in 1971, are strategic forerunners. These are a kind of default, where while the U.S. is still paying, they simply issue payment in a devalued currency. Nor is this the first time America has debated raising its debt ceiling. It has raised that ceiling 70 times in U.S. history.
America has been here before. Canada certainly has been. In 1993, Canada's debt-to-GDP ratio was so terrible that the World Bank was assigning it a third-world financial rating. Today, Canada is the darling of the investment and banking sector. (Check Comment Monday when we bring back from our archive a very prescient argument on this topic.)
George Monsma argues for that same kind of incrementalism in today's Capital Commentary, suggesting the debt ceiling be raised, and the deficit be reduced in a sustainable manner. Default is not a real option. The United States can and will pay its obligations. Now comes the tough dealing of finding where to cut, what to raise, and how. That's not Armageddon, that's political business as usual.
Corcoran argues President Obama has distorted the debt debate by cultivating an artificial panic. The panic is, of course, not entirely artificial, nor can the President possibly absorb all the blame. But the sooner the American debt deal morphs back into the banality of politics, leaving behind the celebrity of apocalypse, the better.