The US Capitol building is seen on January 19, 2023 in Washington, DC.
Anna Moneymaker |: Getty Images:
The outlines of a divided government in Washington are now clear. the main point of contention is the deadline for approaching the debt ceiling, and the main area of agreement is the resolution of systemic competition with communist China.
Although these may seem like different problems, they are closely related.
Continued avarice and extremism over the debt ceiling only serve to weaken a key element of US power as we question our own financial and economic leadership.
When we say that we are in “systemic competition” with the Chinese Communist Party, we mean that this competition is not only for military power or diplomatic influence, but also for economic, financial and technological strengths.
On one side is the US-led system. on the other is Beijing, which is more suited to authoritarian rule. Every element in a country’s policy toolbox, be it military hardware or financial influence, is critical to this competition and shows the world which side is better aligned.
Policymakers in both parties recognize the magnitude of this competition.
The 365-65 vote to establish a House Select Committee on Strategic Competition between the United States and the Chinese Communist Party illustrates this. Therefore, as both parties in Washington try to outdo each other in getting tough on China, radicals on the debt ceiling are counterproductively undermining the main drivers of US power: the dominance of the US dollar, US financial institutions and Wall Street. .
China’s leadership understands that it still operates in a world denominated in US dollars and that it will take years to replace the US dollar, financial institutions and other elements of the economy.
The quick response of the US, Europe, Japan and other major democracies to punish Russia’s invasion of Ukraine showed Beijing the consequences it could have in a standoff over Taiwan or other conflicts with the US and its allies.
At the same time, Moscow’s ability to maneuver around sanctions and the decidedly mixed response of India, Brazil, South Africa, and other emerging “Global South” countries suggest the opening of an alternative to American leadership, whether political, military, or otherwise. economic.
History also shows how the loss of financial influence rapidly diminishes geopolitical power.
The prestige of the British Empire grew not only from the Royal Navy, but also from the city of London. The British pound was synonymous with British power. Empire and financial influence waned, and for Britain, even with the resulting economic disruption, she had an ally in the United States, which rose to power.
It will not be an easy transition for the world if US financial leadership collapses.
Therefore, it is very dangerous for policymakers to play games with the debt ceiling.
Yes, we recognize that our nation faces severe fiscal challenges with our debt, deficits, and unfunded programs. Addressing those deeper and more intractable challenges requires a thoughtful, bipartisan solution because many will likely feel the pain.
The current approach of holding our economy and US financial leadership hostage is not the answer.
A health care provider does not require an exercise and fitness plan before resuscitating a heart attack patient.
To suggest further nonsensical solutions, such as minting coins or ignoring the debt ceiling altogether, suggests that we are fundamentally frivolous about our extravagance. The damage from default is much greater, but it is already damaging our economic and financial condition.
Washington could take a more responsible and serious approach, accepting where past plans have tried to compromise on the spending cuts and tax increases that any real plan to address debt and deficits would require.
The political rhetoric and spending gimmicks employed by both parties will not solve the burden we leave to future generations of Americans.
We write here about the geopolitical costs of default, but make no mistake, every American family will feel the pain.
AGF Investments Chief US Policy Strategist Greg Valliere writes: [House Speaker Kevin] McCarthy will reject any deal that has some cost overruns. If just half a dozen Republicans refuse to raise the debt ceiling, it could kill the bill and heighten fears of a debt default.”
Our policymakers need to seriously address our debt problems.
There are many strengths that the US still has in this competition, and we still attract the best and brightest from around the world. Its disruption due to political extremism and economic pipe dreams only serves the interests of our competitors.
Dan Mahaffey directs the Center for Presidential Studies and Congressional Policy Programs and serves as corporate secretary to the 35-member Board of Trustees.. Michael Farr is a CNBC contributor and president of Farr, Miller & Washington, an investment advisory firm in Washington, DC..