The United States leadership struck a debt deal and the world stepped back from a global financial aftershock. The government of the world's largest economy is expected to escape defaulting on its debt when its coffers run dry on Tuesday. This is likely but not certain. Both houses of the US Congress must vote and pass the requisite legislation. Credit rating agencies have already indicated they may still downgrade US Treasury bonds — such a close call is an unacceptable credit risk. But the US debt crisis was only marginally about red ink economics, at its core was fissured politics. And it is the latter that the world should worry about.
At one level the debt crisis showed that partisanship politics has reached such ferocious levels that normal governance is being affected in the US. Allowing Washington to go to the brink of default during what should have been a routine financial action indicates decision-making in Washington is not what it used to be. The inability of Republican leaders to swing their own populist right-wing in favour of earlier compromises was telling. It is still likely that centrists of the two parties will get vote through the deal, but minus their ideological wings. If routine has become Armageddon, the US cannot be counted on when the tough decisions are being made. At another level what is of interest lies in the fine print of the two-phase deal. In the first phase, the Republicans did not agree to tax hikes. But they did agree to some $350 billion in defence cuts. What is more striking is the second phase, which kicks in if the first phase falls apart. This time, over $1.2 trillion worth of cuts will be scissored out of US defence and security expenditure. While it seems a remote possibility, such cuts would eviscerate US defence capability. The US would be a greatly reduced superpower, one with little leeway if bits of the world go rancid or sour. Among other things, it would mean a China with more space to expand its military influence than it probably has capacity to fill. It will also mean large chunks of ocean and remoter bits of the world, presently policed or at least contained by the US, would be allowed to run wild.
The second phase seems to be designed to scare Republicans and Democrats into ensuring it doesn't happen. But that the US polity is prepared to put so much of its global reach on the line for a purely budgetary squabble is a strong indicator of how weak the bipartisan, post-war consensus of the need to be globally engaged has become in Washington. Countries like India, who have had a free ride on the US's provision of global security, should start giving thought to what will happen when this service starts to wind down.