McCarthy must heed Reagan’s warning on the debt ceiling — China is watching

After months of warnings, Treasury Secretary Janet Yellen has officially set a deadline: If Congress fails to act by June 1, the United States will default on its debt. Hopefully, this blunt SOS will operate as the great Samuel Johnson once said, “When a man knows he is to be hanged in a fortnight, it concentrates the mind wonderfully.”

So far, though, instead of acting on the secretary’s numerous warnings, House Speaker Kevin McCarthy (R-Calif.) has willfully forced the United States to stare down the barrel of impending default to leverage passage of the Freedom Caucus’s dead-on-arrival wish list of conservative policies. His fantasy debt limit bill, which passed by just two votes, will gut critical programs and, as the Wall Street Journal pointed out, raise taxes on farmers, homeowners and manufacturers. Additional casualties include rail safety, food safety, veterans’ benefits, job training and Pell Grants, to name just a few.     

Since Secretary Yellen issued her first danger flag on Jan. 13, Speaker McCarthy has been trying to portray his intransigent debt limit manifesto as an internal domestic budget fight between his caucus and President Biden. Were it only so. 

The stark reality is that his foot-dragging has vast global consequences for our nation. Speaker McCarthy’s refusal to do what Republican and Democratic Speakers have done 78 times since 1960 — to bring a clean debt limit bill to a vote — risks shattering the world’s confidence in our nation’s preeminent financial instruments that have always been viewed as the safest of investments.

It was Speaker McCarthy’s idol, former President Ronald Reagan, who repeatedly cautioned America during his eight years as president that it was essential to increase the debt limit in order to instill that confidence. Throughout his presidency, Reagan signed 18 clean debt limit increases into law — the most of any president. He did so when federal deficits were skyrocketing and, just like today, were the focus of intense partisan debate.

However, President Reagan and then-House Speaker Tip O’Neill (D-Mass.) recognized what Speaker McCarthy so far has refused to acknowledge: that one of the pillars of our economy is the belief around the world that the U.S. is a stable government that backs up its obligations and pays its bills. Those two antagonists set aside their deep disagreements over fiscal policy and dutifully defended our nation’s financial instruments and credit rating. That credit rating creates a high demand for our Treasury assets, which keeps our interest rates lower than those in the rest of the world, all to the benefit of America’s economy.

Former President Donald Trump said it best when he signed three clean debt limit bills into law during his presidency: “I can’t imagine anybody ever even thinking of using the debt ceiling as a negotiating wedge.” 

Our international adversaries — Russia and particularly China — are watching McCarthy’s efforts with eager anticipation. Even in the last four months while McCarthy has been appeasing the most extreme elements of his caucus, China has been actively working to undermine the U.S. dollar’s hard-won position as the “reserve currency” for the vast majority of international trade and commerce. Last year, the International Monetary Fund (IMF) reported that 59 percent of global transactions were completed in dollars — more than all other currencies combined. Again, that is an enviable position based on our government’s stability, a concept that political foes Reagan and O’Neill, and Trump and former House Speaker Nancy Pelosi (D-Calif.) all understood but so far has not been grasped by the Republican House majority.     

Just in the past couple of months, China has secured agreements with Saudi Arabia and Brazil to conduct transactions using the yuan, rather than the U.S. dollar, which should be a big warning to pass a clean bill as soon as possible. Chinese President Xi Jinping’s desire to accelerate that trend is brazenly clear and built around a false narrative that the U.S. political system and economy are in decline, while China’s are on the rise.

In fact, China’s public finances are in worse shape than those of the U.S. China’s per-capita publicly-held debt exceeds that of the United States, due in large part to Xi’s borrowing spree to prop up China’s sagging growth rate, fund his military buildup and pay for predatory “Belt and Road” spending programs that bait and switch infrastructure projects in the developing world.

Xi’s focused effort to overthrow the dollar is not the result of fiscal discipline and rectitude on China’s part but rather is a geopolitical street fight that all of Congress — particularly McCarthy — must realize we are part of, whether we like it or not.     

As June 1 approaches, let us reflect on Reagan’s words on Sept. 26, 1987, at the height of the Cold War explaining his support for a clean debt limit bill: “The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility — two things that set us apart from the rest of the world.”

In today’s contested security environment, his words resonate with striking relevance. We have no time to lose — raise the debt limit with a clean bill now. 

Joe Courtney represents the 2nd District of Connecticut.