Republican Sens. Ted Cruz and Rand Paul for too long have lead the GOP into believing their claim that the debt ceiling and government shutdown issues won't cause an economic calamity ("Ted Cruz wins by losing," Sept. 27).
All well and good senators, but here is a dose of reality: Japan and China, among other purchasers of U.S. Treasury bonds, recently said the impasse in Washington is very disturbing. Get your house in order, they say.
Yet the initial reaction to that by many here, particularly among this tea party set, is "the hell with those foreigners."
Here is the next dose of reality: The U.S. sells bonds to the world like all governments have done since Alexander Hamilton convinced Benjamin Franklin "neither a borrower nor lender be" doesn't work in a modern global economy.
So the U.S. government says to the world, you give us $1,000 and we will pay you roughly $20 in interest every year for the life of the bond, at the end of which we will give you your original $1,000.
U.S. citizens and institutions are by far the largest purchaser of those bonds. Japan and China among others are major purchasers. And so far all those purchasers have said with their money that they like the deal.
But guess what happens when they don't like it any more, as indicated by the statements of China and Japan? They either stop buying the bonds altogether or they demand more than $20 a year in interest.
Either way, the increase in interest payments goes right into increasing the current budget. It triggers an increase in borrowing costs for all governments and, more importantly, for businesses financing expansions in hiring and for ordinary people trying to finance major purchases such as homes and autos.
The senators can sit on their high horses all they want and insist the shenanigans the GOP is up to won't hurt the economy. But the people we sell our bonds to say different.