Every year for at least the past eight years, the issue of raising the “debt ceiling”, i.e., the legal limit on how much the government may borrow, has given rise to an acrimonious and increasingly partisan battle in the U.S. Congress. This year was shaping up as no exception, as the Treasury Department announced that the debt ceiling would be reached in September. The Republican hardliners were refusing to raise that ceiling and threatening a government shutdown, if the Democrats rejected the significant spending cuts they demanded.
But then, President Trump surprised everyone by making a deal with Democratic leaders Charles Schumer in the Senate and Nancy Pelosi in the House, which not only raises the ceiling for three months, but adds over $15 billion in spending in aid to victims of Hurricane Harvey. Trump did so over the heads of his party leaders, Mitch McConnell and Paul Ryan, and of his Treasury Secretary Mnuchin. He then went further, saying he had spoken with Schumer about the possibility of eliminating the debt ceiling altogether, saying on Sept. 7, “There are a lot of good reasons for doing that.”
This prospect has broad implications for the future. In the short term, it indicates that Trump actually intends to neutralize the Republican Party establishment and reshape the present dysfunctional U.S. political system. His campaign themes of Glass-Steagall bank separation, investing in infrastructure, and ending the disastrous free trade agreements resonated with the base of both parties. In the longer term, it could be part of an entire rethinking on spending, moving away from the neo-liberal orthodoxy which controls both parties, and opening the door to the revival of a system of Hamiltonian credit, to fund the real productive capability of the U.S. economy.
Trump is well aware that many of the Republican members Congress do not support his agenda, as they are beholden to the Wall Street financial swindlers, but also that support for Republican Congressional leadership has dropped among Republican voters from 75% last January, to 39% today.
If the unpredictable U.S. President does move to restore the original American system of political economy, the one going back to the 18th and 19th centuries – and if he manages to get support from at least some Democrats to do so — that will create a whole new ball game.