The moment of truth approaches. Obama needs more money urgently. This end of July all the (borrowed) money of the Federal Government is spent. The law sets the debt ceiling at a bit over 14 trillion dollars. Obama is unable to borrow more. He can’t push the US deeper in debt. Very soon, he won’t be able to pay for current expenses. That’s why he’s asking the Congress to raise the debt ceiling with at least two trillion dollars. The Republicans, in control of the House, accept to raise the ceiling under two conditions. First: only if the government is ready to cut spending over the next 10 years with a sum at least equal to the amount of the raise. Second: if taxes are not raised.

On Thursday, the negotiations collapsed between Obama and his fellow Democrats on one side, and the Republicans in Congress on the other side. Reason: the Democrats are only willing to cut some spending if they are allowed to raise the taxes. This deadlock obliges Obama to take initiative, to formulate a proposal. But, he hates making a first move. He prefers to ‘lead from behind’. He likes others to do the hard work. Recent examples of this attitude: Libya, Obamacare, etc.

Hard choices

If Obama and the Republican Congress don’t reach an agreement, Obama will have to make some hard choices.

For example:

1. Expiring US treasury bonds, and/or interest on these bonds, are not paid out any more. Consequences for the world: the faith in the value of the dollar disappears, and the dollar crashes, creating a Zimbabwean inflation in the US. For him: he can abolish personal freedom and expand government power.

2. Retirees don’t receive their monthly check any more, and/or doctors are not compensated any longer to take care of these retirees. Consequences for us: revolution. For him: he’s able, with the help of the press, to blame the Republicans for the mess, and secures his reelection in 2012.

3. He finally abolishes a number of Government Departments, and sacks tens of thousands of bureaucrats. Consequences for us: a general strike of the bureaucrats, and partial blockage of government services. We are freed from a lot of government intrusion, and the government finally starts saving. For him: he loses his staunchest supporters, the unions of government employees. This choice flies in the face of his collectivist persuasion.

4. He withdraws immediately all troops from Iraq and Afghanistan. Oops! He just partially decided that already earlier this week.

Who Will Blink?

Since all options in the case of a non-raised debt ceiling are rather disastrous for the US, almost all pundits and observers believe the ceiling will be raised. The only question is: who will blink?

Obama? The majority of Americans can’t imagine Obama really wants to hurt the US still more. If he doesn’t accept severe cuts in government spending, and the projected economic disaster hits, the dollar devalues fast, most believe his reelection chances are zero. But on the other hand, a majority of the Americans is now convinced Obama made the economic situation of the US much worse during his two and a half years in office. Everything he touches becomes a mess. Since most also believe Obama is an intelligent man, the question is raised why he continues his disastrous policies. Is he able to learn from his mistakes, or does he have malicious ambitions?

The Republicans? Do they squander the unique chance in history they have here to force Obama into meaningful spending cuts? If they do, then the role of the Tea party in 2010 was only boring foreplay for what will happen during the elections of 2012. Republicans, who go along with a raise of the debt ceiling, without real spending cuts, or with new taxes, will find a Tea Party candidate opposing them in the primaries, and will be defeated in the election. On the other hand, Republicans are known to love showing their sense for responsibility. They will avoid an economic disaster. Republicans believe the opponent is rational and trustworthy. But, is he really?

My prediction

At the last possible moment, end of July, Obama appears on TV to state his will to cut spending with trillions without raising taxes. The debt ceiling is raised, which allows Obama to continue his wasteful spending to well after the 2012 elections. He’ll present himself as the savior of all humankind.

The Republicans think they won, but after the summer recess it becomes clear Obama isn’t cutting any spending at all. Circumstances in the world, for example, the break-up of the EURO zone, the collapse of the Chinese economy, the fall of the Dow Jones with over 2,000 points in a week, or whatever, give Obama the excuse to print and spend more money. The Republicans understand too late, Obama deceived them again. Just as he did at the end of 2010, when the Republicans went along with Obama’s deal not to raise taxes and a cut in spending of a meager 40 billion dollars. Not even a week after the deal was voted, the real spending cuts were calculated as only about 300 million dollars!