Editor's note: Doug Henwood edits the Left Business Observer, a newsletter on economics and politics he founded in 1986, and hosts a weekly radio show, "Behind the News," that originates at KPFA, Berkeley, and is syndicated to stations across the United States. His books include "Wall Street" and "After the New Economy."
(CNN) -- On Monday, Treasury Secretary Timothy Geithner officially notified the world that the U.S. government could no longer meet all its obligations. That's because Republicans in Congress are blocking an increase in the debt limit -- the maximum debt the Treasury is allowed to contract -- making it impossible for the government to borrow as much as it needs to keep going. They deem this a fiscal emergency and want deep spending cuts.
The Treasury can play some games to keep going for several months. But if Social Security checks start bouncing -- or, more seriously, if the Treasury can't continue to pay interest on its bonds -- it would be a maximum political and economic disaster.
No doubt Wall Street will sit down recalcitrant GOP back-benchers and remind them of their responsibilities. But what about this alleged fiscal emergency that Republicans are using to create the threat of maximum disaster?
Before 1917, Congress had to approve every loan floated by the government. But since then, it has put the Treasury on a fixed debt limit. It didn't need to be raised before the Great Depression, but with that and then World War II, it began to be raised frequently.
Since 1940, it has been raised about 100 times. We've had a few melodramas around raising it, but this is the hottest one yet.
What's different this time that's making Republicans in Congress threaten to force Uncle Sam's checks to bounce? At least two things: the massive increase in debt over the last few years because of the financial crisis and Great Recession, and the ascendancy of some extraordinary personalities to positions of political power. We've long had deficit hawks, but they've usually been creatures of the boardroom and not people who use teabags as headgear.
There is no reason to panic about U.S. debt levels. We have some economic problems, but we are not the Greece of tomorrow. Deficits should decline markedly over the next several years and Social Security and Medicare won't eat us.
Over the last three years, the federal deficit has been about 9% to 10% of GDP. That is very large by historical standards, about three times the average of the previous three decades. But the gusher of red ink didn't come from a bout of profligacy -- it came from the worst recession in 70 years.
In a recession, revenues decline as employment and incomes sink, and spending on unemployment insurance, food stamps and Medicaid rise. Add to that the spending on the financial bailout and the stimulus, and you've got a prescription for the biggest deficits (relative to GDP) since World War II.
Officially, the economy has been recovering since June 2009, though it certainly doesn't feel that way. In a more normal cycle, the deficit would be shrinking as well, but it hasn't fallen by much so far. Unemployment has been very sticky, which means more spending and less revenue.
On top of that, the deal the administration and Congress struck at the end of 2010 -- the extension of the Bush tax cuts and a 2-point reduction in employees' contributions to Social Security -- has been a major hit to revenue. Heaven knows what will happen when those expire.
But, barring catastrophe, the effects of the recession should fade. According to the Congressional Budget Office's baseline projections -- what will happen if there are no major policy changes from the present -- the deficit should fall dramatically over the next several years, from about 10% of GDP today to about 3% in 2014.
In other words, if we do essentially nothing, the deficit will fall by two-thirds, back to its historic average. The ratio of federal debt to GDP will stabilize at around 75% -- high, but still well below the level that most mainstream economists consider critical (which would be close to 100%).
Close examination of the CBO's projections cannot support anything resembling hysteria. The two things that have everyone terrified, Social Security and Medicare, actually look quite unthreatening.
In 2010, Social Security spending was 4.8% of GDP. In 2021, the CBO projects it will be 5.3%, an increase of 0.5 point. In 2010, Medicare spending (less premiums paid by beneficiaries) was 3.1% of GDP. In 2021, the CBO projects it will be 3.6%, also an increase of 0.5 point.
In other words, the budgetary monsters that are supposed to be the ruin of the American way of life will increase their share of the national economy by about 1%. That's a bit less than what the wars in Iraq and Afghanistan are costing us, and less than half the cost of the Bush tax cuts.
This is not a long-term fiscal emergency; it's what you'd expect after an economic crisis. But budget hawks -- and they're not all Republicans -- are trying to pass off current levels of red ink as the new normal, even though it isn't. They've had it out for Social Security and Medicare -- programs that work very well, cost little to run and are immensely popular -- ever since they were created.
Republican Rep. Paul Ryan's Medicare plan would force beneficiaries to double their out-of-pocket spending. Only a bogus emergency could make something that cruel worth discussing.
The opinions expressed in this commentary are solely those of Doug Henwood.