Worldwide, political and economic actors are watching Congress and the President with a combination of horror and astonishment. Everyone from the Chinese government, one of the United States government’s largest bondholders, to the average American is aghast at the spectacle unfolding in Washington. America’s top political leaders are playing Russian roulette with America’s long-term economic viability, passing the gun back and forth. Outside actors, even the U.S. Chamber of Commerce, an otherwise influential lobbying group, are sidelined; political considerations for both leaders and rank-and-file members take precedence.
And yet, financial markets and outside actors have been relatively calm, given the circumstances. I think there are two reasons for this. First, a reason repeated often in the left blogosphere, most financial analysts believe that a default on American debt is an unthinkable, crazy possibility. But, just because it’s an unthinkable possibility doesn’t obviate its likelihood. If anything, denial of the possibility brings us closer to the brink.
Second, I don’t think anyone stands to benefit economically from an American default. In fact, if our politicians do end up shooting America in the head, economic and political actors around the world stand to gain by propping up the American corpse. Should the American dollar lose value, the Chinese government stands to lose significant value in their currency reserves.
In this way, America stands as a polar opposite to Greece. While no one seems willing to bailout the Greeks, America has a number of actors standing in wait to prop us up. Today, we’re too important to the world economy.
But, this isn’t to say that the potential for a default isn’t troubling or dangerous. A default would help to send the American economy down an accelerated path toward international irrelevance, and would puncture the safety net which awaits us should our political leaders fail us.
Fortunately, a resolution to the debt ceiling hostage crisis seems to be in sight. But, Speaker Boehner and the president were close to a deal last week, and that quickly fell apart. It’s going to be a tense forty-eight hours.
And yet, financial markets and outside actors have been relatively calm, given the circumstances. I think there are two reasons for this. First, a reason repeated often in the left blogosphere, most financial analysts believe that a default on American debt is an unthinkable, crazy possibility. But, just because it’s an unthinkable possibility doesn’t obviate its likelihood. If anything, denial of the possibility brings us closer to the brink.
Second, I don’t think anyone stands to benefit economically from an American default. In fact, if our politicians do end up shooting America in the head, economic and political actors around the world stand to gain by propping up the American corpse. Should the American dollar lose value, the Chinese government stands to lose significant value in their currency reserves.
In this way, America stands as a polar opposite to Greece. While no one seems willing to bailout the Greeks, America has a number of actors standing in wait to prop us up. Today, we’re too important to the world economy.
But, this isn’t to say that the potential for a default isn’t troubling or dangerous. A default would help to send the American economy down an accelerated path toward international irrelevance, and would puncture the safety net which awaits us should our political leaders fail us.
Fortunately, a resolution to the debt ceiling hostage crisis seems to be in sight. But, Speaker Boehner and the president were close to a deal last week, and that quickly fell apart. It’s going to be a tense forty-eight hours.
Well now we know the increase passed. But would S&P have taken away our AAA rating if Congress hadn't come so close to not making a deal? Is our divided political system part of the problem for financial stakeholders?
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