by futurist Richard Worzel, C.F.A.
And so the Wing-Nut wing of the Republican Party is once again threatening the financial, economic, and fiscal stability of the American republic, first by threatening to block passage of a Continuing Resolution on funding the government beyond September 30th, but more importantly by threatening to block raising the debt ceiling to allow the U.S. Treasury to continue its operations. Everyone’s seen this movie before, and we think we know how it’s going to end: there will be histrionics, frothing at the mouth, Serious Closed Door Meetings Between Important People, and then, finally, at 11:59:59, a deal that skates us through.
The problem is that this is like the little boy who cried “wolf”. People eventually stop responding, at which point if the wolf (or in this case, bear) does come, it will be very, very dangerous.
I wrote about the crisis over the debt ceiling in July of 2011, and warned that the threat not to raise the debt ceiling was equivalent to negotiating by using nuclear war as a bargaining chip. Afterwards, people commented to me that they knew it was all gamesmanship, and that the Republicans were always going to settle. They laughed that I had been faked out by the play-acting of professional politicians, as everyone who knows anything about politics could have said – did say – when it was happening.
Perhaps so, but the wing-nuts seem as determined as they were in 2011, and even more ignorant. I’m not going to re-hash my discussion from 2011, but will suggest you go back and read the relevant posts here and here. Instead, I will just say: this is not a game, and it’s not a test. This is the real thing, and if President Obama sticks to his stated position of not negotiating on this issue (as he should), and the Speaker of the House, John Boehner, is successfully held hostage by Republican extremists (as seems an uncomfortable possibility), then the U.S. government could, in fact, drive over a cliff, and take all of us with it.
The consequences would be enormous, and hard to anticipate. What happens to a world when the world’s key investment asset, the so-called “risk-free” investment, stops being risk-free because of an unreliable government? What happens when the United States becomes the world’s biggest banana republic? What happens if China decides it no longer wants to buy U.S. Treasury bonds and t-bills? When investment markets are thrown into complete disarray?
I know I’m fighting an uphill battle here, because virtually everybody is saying, “This won’t happen.” I disagree: I very much believe that it could.
But put that aside for a moment, and look at it purely as an exercise in risk management. Suppose I offer you a bet, and we’ll flip a coin to decide. Heads, you get to go on living your life exactly as it is, no better, no worse. Tails, your investment portfolio drops like a stone, the global economy goes into a recession, or even potentially a depression, and there is a renewed run on the world’s banking system, possibly threatening all of your bank deposits as well as your investments. Would you want to take that bet?
Unfortunately, the Republican Party in the House of Representatives is trying very hard to place that bet using your money.
Scared yet?
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It seems to me that the Republican party is now reaping what it sowed. Tell people for several decades that the ‘takers’ were wrecking the economy through endless spending and eventually you get people voting for Congressmen and Senator who actually believe that sort of thing. Combine with a near Bolshevik level of political purging for ‘moderates’ and well.
The point that this is political theatre that we’ve been through before isn’t wrong, but do the Tea Partiers know it’s fiction? Do they know to put on the brakes at the last moment? The optics seem to suggest not, and that each perceived ‘defeat’ by that faction only entrenches them further. Witness the number of useless and pointless votes to defund Obamacare.
I’m also deeply curious about what the Chinese governments echelons make of all this. Given they are principally stability-obsessive technocrats, do they think this is Theatre? or that the US has gone politically bonkers. What sort of choices are they making based on this repeated cycle. I know if I were them I would be very, very nervous.
I actually hadn’t considered what the Chinese will think about all this beyond deciding not to invest in Treasuries, but it’s a valid and important point. This ups the ante, and makes it even scarier. What geopolitical moves do you make, as a nascent super-power, if your principal opponent is crazy? How do you decide to behave?
As Spock would say, “Fascinating…”
As a Canadian living in the U.S., I too am very concerned. The rhetoric I hear even on NPR radio, that is very strident and offers no proof for adversarial positions taken, reinforces all those who already hold that position and they are unlikely to hear any reasonable rebuttal, any other viewpoint, or any kind of caution. I just hope there are enough saner minds to prevail when decision time comes.
Your observations are terrifyingly valid. I and ANY Canadian or US businessperson I have spoken with are truly disgusted with the juvenile brinkmanship currently being evidenced in US federal politics. It’s reminiscent of the interpersonal relationships we all had in our sub-teens. That a group of individuals who are largely responsible for the well-being of the rest of the world should act with such cavalier irresponsiblity, is staggering.