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 so the U.S. Treasury can continue 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?
© Copyright, IF Research, September 2013.
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