Markets were pleased to learn that US lawmakers haven’t yet crossed into whatever circle of hell it is where politicians deliberately trigger a global financial meltdown out of childlike spite for one another.
Somehow, “dodging a bullet” seems inadequate as a metaphor for averting a technical US default. The fact that neither side had any real demands — it was a standoff for the sheer hell of it — might itself be cause for a sovereign downgrade were it not for the dollar’s reserve status.
The collateral that makes the world go round is guaranteed by a motley crew of increasingly capricious, vindictive partisans, some of whom are certifiable. It’s entirely fair to suggest that the majority of US lawmakers have no conception whatsoever of why US bills, notes and bonds are important.
The debt ceiling deal allows the US to meet its obligations through December 3. Hallelujah.
This isn’t the first time analysts were compelled to spend a couple of weeks walking through various permutations of a default scenario and it won’t be the last. Having reprised those laborious academic exercises for 2021, strategists can simply refer back to notes penned this month when the whole charade starts over again in four weeks. “As we explained in October…”
Referencing procedural matters around the bill, John Cornyn on Thursday said, “I think most people would like to get out of here. We know what the outcome is going to be, so why put everybody through a delay and an inconvenience by keeping us here with the inevitable outcome.”
On one hand, he’s right. And this is most assuredly a case where sooner is better. On the other hand, Cornyn inadvertently summed up how America’s elected representatives think about their jobs. Legislating is something that happens only at the last minute. And brinksmanship is the only strategy.
We often act as though some deadline (in this case Janet Yellen’s October 18 “x-date”) is the impetus for eleventh hour bargaining. But, as Bloomberg explained, citing Cornyn, “leaders in both parties [were] seeking consent to skip [a] procedural vote… with many eyeing the exits before a week-long recess.”
Keeping the country running is a kind of annoyance — a bothersome, albeit mandatory, side project that Republicans and Democrats revisit between regularly-scheduled vacations and fundraisers. They also make plenty of time for trolling both their political rivals and regular citizens on social media. That, apparently, is the “business of the people.” Vacationing, leveraging one’s position in government for personal monetary gain and stoking division on Twitter.
There were myriad allusions to the “full faith and credit” of the US government this week. To the extent that means anything these days vis-à-vis US obligations, it’s mostly by reference to the simple fact that because transitioning away from the dollar overnight is impossible (figure below), US bills, notes and bonds are still the safest asset around by default (no pun intended).
Between America’s brief experiment with autocratic rule and endemic ineptitude on Capitol Hill, there isn’t a soul on Earth who can honestly tell you their faith in the US as guarantor is the same as it was even two decades ago. And I mean as guarantor of anything. Not just interest-bearing dollars.
The latest debt ceiling crisis was a microcosm of a broader trend. Increasingly, it feels like the world gives the US the benefit of the doubt not because anyone trusts America’s elected representatives or the people who put them in office, but rather as a matter of convenience.
A reader recently asked about the viability of the petrodollar (and, implicitly, US bonds as the preferred vehicle for recycled savings) in the 21st century. My answer was straightforward: What’s the alternative? My actual reply was a bit longer, but that was the gist of it.
It’s the same thing with security. If you’re Europe, it’s not that you necessarily trust America to defend you anymore. It’s that there isn’t an obvious alternative to the current system of explicit and implicit military guarantees.
This situation could persist in virtual perpetuity. And that’s not a good thing. It disincentivizes reform and allows America’s elected representatives to be perpetually derelict in their duties both domestic and abroad.
Little wonder Xi sees an opportunity.
We all may be early on the optimism here, no?
Referring to the chatter that Mitchis unsure that he can deliver the 10-12 GOP votes needed to pass the extension.
Probably a negotiating gambit by Mitch which he will use to try and wrangle concessions from Shumer.
Pelosi poking the bear didn’t help much.
Anytime the stock market is rescued by both “Moscow Mitch” and Putin on the same day, then yes, optimism may be premature!
If it weren’t for Manchin and Sinema, we wouldn’t be here (with Democrats like those two, who needs Republicans?). The filibuster would have been done away with (along with the debt ceiling) and the Democrats would have passed legislation beneficial to the lower and middle classes. Most Democrats do believe government can play a constructive role!
The bad faith causing so much governmental dysfunction is much more obvious and widespread in Republican public figures than in Democrat public figures. Assigning blame equally misrepresents the actual state of affairs and pushes any resolution further into the future.
Yeah, but try telling that to scores of regular readers, some of whom are of the “casual,” passersby variety, and see what kind of emails you get. 🙂
Just kidding. But not really. I mean, the key is not to alienate an entire subset of readers “just because.” If some readers feel alienated by the truth, then it’s incumbent upon them to acknowledge reality. But when it comes to daily coverage of something like the debt ceiling, for example, I’ve learned over the years that there’s no utility in adopting a deliberately abrasive cadence just for the sake of being abrasive, especially when the overarching point (i.e., your point) is implicit in so much of what I write anyway.
And, just think, the thing they are arguing about – the debt ceiling – in itself is a complete canard – a historical artifact.
Dodged a bullet? More like they decided not to set off the suitcase nuke they were holding a giant room full of people hostage with.
“That, apparently, is the “business of the people.” Vacationing, leveraging one’s position in government for personal monetary gain and stoking division on Twitter.” – This is exactly why H.R. 1 (For the people act) needed to be passed. The Federal government is an easily corruptible group of disinterested kleptocrats.
“It’s the same thing with security. If you’re Europe, it’s not that you necessarily trust America to defend you anymore. It’s that there isn’t an obvious alternative to the current system of explicit and implicit military guarantees.” – The U.S. continues to never have a problem finding or spending money when it comes to defense. Neither side will say “hey, did you know the other side is spending 780 Billion dollars on the military this year??”. And since we continue to be shadow imperialists with our bases everywhere in the world, is there really another game in town to compete with us? The military presence we’ve been able to establish since WW2 is probably the reason why we still hold the reserve currency.