Massive Disruption the World Over

As international economic leaders gathered in Washington, D.C. for policy meetings at both the World Bank and the International Monetary Fund, the focus moved from the planned agenda to the ramifications of the United States failing to lift its debt ceiling. The consensus seemed to be that U.S. actions were selfish, ill-contemplated and generally that such a massive default – which forms the basis of so many international transactions (U.S. treasuries are often used as global collateral in both business and public fundings) – could easily trigger a domino-like fall of values all over the world, causing sequential failings and defaults everywhere. As the world’s “reserve currency,” any crumbling of the value supporting the dollar would be devastating.

Among the backroom murmurings is talk of getting off that dollar reserve standard as quickly as possible, a factor that would move the American economy to second level influence despite its size. Our interest rates and transaction costs would then be pegged to something other than the dollar. That a U.S. default and the sequential failings such a default might cause could reinstate the severe recession, perhaps even a depression, is sending shudders to world leaders, all of whom are pressing Capitol Hill to get its House in order… not just for six weeks, but permanently. The title of this blog were words uttered by IMF chief, Christine Lagarde.

“[Many of the gathered international economic leaders] pressed Treasury Secretary Jacob J. Lew and the Federal Reserve chairman, Ben S. Bernanke — who were both at the I.M.F. meeting — on the issue, predicting that even a near-default would lead to higher borrowing costs and a slowdown of the global economy.

“‘This cannot happen, and this shall not happen,’ Baudouin Prot, chairman of the French bank BNP Paribas, said at a meeting of the Institute of International Finance also being held in Washington. ‘The consequences of this would be absolutely disastrous.’

“Mr. Lew acknowledged the threat. ‘Our work begins at home,’ he said. ‘We recognize that the United States is the anchor of the international financial system. With the deepest and most liquid financial markets, when risk rises, the flight to safety and to quality brings investors to U.S. markets. But the United States cannot take this hard-earned reputation for granted.’… Jamie Dimon, the chief executive of JPMorgan Chase, painted a bleak picture of the days ahead if there is no resolution…  ‘As you get closer to it, the panic will set in and something will happen,’ Mr. Dimon said at the international institute event. ‘I don’t personally know when that problem starts.’” New York Times, October 13^th.

Meanwhile, Tea Party mavens are reveling at their newfound power. At a three-day conference of social conservatives in the second week of October – the so-called Value Voters Conference – Senate arch-conservative Republican Ted Cruz [above] pulled the most votes as the ideal Presidential candidate, and Tea Party Congress people, most in heavily gerrymandered districts where being ultra-socially conservative is a survival tool, were told to stand their ground on getting major concessions, including in the Affordable Care Act, as a condition to reinstating federal spending and approving the debt ceiling extension. This right wing minority chortled as the world added their pressure to Congress to make a deal. But either way, the Tea Party saw victory in the wind. A default would draw the United States back into the isolationist mode they want and cut government spending by necessity… or they might just get the concessions they are demanding.

“Cruz's message of religious liberty and freedom — echoed by his fellow Tea Party favorites Sen. Rand Paul of Kentucky, Sen. Marco Rubio of Florida and Sen. Mike Lee of Utah — received cheers, as did his criticisms of what he called Obama's ‘feckless foreign policy.’

“‘There are two things I have unabiding faith in: One is a benevolent God who loves each and every one of us, and No. 2 is the American people who love liberty and opportunity unlike any nation, any people in the history of this world,’ Cruz said.

“The three-day Values Voter Summit is billed as one of the ‘premiere’ events for social conservatives, who want to ensure that their views on same-sex marriage and abortion remain in the political spotlight… Tony Perkins, president of the Family Research Council, which hosts the event, said in an interview Thursday that attendees will hear the message of ‘hold the line’ against the Obama administration.” USAToday.com, October 11^th.

The subtext is a message to Wall Street – where conservative dollars have supported conservative GOP candidates – is a message that might leave those contributors cold: social issues trump our concern for your campaign dollars, so just get out of the way. Tea Partiers know that for them to vote any other way for any other reason will cost them their seats in Congress. And they’d rather have their paychecks than protect the paychecks of millions around the world.

How does it stack up? “Political scientist Matthew Green estimates that there are 48 Republicans in the ‘fearful caucus,’ who are not in the hard ‘no’ faction but whose primary concern is being at risk in a primary challenge. There are 29 Republicans who are loyal to the House leadership, and 17 more in districts won by President Barack Obama who are interested in a compromise.” CNN.com, October 14^th. And where are the American people, the grassroots anger, in all of this. Except for ultra-conservatives, they have been woefully silent on this mess. Time for organized action!

I’m Peter Dekom, and suddenly those secessionist movements are looking pretty good right now!