Thursday, October 17, 2013

The delusion of victory and the damage done

. - by New Deal democrat

Both temporary and permanent damage has been done to the US economy due to the latest fiscal crisis. Standard and Poors estimates that the US lost $24,000,000,000 of output due to the government shutdown. But the damage is more permanent. This is from CNBC:
Currency analysts have told CNBC that the dollar's status as a reserve currency will suffer long-term damage from the impasse.

"I think it's part of the demise of the dollar as an international reserve currency," Chris Watling, CEO of Longview Economics, said of the U.S. government's political impasse. Alasdair MacLeod, head of research at GoldMoney Foundation, agreed saying the dollar's credibility has taken a "very, very bad hit".

if the dollar loses status as the world's most reliable currency, the United States will lose the right to print money to pay its debt and could be forced to pay this debt.
But at least fiscal hostage-taking has been well and truly killed, right? According to CNN, Obama certainly thinks so:
As Obama walked away from a press conference Wednesday night, he was asked whether he thought America would be going through this brouhaha again in a few months.

His answer: "No."
And so do Congressional democrats, According to Felix Salmon:
Democratic aides are confident GOP debt limit extortion is effectively dead. They acknowledge the Cruz-ites will try for another debt limit crisis, but can’t imagine GOP elites will humor this demand next time, when the 2014 elections are underway
But remember, Washington democrats also thought that the GOP would never, ever let the sequester happen. And everybody else seems to think the GOP will be right back for another bite of the apple in three months. From the same CNN article quoted above:
[F]ormer House Speaker Newt Gingrich predicts tea party and staunch conservatives in the GOP will be more energized after not getting the anti-Obamacare amendments they wanted.

"They will be more embittered, more angry. They will find more ways to go after Obama because they can't find any way to get him to negotiate," he said, adding that he expects Obamacare to become the defining issue of the next two elections cycles.
So does Felix Salmon:
The Tea Party doesn’t take legislative defeat as a signal that it’s doing something wrong: it takes it as a signal that nothing has really changed in Washington and that they therefore need to redouble their nihilistic efforts. Take it from me: come February, or March, or whenever we end up having to have this idiotic debt-ceiling fight all over again
So does John Chambers, the managing director of Standard and Poor's rating service:
"We think that we'll be back here in January debating the same issues. This is, I fear, a permanent feature of our budgetary process."
And here is one final bitter dose of the consequences, from Michael Carey of the Wall Street Journal:
The world has lost its faith in the U.S. It no longer deserves to be a Triple-A credit.

This was encapsulated in the nods of agreement that were seen in a packed auditorium at a Washington conference of international bankers on Friday when a visibly angry BlackRock Inc.BLK +2.82% CEO Laurence Fink told the audience that the U.S. is not a “principled nation.”

When men and women who control tens of trillions of dollars in U.S. investments are indicating they’ve lost their faith in America, it goes to the very question of whether the U.S. deserves to be at the center of world finance. So, whether or not Fitch Ratings follows through on the “Negative Watch” status that it placed on its top-notch U.S. rating Tuesday, it’s clear now that the dysfunctional American political system no longer justifies a Triple-A rating from anyone.
Warren Buffet this week called the debt ceiling "a political weapon of mass destruction.". It must be repealed in full.