Notes on the Averted Default
Jiayuguan, Gansu Province, China, October 17th, 2013.
Salaroche


We all know Barack Obama has backed down on his promises a few times in the past. Just think of the recent red line he traced for Bashar Al Assad, which the latter later crossed without any military retaliation from the part of the US, and you’ll know what I mean. No wonder dithering is a word often used when describing Obama’s posture before a few issues.

“If the President failed to make good on his promise to punish Assad militarily, why wouldn’t he fail to make good on his promise to stand by Obamacare?” That’s the thought the acrid congressional clowns of the Republican Party probably had in mind as they tried to extort the gutting or delaying of Obamacare from the President.

Boehner and his buddies of the reckless TPer sort thought they could hold the US Government hostage to their partisan thuggery, thereby expecting to collect political ransom from Obama, but it didn’t work out. This time Obama didn’t budge, thus giving the American public enough time to wake up and see through the irresponsible, hurt-America, gangster-style political tactics the Republicans were using. As a result, the government default has now been averted.

In the meantime, the whole world witnessed with concern as the Republican Party displayed in full color its shameless immaturity. Throwing political temper tantrums of such magnitude isn’t what many of us would expect from a political party as influential on domestic and international matters as the GOP presently is. This latest Republican gambling looked like something we might expect to see in a nascent democracy, not in the oldest democracy the history of the world has known.

Financial Markets seem to have estimated that the whole government shutdown was just a ploy Republicans were using to test Obama’s resolve, hoping he would dither and cave in once again. And they were right in their assessment of the situation this time around, as default was finally prevented and there was no panic anywhere. But what does it all say about America’s credibility?

The US Treasury is still the object of first and last resort for many international financial investors, particularly those of the governmental kind, but will this latest Republican brinkmanship leave such international trust untainted? Not too many people seem to think so, in spite of the fact that US Government shutdowns are nothing new.

According to Bloomberg, there has been an average of one US Government shutdown every two years since 1976. And, contrary to Obama’s views, US Government defaults have actually occurred in the past, one in 1814, when not even soldiers battling the Brits were getting paid, and another one in 1979, when the US failed to pay its dues on T-bills.

Then there was that time in 1839 when many states of the union defaulted on their debt payments (i.e., Pennsylvania, Illinois, Louisiana, Mississippi, Michigan, Indiana, Maryland, Arkansas, and Florida) This, of course, was not a Federal Government default, as then-President John Tyler made it perfectly clear to the British and other European investors, but such fact didn’t make the states’ default more palatable to them, nor did it lessen their resentment against the America of the time.

For the past several decades, the US has enjoyed a position of privilege in the world. The greenback is still the reserve currency of choice for a good number of countries and the US is still the biggest issuer of sovereign debt as well. Just take a look at China’s, Japan’s, or England’s holdings of US debt (approximately $1.2 trillion, $912 billion, and $347 billion respectively) and you’ll see what I mean. Up to now, the US dollar has been perceived as some sort of stabilizing factor in world economics.

But this latest Republican temper tantrum already has a few influential countries calling for the adoption or creation of a new international currency whose stability may be much less dependent on the political whims of a few extremist and irresponsible individuals of the TPer sort, and more in the hands of clear-minded individuals aware of the importance of a firm and reliable political and financial global environment.

Alas, however, the chances of the world bringing such wishes to fruition are presently nonexistent. At the moment, the only two currencies that could vie for the reserve currency position would be the euro and the Renminbi. But the Euro is basically in disrepute and the Renminbi is basically untrustworthy. The former because of southern Europe’s recent financial disasters and the latter because of the opacity of the Chinese government and the absence of market forces in determining the value of the Yuan.

For better or worse, therefore, the US seems to have been cast by history in the role of world leader for many years to come. Whether we like it or not, the financial destiny of the planet may still be subjected in the near future to the irrational whims of a small minority of irresponsible American TPers whose only desire seems to be to sow chaos and division in their wake.

But not all hope is lost yet. There is still the possibility that a spark of true patriotism might light up some of the obscure chambers of the Republicans’ minds so that someday soon they may come to their senses and disavow their allegiance to the destructive lunatic fringe in their midst.

Salaroche