A Superpower At Risk Of Slippage

[Purveyor]

It has been 10 days since the US government shutdown came to an end. And if the bond market were your guide, there would appear to be no lasting costs – the 10-year US Treasury yield dipped below 2.5 per cent this week for the first time since August.

Yet beneath the surface, Washington’s flirtation with a voluntary default has shaken confidence in American political institutions. There may be no immediate rival to the dollar as the world’s reserve currency. Markets are more preoccupied by prospects of a delay to the Federal Reserve’s tapering plans. But as John Kerry, US secretary of state, said this week, the world is now monitoring the US to see when it will recover its senses. It cannot afford to make a habit of political recklessness.

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The fact that Washington is undergoing a crisis of will, rather than ability, is not particularly reassuring. There is no question that the Treasury’s has capacity to service US obligations. At about 75 per cent of gross domestic product, publicly held US debt is entirely manageable – and less than a third of that of Japan. And the US fiscal deficit is on course to drop below 4 per cent of GDP next year.

But the possibility that it may generate yet another fiscal showdown as soon as January or February is on everyone’s minds. Last week a senior Chinese official called on the world to “de-Americanise”. Neither the Chinese renminbi nor the euro are in a position to supplant the US dollar, which still accounts for more than 60 per cent of global reserves. But governments and private investors are far more alert to possible alternatives than before. History is littered with solid objects – and riskless assets – that have melted into thin air.

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[Doctor_J]

1. More like circling the bowl

We're a laughingstock because of teabaggers, gun nuts, the Bush family, our health "care" system, media, and every other right wing feature of this once-great nation.

[rock]

2. The risks of a Democracy

A Democracy risks:
- That it may elect an idiot with no political savvy whatsoever;
- That one party may decide that since it can no longer pedal it's archaic ideas that it has to resort to fascist methods to gain power;
- That one congressman may have a pivotal role that allows him to control the integrity of the entire government.