The latest showdown in Washington raises a whole host of questions and conjectures about what will come after the agreement struck yesterday by the U.S. Senate. A closer look at the most crucial issues involved is therefore in order.
From Political Farce to Economic Instability
Viewing the federal government shutdown of the past two weeks as political farce may help mitigate the gnawing anxiety over how large a threat it represented to the world economy. In fact, however, this most recent tug-of-war has thrown a new quandary into bold relief: the economy is increasingly at the mercy of politics at its very worst. In other words, our economic future may be shaped by partisan wrangling, even of the most ludicrous variety. This is not just an umpteenth American specialty, either. It is a tendency inherent in the lingering crisis that has bedeviled the advanced economies for over five years now, and it introduces a new kind of risk—unpredictable, uncontrollable risk with the potential to wreak havoc. While the too-big-to-fail syndrome may still look like it can shield us from the disaster scenario—federal government default—we would be well-advised to brace ourselves in this new phase for serial drama over the issue of U.S. sovereign debt and fiscal policy.
Plenty of room for more political strife.
How much fiscal tightening in 2014?
When will the downgrade occur?
What rates? What policy from the Fed?
What does it all mean for growth?