The US television networks and major news websites have started displaying countdown clocks. With all the drama of an episode of MacGyver, the Eighties action series, President Barack Obama is sweating over the ticking timebomb primed to rip through financial markets one week from today. That is when the government of the world's most powerful economy says it will run out of money to pay its bills as they come due, for the entirely self-inflicted reason that its Congress hasn't raised an arbitrary legal limit on the size of the federal debt.
The plot is as predictable as MacGyver, too. The debt ceiling will be lifted, one way or another, but only when there are just seconds to spare. This is the way of things in the land of the free and the home of cowardly lawmakers; only a threat of Armageddon rouses Congress to unpalatable decisions.
The irritating thing yesterday was that credit markets refused to play their role. They are supposed to provide the dramatic music, the drum roll of collapsing share prices and soaring interest rates, to elevate the tension in its concluding phase. But the stock market was flat at lunchtime, even as President MacGyver seemed as far away as ever from corralling his sidekicks into the necessary team effort that will defuse the situation. Congressional leaders have been privately praying for a tumultuous week on the markets, to concentrate the minds of the deniers on the right who doubt the US will default if the ceiling is not raised, and to send a message back home to their constituencies that, hey, what else was there to do but vote for a raise? But the yield on US Treasuries, though it had spiked a little in morning trading, was un-cooperatively back to flat by lunchtime in New York. Traders are pretty confident they know political grandstanding when they see it, and remain confident that a deal will be done.
Unfortunately, this episode won't end when the countdown clock stops with hours (minutes? seconds?) to spare and the credits roll.
Both Standard & Poor's and Moody's have said they will factor the nature of the process, as well as the outcome, into their decisions on whether to downgrade US government debt. S&P even says that if there is no immediate deal, or no immediate prospect of a deal, to reduce the $4 trillion deficit to go along with the debt ceiling raise, then it will axe the country's AAA credit rating – and the consequences of that are impossible to calculate. Whatever fudge is finally achieved, the dysfunction of the US political system is too clear now to ignore.
President MacGyver and his Congressional colleagues may defuse the ticking timebomb, only to find the explosion happens anyway.Reuse content