Simon English: Mark Twain was right - take the US off your worry list
Thursday 08 November 2012
Outlook Mark Twain said: "Those of you inclined to worry have the widest selection in history." Another one for your list: the US "fiscal cliff".
Worry warts have been banging on about this supposed impending disaster for a long while. President Barack Obama's victory gave fresh stimulus to the calamity crew, those for whom America has been about to go bust any minute now for at least the last 40 years.
From Reuters yesterday: "US investors will hit trading floors this morning with the same President and the same problems in gridlocked Washington. First up: a looming budget crisis that could send the US economy reeling."
First of all, investors don't "hit" trading floors any more than you or I do but, that annoyance aside, this is another scare story that makes no sense. Like lions on the loose in obscure country villages, it may make headlines, but it should not cause sleepless nights to anyone who doesn't spend too much time on the wrong websites (put the internet down, sir, back away slowly).
The "fiscal cliff" is a $600bn package (other scary numbers are available) of tax increases and spending cuts due soon. The Democrats don't like the cuts, the Republicans are just mad – mad – about any hint of tax increases.
The government will be in deadlock! The deficit! Etc.
The US government finances will spin out of control (again) and the world's leading nation will go bust, after which so will we all.
Take a deep breath because I bring good news: none of this will happen.
The debate about the cuts and the spending will be public and vociferous, almost as if a fully functioning democracy were behaving exactly as it should. Then a deal will be reached, amusingly close to what we shall pretend was the "last minute" for everyone's lives to continue as normal.Before and after this, the worriers will bang on about US government borrowing being "out of control" and predict total disaster, any day now.
An alternative way to look at it is this: Government debt is not like credit-card borrowing. If it were we'd have been in trouble long ago.
There's no particular expectation that America will ever pay its debts off, the question is whether it can service them (easily).
New borrowings will pile on top of old ones, and the American economy will keep growing to cover the debt. China will keep buying US Treasuries at almost whatever rate is needed to keep American consumers buying its manufactured goods.
It might prefer not to, but it can't pull the plug, not least because to do so would crash the value of its US-heavy investment portfolio.
All of this is a confidence trick, if you like, but when it comes to America, there are plenty of reasons to be confident. For one, it just re-elected the smartest, most able President of our lifetimes. Whatever happens to the rest of us, America will be fine.
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