Deadline looms for US Congress
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 to defuse the ticking timebomb primed to rip through financial markets one week from now. That is when the government of the world’s most powerful economy will run out of money to pay its bills, 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 exactly as predictable as MacGyver, too. The debt ceiling will be lifted, one way or another, but only with 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 lawmakers 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 a team effort that will defuse the situation. The yield on Treasuries, though it spiked a little in the morning, was back to flat by lunchtime trading in New York. 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?
Unfortunately, this episode doesn’t end when 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, or no immediate prospect of a US$4trn deficit reduction deal 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.
President MacGyver and his Congressional colleagues may defuse the ticking timebomb, only to find the explosion happens anyway.