The De-Americanized World
Congress continues to stumble toward a solution to the dual self-inflicted wounds of a government shutdown and debt ceiling. The latest deal will extend the debt ceiling until mid February but the long term consequences of the squabbling are becoming more clear.
The latest headlines from Congress suggest a debt ceiling extension until February 15 in exchange for rules that would eliminate accounting measures to extend future debt ceilings. In essence, it would make debt limits strict.
The other part of the deal would reopen the government until mid-January in exchange for comprehensive deficit negotiations.
The sum achievement of holding the government hostage for three weeks is almost nothing and the saga could repeat itself in months. A Chinese commentary in the official press may have penned a phrase that will reverberate for years with the call for a 'De-Americanized world'. In the heat of the crisis moment, the debt ceiling feels bigger than it really is but the drawn out saga has attracted the world's attention and, almost universally, the world's disdain.
In order for the United States to lead and set the agenda for the global economy it needs leadership worth following. Few would argue that Congress is a beacon worthy of America's military and economic might.
What's next is a slow erosion of US influence. In the 1990's America was able to forge the Washington consensus -- an economic leadership that blasted down the doors of closed markets and led to waves of privatization, for better or worse. That kind of clout is gone and what's left is eroding daily.
We warn against overreacting in the short-term but it's hard to imagine the US dollar will still be the sole reserve currency in 30-50 years.
Coming up later is the minutes of the latest RBA meeting. The 0030 GMT release could help shed some light on Steven's thinking but with the RBA sidelined, market reaction may be tame.
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