What is London’s gameplan around the U.S. budget crisis? Are we simply witnessing the usual circus and theatrics (on both the Republican and Democratic sides) as part of the negotiating process? Or is London planning to take this a step further this time around and actually induce a real default by the U.S. on its Treasuries—for either a shorter or longer period of time?
Deliberately induced bankruptcies have been London’s stock-in-trade recently—against Russia, Argentina, Bangladesh. And of course Europe has had the struts knocked out from under it with the London-designed sanctions and energy policy. Is it the U.S.’s turn in the barrel, on a different scale than has happened until now, to make sure Washington doesn’t break ranks with London?
A major article in The Economist gives pause for thought. Headlined “What Happens if America Defaults on Its Debt? An Unimaginable Eventuality Becomes All Too Imaginable,” the article weaves a series of detailed scenarios.
“Congress could drive the country into its first sovereign default in modern history. A collapse in stock markets, a surge in unemployment, panic throughout the global economy—all are within the realm of possibility. The path to a default is clear.”
The article continues: “Default could come in two flavors: a short crunch or a longer crisis. Although the consequences of both would be baleful, the latter would be much worse. Either way, the Fed would have a crucial role to play in containing the fallout; this crucial role would, however, be one of damage-limitation.”
