Seeking Alpha
Macro, economy, long only
Profile| Send Message|
( followers)  

Unless Congress gets its act together soon-today-it looks like we're headed into a black hole of economic uncertainty. The two crunch dates on the horizon: tomorrow, October 1, when a potential shutdown of the federal government begins if the enlightened pols in Washington don't come to an agreement on the budget real quick. But that's small potatoes compared with October 17, when the government may slide into a technical default if Congress doesn't raise the budget ceiling and agree to finance the spending bills that have already been debated and enacted. No one's really sure what all this means if one or both of these self-inflicted financial traumas come to pass. But you don't have to be a genius to recognize that the potential for trouble will rise the longer these risks are allowed to fester. Welcome to the increasingly bizarre new world of dysfunctional democracy in these United States.

The worst-case scenario is that both of these events arrive and the combined effect sends the US economy into a recession. Unlikely? Probably, but much depends on how long a government shutdown and/or a technical default persist.

Of the two risks, default is the bigger unknown, and therefore a potentially bigger risk. "Nobody knows what will happen because we've never done this before, and it's extremely rare of great nations to not pay their own debts on time," says Steve Bell of the Bipartisan Policy Center.. "This would be a black swan event, and it's going to happen at one of the worst possible times, coming in the wake of a great financial calamity called the Great Recession."

All of which reminds me of the observation that some say was coined by Alexis de Toqueville: ""In a democracy, people get the government they deserve."

Source: Flirting With Economic Insanity