Sunday, December 30, 2012

At Center Stage: An Economic High-Wire Act in the U.S.

Last week, as investors attempted to assess the action and inaction of Washington political leaders, risk assets such as equities declined and volatility spiked up in the U.S. 

The following quotes highlight perspectives from selected policy makers:
  • Congressman Tom Cole of Oklahoma (Dec. 27 MSNBC interview): "To paraphrase Ronald Reagan, there's so much manure around here, there's got to be a pony someplace" and "I actually still think there's a chance to get something done and so, you know, these deals usually come together at the last moment. That's what happened on the budget deal, the debt-ceiling deal. I think that's what's going to happen again";
  • Senator Charles Schumer of New York (Dec. 28 NBC interview): “I’m getting a little more optimistic today – sometimes it’s darkest before the dawn”; 
  • Senator Olympia Snowe of Maine (Dec. 27 farewell speech, after 34 years in Congress): "Throughout my tenure, I've borne witness to government's incredible potential as an instrument for that common good," and "I have also experienced its capacity for serial dysfunction. Indeed ... it is regrettable that excessive political polarization in Washington today is preventing us from tackling our problems in this period of monumental consequence for our nation"; 
  • Treasury Secretary Timothy Geithner (Dec. 26 letter to Congressional leaders): “I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.”
MY TAKE
As Washington policymakers speak in terms of the “size of a deal” and the “potential for a framework”, investors remain concerned that “viable solutions” are not part of the discussion. Given the persistent “last minute” nature of Congress’s decision-making process, it is likely that investors will continue to confront “high wire” economic dynamics through 2013.

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