Sunday, October 6, 2013

A Shutdown, a Showdown and Global Transitions

After the U.S. Congress failed to pass a budget, many “non-essential” government services were shut down.  A core issue tied to the budget showdown is the Affordable Care Act (aka Obamacare) which was passed by Congress during 2010 and ruled constitutional by the U.S. Supreme Court on June 28, 2012.
  • President Obama said "I'm happy to have negotiations… but we can't do it with a gun held to the head of the American people”
  • Congressman John Boehner said “when we have a crisis like we're in the middle of this week, the American people expect their leaders to sit down and try to resolve their differences."
(Note: There have been 17 Federal government shutdowns since 1976. The most recent, during 1995-96, lasted 28 days.)

Separately, Managing Director Christine Lagarde of the International Monetary Fund (IMF) said, during a presentation at George Washington University,”Five years ago, the global economy avoided a second Great Depression. Five years on, the journey is not yet complete, but the fog of crisis is lifting—and we can see that its aftermath leaves us with multiple new transitions….Two in particular stand out: a transition in the patterns of economic growth, and a transition toward a different kind of financial sector. In each of the two major transitions…the international community faces a common challenge: to make sure that all can gain from globalization and prosper in our increasingly interconnected world….The global financial crisis has shaken the faith of many in the virtues of being open and engaged with the world. Managing these transitions well is the best way to demonstrate the benefits of interconnectedness—through trade, well-regulated finance, and more equitable growth.”

  • Regarding the U.S. shutdown – While pundits suggest that shutdowns are a part of the political process, the economy remains fragile, political polarization is high and satisfaction with Congress is low. As some power brokers may seek to “break the back” of the Federal Government, such a process would trigger significant collateral damage. Hopefully, a resolution occurs before the U.S. hits its debt limit on October 17.
  • Regarding Christine Lagarde’s comments – as she seeks a more moderate role for the IMF, her presentation highlights that economic recovery will be accompanied by challenges and uncertainty. An example is the U.S. canceling trips to trade talks with the European Union and Asian nations as a result of the government shutdown.

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