An article (from the foreign press) includes an important warning to the USA regarding the current “fiscal cliff” negotiations between the Obama-led Democrats and the Boehner-led GOP. I have seen no mention of this very important warning in any American media.
The leader of the IMF, Ms. Christine Lagarde, has warned that the USA’s “international supremacy” is threatened if the USA doesn’t resolve this crisis satisfactorily in a way that removes global financial uncertainty. She adds that this crisis must be resolved to make sure that US “leadership endures.”
These warnings are couched in diplomatic language, but the IMF’s warning is a veiled threat to the entire US power structure to “get your act together… or else.” The US media continues to report the fiscal cliff crisis as if it were purely a domestic financial/political crisis. It is not. Because the dollar is the world’s global reserve currency, the entire world is detrimentally affected if the US simply cannot govern its own finances effectively or competently any longer. Ms. Lagarde’s veiled threat strongly implies that the world will begin to take action to remove the USA from its position of global [financial/monetary] leadership if it continues to be unable to govern itself competently. This could happen quickly if Obama, Boehner, etc. cannot get their act together. Both sides are like small children playing a game of chicken with each other while the nation’s credibility and financial security is at great risk.
As noted in my recent posts entitled, Top Credit Agencies All Warn of Imminent Debt Downgrade, and Straight Talk about the Fiscal Cliff, a failure to enact real revenue increases and significant spending cuts and entitlement reform could convince the world that the US government is no longer worthy of the role of global leader in currency/financial matters. If all rating agencies do downgrade the USA’s AAA bond status (as they have threatened to do if this crisis is not resolved) and global bond funds need to sell off US treasuries all over the world because their portfolio rules only allow them to hold AAA-rated securities, the US treasury market could decline gradually or perhaps even collapse suddenly. There will be no buyers for the mega-billions of US treasuries that could be dumped on the global financial markets very quickly. The damaging effect on US interest rates and on the value of the US dollar could be very great. I urge you to read the two aforementioned posts if you have not done so.
I’m not making specific predictions, but I believe the IMF’s pointed warning to the USA’s clueless leaders means that the rest of the world will start to insulate itself from a US treasury market collapse that is looming from mindlessly-foolish annual trillion-dollar US federal deficits and from a US dollar collapse that could also occur. The world has now warned the USA’s leaders to discipline its budgetary insanity. There is no indication yet that the USA’s leaders either comprehend or care about the danger to the nation in the fiscal cliff crisis. The world may act instantly or it may act gradually, but if fiscal sanity does not assert itself soon in Washington, DC, the days of US dominance in global financial/monetary matters are about to come to an end. The US media, by not reporting these warnings, is making sure that American citizens do not realize the true extent of the dangers the nation faces if the stubborn leaders of the US political parties do not reach a sensible, meaningful compromise to enact lasting budgetary reforms. Based on their actions to date I’m not optimistic that the USA’s political leaders will get their act together.
My thanks to a reader who brought this link to my attention.