Clem Sunter

The insanity of Washington

2013-10-08 08:51

Clem Sunter

Imagine you were attending a listed company's AGM and the chairman got up and gave you the following address:

"Good morning, Ladies and Gentleman, I am delighted to announce a record loss where the gap between our costs and our revenue increased significantly over the previous year. At the same time, we managed to boost our debt to an unprecedented level but, in doing so, we had the whole-hearted support of not only the commercial banks but also the country's Central Bank. Indeed the latter has pledged to go on buying the bonds we have issued for an unlimited period and in such quantities that the interest rate we are being charged is being kept to a minimum.

"However, I also have to report on a distressing matter. Certain of our directors have taken issue with the policy of making losses and want us to generate profits or at least break even. Moreover, they wish to cut back on a project approved by the full Board more than a year ago which would have added to the future losses. Both ideas, as you no doubt agree, are totally unacceptable. They have already attracted an unfavourable reaction from the media who have labelled these directors irresponsible and castigated their proposals. I know I have your full support in rejecting these amendments with the disdain they deserve and in continuing to grow the annual losses we are making and the debt we are accumulating. Equally, the notion of only spending money that we have earned is absurd. The whole purpose of the business is to spend other people's money, whether that money is already in circulation or not."

I know that a government's mandate is wider than a company in the private sector; and it is there not to make a profit but to improve the lives of the citizens over which it has authority. In addition, I realise that the Keynesian approach of running budget deficits to restart an economy after a recession is very much in vogue. Nevertheless, the elephant in the room, which is the national-debt-to-GDP ratio of America exceeding 100%, is beginning to flap its ears and ready itself for a charge. There is a trade-off between Keynes and the solvency of the US government which has to be addressed in a mature, adult debate. Behaving like partisan brats does not become Washington - nor does the media circus with TV presenters swearing on camera.

Moreover, the shutdown of the US government over the last week has, apart from closing down national parks to tourists, created considerable uncertainty among many hard-working federal employees. The looming October 17 deadline for raising the national debt limit has introduced the possibility of default if no agreement is reached in Congress.

While the markets have shrugged off the whole saga as political point-scoring, the can cannot endlessly be kicked into the future. The subject of how the US government has to live within its means has to be addressed. I don't know how this is going to happen when there is so much bad feeling between the two major parties. The Americans are getting more fed up by the day over the shenanigans of their politicians.

Does that remind you of anywhere else in the world?

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