The worst fears of the Americans I talk to are being realised – not until the markets actually crack will there be a resolution to the crisis.
And so last night after both Europe and the US opened stronger, that meant once again markets helped dash hopes of a compromise. All the compromises involve politicians on one side or the other saying ‘we were wrong’, which requires a big stick (White House rejects US budget plan, October 16).
President Obama is adamant there will be no change to his heathcare legislation or further cuts in government spending above those already taking place. Delaying the crisis is not really a solution. The first black American President has dug in. He will not ‘let down’ his people.
The Republicans didn’t come this far to walk away with virtually nothing and have to admit that the adventure was a total waste of everyone’s time. Remember that the Republican driver, Senator Ted Cruz, is the first Hispanic to enter Congress. He is not about to back out with nothing and appear to ‘let down’ his people. He genuinely believes that ObamaCare will cause big rises in unemployment among his Hispanic supporters. In a 21 hour and 19 minute speech he explained to Congress that already many more employers were restricting work to 30 hours a week. Once a person is employed more than 30 hours employers must pay Obama heath care costs. Cruz believes he is fighting for the jobs of Hispanics and his Tea Party supporters, and, like President Obama, is in no mood to say ‘I was wrong’.
Over on Wall Street the institutions and brokers face a horrible dilemma. If they sell down and there is an agreement they will look foolish. Customers will say: “You should have realised there would be a compromise and not sold”.
On the other hand, if they do not sell down and the markets begin to crumble as derivatives failures cause havoc in the US and global banking systems and those who bought on margin are sold out (America's 'too big to fail' moment, October 14) the institutions will look even more stupid. “You should have realised this was going to happen”, angry customers will say.
When you have two sides of politics with such entrenched positions you need a circuit breaker and, as things now stand, the only circuit breaker seems to be the markets. Republicans might be trying to protect the jobs of Hispanics but they are also traditionally the party of wealth. A 10 per cent to 20 per cent fall on Wall Street will focus minds in Congress on both sides, but particularly Republicans.
The Democrats will then give some ground while the Republicans will be more concerned about the state of their share portfolios than the jobs of Hispanics and long-term debt problems.
Each time I write about this crisis I write that I could be wrong in saying that a big market fall is required to solve the crisis. Each time I hope I am wrong. And so once again I add the caveat that ‘I could be wrong’. But as the days pass it looks more and more as though I am right. The trouble is that in the US Wednesday is approaching and on Thursday we must prepare for the US to run out of money, which we are told will happen either on Thursday or Friday US time. If on Thursday/Friday the US market is thumped – really thumped – then there is hope for a weekend compromise. If markets hold then the talks may simply continue.