America Still Closed....

Years ago while one nation after another was downgraded by the ratings agencies the one country that would never be downgraded, regardless of the circumstances-or at least that was the rhetoric at the time-was America.

Part of the explanation for this view was that the USA was by definition the "risk-free" rate, so how can you downgrade something which is the benchmark against which everything else was priced?  Another supporting factor was that if you were to have rated the USA "blind" it would have been  BBB, A- at best so it was obviously in a class of its own.

And then it got downgraded.

Now, because the current problems with America are self-inflicted by the opposing political ideologies the market is trying to convince itself that not even the most fanatical ideologue would force the issue of a national health care system to the point that they would cause the USA to default.

I'm not so sure. 

The most extreme ideologues are willing to die for their cause creating the suicide bombers first in Sri Lanka, and now across the jihadist world. And one shouldn't forget that the Sri Lankans were politically motivated.

So back to the USA. 

It is clear that the closure is causing serious concern outside America as the world power cancels meetings and delays agreements due to their inability to pay.  This is annoying, but not irreparable.  What is a serious problem is that the reputation of the United States is being tarnished by the apparent bloodymindedness of political ideologues who don't appear to have either an understanding, or even more worryingly, a care about the impact their politicking is having. 

And that is just the closure of America. 

What happens if their intransigence pushes America into default?  We have until October 17th to solve this.  Then, at best, it seems that the Treasury can still play around with the numbers and stay solvent until November 1st.  But all that does is push up volatility and forces erstwhile allies and trading partners to reconsider the value of their American relationship while opening the door for America's geopolitical competitors to fill the gap.

And that is if they don't default. 

The ramifications of an American default are incredibly damaging across the board.  It would go way beyond any questions of reputation.  It would be a shock to the global financial system, the result of which would be truly frightening. 

The markets are hoping that somebody blinks.  They are expecting it to be the Tea Party.  Suicide bombers are ideological fundamentalist fanatics.  That sounds like the Tea Party...