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Sep 24 2011

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Congress Dithers – Adding to Global Woe

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Congress, Take Note

No.

Not again.

Does Congress honesty believe that its actions have no consequence beyond the Potomac? That the world is somehow impervious to its tribal schemes and cabals?

Have these people learned nothing from the aftershocks of the debt ceiling debate this summer?

This is maddening.

Having failed – again – to create and approve a budget before the beginning of the 2012 fiscal year on October 1, the House, on Friday, passed a Continuing Resolution (CR) that funds the government through November 18th.  The spending ceiling for this temporary measure is at the level agreed to in this summer’s contentious debt ceiling settlement.

But to secure the votes of two dozen Tea Party Republicans, the House leadership conditioned $3.6 billion in funding for FEMA – the domestic disaster assistance agency – on a $1.5 billion offsetting cut to the Obama administration’s pet electric car program.

2011 has been a particularly challenging year for FEMA, most recently due to Hurricane Irene. The agency will run out of money sometime early next week, effectively shutting down agency operations on critical projects nationwide.

Despite the impact of a FEMA shutdown, Democrats have decided to draw a red line on the offset demanded by Republicans, claiming that the cut will cost thousands of jobs.

When the CR was went to the Senate yesterday, it was voted down by a coalition of Democrats opposed to the offsetting cuts and Republicans who want to make even deeper cuts, despite the debt limit agreement.

So, capital gridlock has left us with six days before a government-wide shutdown, and maybe three days at most before FEMA runs out of money, forcing a work stop on reconstruction.

And so what did Congress do?

They went home.

Yes, that’s right.  They are in recess.

The House adjourned for a week shortly after passing the CR  . The Senate is due to come back to work on Monday, but is also expected to recess for the Jewish holidays, and not come back to work until October.

So, as of this writing, Congress will not be in session to deal with the crisis that they themselves are responsible for creating.

It is a breathtaking abdication of responsibility.

What makes it worse is that this is not happening in a vacuum. We are in the middle of the most volatile global economy since 2008.

At home, the stock market has lost 700 points since the the Fed’s latest, underwhelming intervention in the markets.

Corporate credit risk spreads are widening, a negative harbinger of future profits. We had zero growth in jobs and retails sales in August, while new unemployment claims continue to exceed 400,000 per week and unemployment is stuck at over 9 percent.

Abroad, European credit markets are tightening on the growing systemic risks presented by the sovereign debt crisis, which could easily pose as virulent contagion to the US banking system. In addition manufacturing and services indexes across Europe have flat-lined, creating overlapping risks to employment, growth and revenues that echo globally.

And if this was not enough, China adds a wild card to this already tenuous global situation by attempting to moderate its own economic growth to head off a bout of inflation, potentially taking China off the table as a driver of global growth.

With bad news everywhere, the global market has become little more than a “confidence game.”

In the face of grim statistics, markets react wildly based solely on statements by global leaders and financiers. Merkel speaks assuredly about Greece and markets go up.  Her finance minister speaks to the possibility of Greek default and the markets tank.

Confidence is the only thing holding the system together.

Which is why what would otherwise be an insular, tribal DC power play with limited, real impact has such out-sized importance.

Confidence in markets, management and political leadership is precarious, and disruption in any one of them could have major implications for the global economy.

That Congress would force the shutdown of the United States government  over $1.5 billion in a $1.043 trillion budget is beyond preposterous. That with time to avert a shutdown, Congress would choose an indifferent carelessness by leaving Washington with unfinished work on the table is beyond offensive for voters who put them there.

This is particularly true since anyone in a Nebraska phone book could propose a solid solution without breaking a sweat.

What are we to think?

If Congress cannot find a fix on this, how are we to have confidence that the body will have the maturity, focus and dedication to act on the Super Committee’s recommendations in less than 90 days?

Is anyone looking out for the bigger picture here?

By their own selfish arrogance, Congress has now made the CR part of the global confidence game. A likely bumpy ride in global markets next week just got worse because of American partisans who have put agenda over country. If there is blood on the floor of international markets next week, our Congress will have been a willing co-conspirator.

These merry partisan warriors had better look over their shoulders.

“None of the above” may be the dominant voter sentiment come next November in an avalanche of anger and frustration.

 

 

 

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