The gathering storm?

US Capitol building

When the government of the world's largest economy faces shutdown in just a few hours, and the imminent collapse seems likely of a eurozone government struggling under crippling debts, there is very little of any profundity that can be said.

Except to note that the overnight falls in Asian shares of between 1.5% and 2%, and a drop in UK shares of less than 1% on average, seem a relatively mild reaction, in the circumstances.

And to point out that for all the absence of any big economic or financial shocks for the best part of two years, substantial accidents can still happen, in a global economy that remains structurally flawed in a serious and substantive way.

The fragility of the Italian administration is a reminder of the intimate and poisonous connection between big Italian banks and two trillion euros of Italian government debts. Undercapitalised banks, vital to credit creation, have lent an unhealthy amount to the state, and the most benign route to strengthening banks and state - a revival of growth which would generate profits for banks and tax revenues for government - is pimpernel-like in its elusiveness.

Or to put it another way, the eurozone is not fixed, for all the natural human instinct to assume it is OK to go back in the water simply because no one has been eaten by a shark recently (see page 2 of this morning's Deloitte survey of chief financial officers for evidence of how no news is good news for the economy's decision makers).

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The eurozone is not fixed, for all the natural human instinct to assume it is OK to go back in the water simply because no one has been eaten by a shark recently”

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Even the relatively modest attempt at burden sharing within the eurozone, a banking union that would initiate an "all-for-one" approach to reconstructing failing banks, is nowhere in sight.

As for the US, it is a recovering economy whose momentum is regularly and periodically hobbled by dysfunctional government.

The worst that could happen is, of course, not that 800,000 federal government workers could be put on unpaid leave, with disruption to all manner of non-essential public services, from passport renewals to park maintenance.

It is extrapolation to phase two of the budget negotiations, that there will be no agreement on raising the $16.7tn ceiling on the indebtedness of the government, which is much more serious for the rest of the world.

Because at that point the unthinkable would actually happen - default on trillions of dollars of US public sector debts, meaningful losses for pretty much every bank, central bank and pension fund on the planet, and a worldwide rise in interest rates for a global economy still wholly dependent on cheap money (just to remind you - the yield or interest rate on US Treasury Bonds is the benchmark for pretty much all interest rates, and when the bond prices fall, yields or rates rise).

Of course the worst probably won't happen. Congress will probably swerve the car a few seconds before it plummets over the cliff.

But this game of chicken doesn't seem altogether the best way to steward an economy that matters to us all.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 364.

    You don't need to have the brains of Einstein to figure out what will happen next ...........................................................................It's coming

  • rate this

    Comment number 363.

    ToryBoy @362
    Where to find equal partnership?

    Bad news: often thought of as applicable beyond marriage & business partnership (Levellers, Babeuf, Communes, GBS) but at sub-state level not sustainable (people fall ill, grow old, fall out, etc), and at state level even half-thoughts may attract care & attention 'with extreme prejudice'

    Good news, a formulation for today awaits creation and debate

  • rate this

    Comment number 362.

    No360 All for All,
    Rather chivalrous of you to be so tolerant with the Tory Central Office 'star' blogger.

    Where can we find out more about 'equal partnership'?

  • rate this

    Comment number 361.

    No357 Chris,

    'don't think that debt matters'

    I am not aware of anybody who thinks debt 'does not matter'.

    Are you? If so could we have their names?

  • rate this

    Comment number 360.

    Dear SURVIVOR,

    Thanks, but you have missed the point of the question, not just to list those we might blame (ourselves really), but to understand WHY their investments (debts incurred) 'on our behalf', turn out to be NOT to our benefit, but the reverse. If you have 'benefitted' from relationship in an equal marriage, or in an equal business partnership, did you use 'red' or 'socialist' to abuse?

  • rate this

    Comment number 359.

    #358 in the UK it was the labour GOV at the hide of a debt fulled doom that borrowed even more , labour/ red socialists always spend the grand chilren inheritance to bride the voters

  • rate this

    Comment number 358.

    Chris London @357
    "debt matters"

    What "matters" is WHO lent 'our' money, the power to direct 'our' affairs', to WHOM & for what purposes, to what effect beyond any incidental benefit to 'the public interest' (something more than the grateful sum of anti-social private interests), do not you think?

    "The US realises", nothing. Mammon ploughs on. People & planet in peril without equal partnership.

  • rate this

    Comment number 357.

    Only economic dummies don't think that debt matters and has a significant effect on how a government manages the economy. The US debt is out of control and trying to improve matters by just spending more is always going to come back and bite you. The US must now realise that they can't just keep on printing money and start actually balancing their budget.

  • rate this

    Comment number 356.

    No349 Tim,

    'How are we going to pay...'

    Perhaps a good way to start would be to tell all the thieving bankers and corporate gangsters who plunged the world into the worst ever economic crisis that their days are over, the days of scrounging off taxpayers are finished and that their evil neoliberal lunacy is to be despatched to the dustbin.

  • rate this

    Comment number 355.

    Comment number 349.Tim Hill
    38 Minutes ago
    ...- so how we going 2 pay back the debt without taking more from the masses & killing spending!?...
    We won't until we rid ourselves of the Financial Services Leeches who continue to cream money at everyone else's expense.

    Quite correct. Trickle down economics was discredited by the early 90's.

  • rate this

    Comment number 354.

    No303 Devils,
    'Debt tsunami'

    Only political dummies think a certain level of spending to bring public services up to standard was the cause of the worst crisis in the history of capitalism.

    This discussion is about the complete breakdown of the political and economic ideas that have been in vogue as a result of the Thatcher - Reagan revolution.

  • rate this

    Comment number 353.

    Tim Hill @349
    "high debt (post-war)
    (but) state 'crown jewels' (to sell)"
    Now, how to repay
    'without taking more from masses & killing spending?"

    With problems in credit & debt moving between public & private, tussle little-remarked between momentum of inheritance (capital & law), and the needs of responsible government (at risk from 'drainage' of labour - brains - & capital, bravely deregulated)

  • rate this

    Comment number 352.


    I do concede that it required the death of 25 or so million and a global war, but in 5 years Germany was able to grow again.

    We have had 5 years and the Osborne can only offer another 7 of Depression. plus as much again - if you are around in 2040 you will see the UK growing again and the oversized debt curse lifted.

    Problem is the fools STILL haven't yet deleveraged the debt.

  • rate this

    Comment number 351.

    349.Tim Hill "The UK was in high debt after the war"

    Don't be depressed. Pre war Germany (Weimar Republic) had hyperinflation - but look at Germany now. The 'secret' is to write off the debt and let the financial institutions go bankrupt. Whilst retaining a semblance of a bankruptcy law so that individuals with unrepayable debt secured against property have to give up all claim to the property.

  • rate this

    Comment number 350.

    jack daniels esq @348
    "a private illegal bank"
    How should we determine legitimacy?

    Appreciating our shared need of a currency for exchange, who could or should be 'in charge', or contribute to, the necessarily pragmatic 'business' of money creation, and money sequestration or cancellation, to maintain value at home and confidence abroad?

    Be positive. Start with all 'on-side', as equal partners

  • rate this

    Comment number 349.

    The UK was in high debt after the war. Yet, we still had many state 'crown jewels' & the eventual coming on North Sea Oil plus surplus coal and iron reserves. We ain't got any now, NS Oil in decline - so how we going 2 pay back the debt without taking more from the masses & killing spending!?

  • rate this

    Comment number 348.

    US Federal Reserve Bank is a private, illegal bank that has the Wall St
    Cartel as its client - it is funded by the American taxpayer - they simply
    keep printing money & selling bonds which the rest of the stupid world
    buys like there is no tomorrow for fear that their entire house of cards
    will come crashing down - which it will - very, very soon

    Impeach Obama & Holder for financial treason

  • rate this

    Comment number 347.

    Charles Jurcich @329,331
    "sadly disappointed"
    Economic poetry appreciated

    bigmouth @335
    "Charles and sagacity
    continually borrowing & printing
    ignoring evidence & common sense"

    To be doubted that economically literate management, grounded in the public interest, by its nature will be tempted to 'ignore evidence & common sense'. Take extreme sequestration, burning of £billions: best to re-print.

  • rate this

    Comment number 346.

    the US has lower taxes and lower provision until you add in all the state taxes, municipal levies and money you ahe to give the local church to get your kids into school. Then you have to pay up for everything (or not get sick). If they want an 'NHS' you have to also eradicate all those social mechanisms or the taxpayer will be massively overcharged for Obamacare.

  • rate this

    Comment number 345.

    "All the mainstream media advocate, "Shutdown is unacceptable but increasing the debt ceiling for the last 17 years is okay"."

    Tea Party piffle.

    The billionaire owners of the Tea Party and the insurance giants were more than happy for the US govt to keep shovelling billions of taxpayers money in their direction

    Spending money on anybody else is what is unacceptable to them & to their sycopahnts


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