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Minyanville Round Table: Debt Ceiling Talks Victimized by Social Mood

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With social mood positioned against compromise and consensus, we're likely to see more economic hostage-taking.

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If anything, the Fall of '08 -- and the build-up to it -- should open our eyes to what I see as many failings that aren't just political, but economic and societal as well. The bottom half would be better off if the education system better prepared them for the challenges of life, but at the same time, we've also become conditioned to hold many things in high esteem that at the end of the day aren't worth much. Just look at how much the highest paid athletes/actors make and ask yourself is THAT worth it? It's easier these days to see the price/cost of anything and everything, but assessing its value is an afterthought, it seems.

And now, with acrimony seemingly popping up everywhere you turn your head, "economic hostage taking" is going to be a symptom of this mood. Odd things like states going dry because their governments aren't funded (I'm looking at you Minnesota) are going to be more common. "Expect the unexpected" seems to be the theme du jour. And now with Moody's putting the US government on credit watch, I wonder what such a downward migration in credit quality would translate into in the bond market.

And where the dollar will sit vis-a-vis other currencies. Where would gold be if our sovereign rating migrated down a notch or two?

I wonder how folks in Bejing are feeling about their managed float now.

Peter Atwater:

For what its worth, I think the Republicans have completely misunderstood their "mandate" since the 2010 elections. Republicans were not so much elected into office as incumbents were voted out of office. And I think both sides of the aisle need to understand the distinction going into 2012.

As I've offered before, the "Oxygen Mask" policy response to the 2008 crisis only exacerbated the economic divide, and timed with the ending of the housing boom -- which employed a vast number of Americans, not to mention an aging population -- it has set up a situation in which cutting government entitlement programs is all but socially impossible.

At the end of the day it comes down to choices, and socionomically there is no place for consensus and compromise today. Those peaked in 2000 along with the markets.

But I am very concerned about the lack of understanding people seem to have about how interdependent governments, corporations, and financial institutions over the past 50 years. And the mortgage industry was just one of hundreds of significant examples still out there.

I know I sound like a broken record, but people should stop looking at America's ability to pay and start to consider what it is we are really willing to pay. No where can that or is that captured in a bond rating.

That is the difference between corporations and governments and somewhere along the line investors and regulators forgot that.

Willingness is entirely situational and a function of social mood. And from what I see, there is a startling difference between the social mood on Main Street versus Wall Street.

For Wall Street 2008 was an event. For Main Street it was just more of the same.

And one further thought. It is really interesting to see folks like Soros and El-Erian pushing for fiscal union for Europe right now as a solution.Socionomically, it feels like they are pushing a string. The only folks who want a union are the globalistas.

Kevin Depew:

Peter wrote, "At the end of the day it comes down to choices and socionomically there is no place for consensus and compromise today." The chart below from You.gov shows exactly what that inability to reach consensus looks like when extrapolated from polling data.



Democrats and Republicans show a perfect divide between supporting a candidate who seeks compromise versus supporting a candidate who will stand on principles regardless of the cost. Politicians understand this. And with respect to the debt ceiling, this socionomic divide gives us a higher probability than usual (usual being the 74 other times since 1962 that the policymakers have been presented with a choice of raising the debt ceiling) that no agreement will be reached by the August 2 deadline. I told Conor earlier when he wrote his piece (Why Congress Won't Lift the Debt Ceiling By August 2) that he will probably look quite prescient on August 3.
No positions in stocks mentioned.

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