Debt Ceiling And First World War25 July, 2011, 22:17. Posted by Zarathustra
Tags: Debt Ceiling, Economy, United States
FT Lex has a pretty good discussion on this issue. In particular, they point out that there are some Tea Partiers who actually believe that the United States government will need a crisis to reshape the working of the government. That is appalling as this is an act of putting the entire world economy on the brink of crisis (even though no one knows what will really happen). In any case, it does not appear to be the case that the probability of resolving this mess has increased a great deal over the past few days.
But perhaps because the United States has the ability to repay its debt and because of the expectation that those clowns a.k.a. politicians can get their acts together to avert a “Debtageddon”, the markets have pretty much shrugged off the worries. Despite those clowns a.k.a. in Washington making a self-imposed deadline of putting together a deal by today’s Asian markets opened and subsequently failed to deliver, the Asian markets had no idea what was really happening. In fact, the bond and stocks markets in the US right now, although falling, are hardly in a panic.
But this might be a weird déjà vu moment if those clowns still can’t put together some deal. The first déjà vu is related to the TARP, which was rejected by the House at the height of the 2008 financial crisis, which subsequently sent the markets into a deep dive. That we know it.
The second déjà vu has to do with the First World War: no one expected the assassination of Austro-Hungary Archduke Franz Ferdinand by Gavrilo Princip would trigger a European War, let alone a world war. With the ambiguity of British politicians on whether Britain would remain neutral should Germany violate Belgian neutrality, no one in the City of London genuinely believed that a major war is just around the corner, and even those who seriously thought so would not have thought of a protracted war. As Niall Ferguson puts it in The Ascent of Money:
Not until 22 July did the financial press express any serious anxiety that the Balkan crisis might escalate into something bigger and more economically threatening.
And in his book on the First World War, The Pity of War 1914-1918, Niall Ferguson elaborated further. Note that John Maynard Keynes was on the wrong side too:
The first real symptom of the crisis was a sharp fall in bond prices – the customary sign of an international crisis. On 29 July consols plunged from above 74 to 69.5 and continued to fall when the market re-opened… The five-point drop on 1 August was, according to the Economist, unprecedented… The bonds of the other powers slumped even further… The slump affected share prices too, even those of non-European companies. Keynes had made some ‘courageous’ purchases of Rio Tinto and Canadian Pacific shares on 28 June on the assumption that Russia and Germany would not ‘join in’ and Austro-Serbian war. He was one of many investors now looking at severe losses.
And on 4 August 1914, Britain declared war on Germany.
Owing to the summary rejection by the German Government of the request made by his Majesty’s Government for assurances that the neutrality of Belgium will be respected, his Majesty’s Ambassador to Berlin has received his passports, and his Majesty’s Government declared to the German Government that a state of war exists between Great Britain and Germany as from 11 p.m. on August 4, 1914.
And this is what Sir Edward Grey, the British Foreign Secretary at the time, had to say after declaring war:
The lamps are going out all over Europe. We shall not see them lit again in our time.