THE BLOG
09/04/2012 01:56 pm ET Updated Nov 04, 2012

Whoever Occupies the White House in 2013, a Political-Economic Crisis Is Inevitable

It doesn't matter who will live in the White House next year, the country will continue to sink into the mire as long as the two political parties are in street-fighting mode, and economists fly at each others' throats because they do not agree on a solution to the debt issue. If so, there is a high chance that the status of US sovereign debt and the dollar will come into question in 2013.

The World Bank has illustrated the hazards of faltering political systems. It researched sovereign defaults in 90 countries. The conclusion was that the chance of a default increases strongly if a state is hampered by weak institutions, a polarized government, and powerful interest groups. All of this applies to the US, where political decision-making has been deadlocked for a long time. For instance, instead of adopting a budget, time and again the United States has passed temporary legislation. This increases market uncertainty. The parties are constantly at loggerheads. Lobby groups are inordinately influential while its politicians are increasingly insulated from "normal society" because powerful special interest groups have hijacked the information supply to policymakers. Of course, politicians need to be very sure-footed to displease a benefactor who has contributed millions to their campaign war chest. In recent years, campaign donors and advocacy groups have become dangerously more important - especially since the Supreme Court abolished key restrictions on political funding. It does not help that campaigns tend to start as soon as the previous election is over. In short, America shows many of the characteristics that carry a high risk for sovereign default.

This situation did not evolve in a day. Recently, the Brookings Institution signalled numerous crises of leadership, not just in the US but all over the world. Owing to democratization processes and the communication revolution, the devolution of power, authority, and influence has been in progress for quite some time. No less than 77% of Americans agree that the United States is indeed suffering from a leadership crisis and Americans' approval of Congress has dropped to single digits . The same processes are at work in Greece, Italy, Tunisia, Egypt, Syria, but also for example in the Netherlands (the Dutch will vote for a new government for the fifth time in ten years). The world runs the risk of losing its bearings. Partly because those at the helm lack the knowledge, character, and skills to lead. Meanwhile, many citizens think they know best and want more of a say, as they are increasingly aware of their leaders' shortcomings.

This longtime subversion of traditional authority has gained momentum. Political systems around the globe are at the mercy of political-economic waves, which are large enough to smash bows and sink ships of state. In Europe, the financial crisis has morphed into a political crisis that threatens to blow up the European integration project. The situation in the US is not (yet) as bad. However, unless America repairs its institutional defects, US government bonds and the US dollar will be in jeopardy. Whatever the outcome of the November elections, the markets will become very nervous if it becomes obvious that the US economy needs ad hoc policies, merely to tootle along in a car with four flat tires: scandals and losses have shaken the banking sector to its foundations, private individuals have no work and want to pay off their debts instead of spending money, businesses are hampered by a worldwide economic slowdown, and the federal government lacks backbone and there is a danger it will tear itself to pieces.

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