This morning I'm sitting in the Coffee Cat in Easton, Maryland. Frederick Douglass was born nine miles from here. The great former US Senator Birch Bayh -- who led on Title IX education for women and got 18 year olds the right to vote -- lives in town.
But my mind this morning is on American complacency about its own economic situation -- and the wobbliness of the global economy. Easton is a pleasant place; people are buying coffee and their morning muffins here -- and someone is discussing who should invite to a party for a local author. But what would it take for Pleasantville to become modern day Greece -- where people are losing all that they have built and the social stress is undermining the solvency of the state?
The fact is that we don't know. We pretend that US institutions are better than others around the world -- and that the massive corruption we saw in the sub-prime loan sector that brought the global economy to the edge of collapse is nonetheless less severe than the books-cooking corruption of the previous Greek government. But the truth is that people in Easton largely trust Ben Bernanke and Tim Geithner and the folks at Goldman Sachs and in the banking sector to govern judiciously and make things work.
That trust no longer exists in Athens. The shock of the September 2009 financial crisis did shake trust in America but not fundamentally -- anger is at the edges, among the members of MoveOn and in the Republican-hugging Tea Party movement -- but the broad midsection of America is OK, complacent, trusting, and I'm not sure they should be.
I have become a big fan of Rob Johnson, a former music producer and promoter and former chief economist of the Senate Banking Committee, who now runs the George Soros-supported Institute for New Economic Thinking.
Johnson convenes the world's leading economists now and then; they range from Joe Stiglitz on the visible left hand of the spectrum to the sensible neoclassical sensibilities of Kenneth Rogoff -- and even right, though that is an inadequate term, of Rogoff. When one listens to some of Rob Johnson's court -- including Gordon Brown, George Soros, Joseph Stiglitz, Martin Wolf, Laura D'Andrea Tyson, Nouriel Roubini, and even lately Lawrence Summers (who spoke at this year's assembly at Bretton Woods, NH), one can't avoid suspecting that a next big thing is coming, a new crisis, one that will wipe out wealth at a scale we haven't yet seen.
George Soros' views on economic policy and investing are incredibly transparent, given the books he has written diagnosing the global financial crisis and then his "how he saved his fortune" decisions that he shared while in the middle of the financial meltdown -- the ultimate outcome being that he was one of the few who not only preserved his capital after the crisis had begun but came out billions ahead. I value his insights -- and he told me that only the most nimble investors with no biases and deep knowledge of all the new tools of modern finance will be able to surf the next economic tsunami. Even in the case of his own funds, he think he will take a large hit -- but that as he told me, "there will be something left over."
Gold and China may be the new bubbles of this era -- and as some top economic thinkers told me, during the next economic crisis, there is likely to be no refuge.
That is why the Members of Congress and even those advising President Obama are playing with triggers far more serious than dynamite, or even beyond the nuclear metaphor, when they flirt with capping the debt ceiling. It's not the silo of America's portfolio of debt that is the only issue -- and the fact as Treasury Secretary Geithner powerfully made at a recent Playbook Breakfast with Mike Allen that these debts were built by previous Republican and Democratic administrations -- but it is what will be unintentionally triggered if a debt ceiling deal didn't come through.
The sub-prime crisis was a big shock -- but in the scale of global economic tectonics, it was not the San Andreas. But the sub-prime mess did trigger and expose the massive imbalances between the US and a number of leading surplus nations, particularly China -- which depresses its own consumption and supports production and export led growth. That is the true global economic San Andreas fault.
So, the debt ceiling game could turn on the gravity switch for the US economy, end the global trust and reliance on the dollar, raise interest rates for cash-needing Americans and business across the board -- it could change everything.
I am generally a fiscal conservative, but of the Hamiltonian sort -- and believe in good credit focused at generating high value added, competitive jobs in America. America not only has a budget deficit, in part created by an ideologically driven focus on tax cuts for the wealthy coupled with large scale, unending, unpaid for wars and ongoing military commitments.
But because of past mistakes and a financial crisis hatched by the financial sector with cooperation of many in the federal government, the main street sector and small businesses are still gasping for capital. Big banks are lightly regulated with regulators complicitly allowing a "pretend and extend" game of not recognizing the collapse of value in much of the commercial real estate sector -- while small banks which did not gamble on sub-prime are heavily regulated and many well performing loans to small businesses being called in to tighten the loan exposure of these institutions. Backwards -- and stupid. This regulatory mess causes more "uncertainty" in the broad business sector than anything President Obama may or may not be doing on health care.
And the obsession now with cutting back spending after one of the largest financial crises in modern American history screams 1937. Read about it.
At Netroots Nation 2011 this past Friday in Minneapolis, I asked Center for Budget and Policy Priorities Senior Fellow Jared Bernstein, former economic adviser to Vice President Biden, whether he worried about 1937-like scenarios, and he said "Of course, I bring up 1937 with everyone in the White House I can."
Things may seem calm in Easton and wildly scary in Greece. Arbitrage between what is going on here and going on there is not automatic -- but the chances that affairs in Pleasantville will be shaken and rolled by something coming that we don't see at the moment are just too high -- and in this environment, high brinksmanship battles over debt ceilings and near term spending may be the trigger that really does shake global trust in American economic leadership and undermine the blind faith that Americans have generally had in their government and private sector economic leaders.
To ride the rapids ahead, we should not be throwing out the paddles and disabling the rudder.
-- Steve Clemons is Washington Editor at Large of The Atlantic, editor in chief of AtlanticLIVE, and Founder & Senior Fellow of the American Strategy Program at the New America Foundation. You can follow Steve on Twitter at @SCClemons
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