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Will Political Violence In America Facilitate a Sovereign Debt Crisis in the United States?

January 11th, 2011 Comments off

The savage shooting incident in Arizona over the weekend, in which six people were murdered and many others injured, including a U.S. congresswoman, has brought forth all sorts of political commentary and PR spin in the American media. I don’t wish to add to the partisan debate going on in America over the Tuscon shooting. Instead, I want to point out that the perception of political stability in the U.S. has been the primary factor in enabling Washington to borrow unlimited amounts of credit to finance its profligate budget deficits. It is also a vital factor in enabling the American dollar to hold its value relative to other currencies, despite very weak economic fundamentals.

 

If the assassination attempt targeting an American politician at a campaign meeting in Tucson, Arizona is the start of a wave of politically motivated violence throughout the United States, that veneer of perceived political stability will evaporate, leaving in its wake a floodtide of investors and bondholders stampeding for the exists. The Arizona shooting incident may, on top of its political significance,  also be a harbinger of economic and financial aftershocks that could prove a final nail on the coffin of America’s so far unhindered ability to borrow money on the global sovereign debt market.  Those who know the American political scene well realize how polarized the U.S. currently is. That, and the easy access to firearms has always made the potential for politically motivated violence a serious possibility. After this weekend’s tragic melee in Arizona, America’s creditors and purchasers of Treasuries can no longer assume  that America’s political stability will prove impervious to a worsening trend of political polarization.