In the eyes of those who run financial markets – not just in the US but all over the world – a “dysfunctional” government is one which puts any impediments whatsoever on unlimited credit creation. Given the $US hundreds of TRILLIONS of “derivatives” extant, any such “limits” or even the thought that there ARE any limits is dangerous in the extreme. These same “markets” get awfully nervous when there is any discussion about “limits” to the issuance of US Treasury debt because that same debt is the ONLY underpinning for the US Dollar which is in turn the ONLY underpinning for the global financial system.
To understand the ludicrous nature of what now passes for “fiscal management” in the US or anywhere else, consider an example. At present, China owns about $US 1.2 TRILLION “worth” of US Treasury debt paper. Imagine if you will the reaction from the Chinese government if Mr Obama ordered his Treasury to mint a platinum coin weighing (let’s be generous) 100 troy ounces with a denomination of $US 1.2 TRILLION. Having received this beautiful, bright and shiny new coin. Mr Obama then stuffs it in his briefcase, jumps aboard Air Force One and directs the pilot to head for Beijing.
Upon landing, Mr Obama drives to the Great Hall of the People. He then requests and is of course granted a meeting with the Chinese Premier. Mr Obama then plunks his briefcase down on the Premier’s desk, extracts the coin, hands it to the Premier and declaims with a huge smile: “There you go – we’re even!” “I’m off to Tokyo now. I’ve got another one just like this one for them.”
Nobody could take this seriously, except an almost terminally dysfunctional government. Sadly, that’s the kind of thing that the markets are counting on and have been counting on for years.