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Saturday, 29 July 2017

On civil wars

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Anthony Peters: “Buy on the sound of fighting politicians and take profits when they kiss and make up”.

Anthony Peters

Anthony Peters, SwissInvest strategist

Sometimes I feel like screaming. This morning it was a report on the wireless which quoted a newspaper dubbing the US government shutdown as demonstration that the country has never been more divided. I challenge this piece of nonsense on two counts.

The first count is that, as a keen student of the American Civil War (1861-1865) which over four years ended the life of around one in ten of the nation’s male population and which culminated with the assassination of the President, I find it hard in any way to hold up the events of 150 years ago against the petty posturing on Capitol Hill in 2013 and to see any measurable comparisons.

The second is that it is not the nation which is divided but the politicians who eat and sleep pork barrel politics and who do not seem to give a fig for the wellbeing of any citizen who is not a member of their respective parochial electorate.

In fact, if one takes a disciplined approach to American politics, it is not a polarisation of political opinion which is prevalent but a vicious, no holds barred, cat fight for the middle ground which is the cause of much of the current problem. It brings with it one very important question and one which is taxing the minds of both John Boehner, the Republican Speaker of the House, and of the President which is whether ultimate power should be vested in the legislature or with the executive.

The Democrat Senate and a Republican House ending up in each other’s hair comes as no surprise although the received wisdom has been that a hung Congress would reinforce centripetal politics and prevent any form of extreme shifts in the legislative landscape. Irrespective of my long-standing antipathy towards President O’Bama – this is a personality and not an ideology thing – I believe that it is his intransigence which needs to be questioned more than position taken by Congress which, equally, contains a goodly number of fairly odious right-wing Republicans.

It should not be forgotten that these tricky right-wingers of the Tea Party movement harp back to the Boston Tea Party of 1773 which took place at the beginning of the uprising of the British colonies in North America, which was driven by the principle of no taxation without representation and which ended up with secession and the founding of the Unites States of America. No taxation without representation has now been replaced in Tea Party speak by no taxation without accountability.

False ceiling

The concept of the debt ceiling which comes up for debate in a few weeks and for which the current government shutdown is only an early skirmish, was first introduced in 1917 in order to match appropriation with funding. From then until the late 70s all moved quite smoothly but in 1979 Dick Gephardt foresaw pending issues and introduced what became known as the Gephardt Rule which determined that the Federal budget and the debt ceiling had to be dealt with by Congress at the same time. This applied until 1995 when the Republican Congress repealed the law which in turn led to the first government shut-down under the Clinton presidency. Since then, the debt ceiling has become the prime political football when it comes to attempts to limit the Federal deficit but one which has caused untold uncertainty without actually achieving much in terms of fiscal discipline.

In the year 2001, when George W Bush was inaugurated as President, the debt ceiling was set at $5.95 trillion. By the time he left the White House in January 2009, the said debt limit had risen to $11.31 trillion. Now, five and half years on, it has risen 47½% to $16.69 trillion – nearly triple. Over the same period, US GDP has risen in nominal dollars from $10.475 trillion to $16.661 trillion, an increase of a “mere” 59%.

There is a very serious need for the Washington to get its spending habit under control but it seems to persistently find reasons why now is not the time to do so. The key battle ground is over the funding of “Obamacare” in which the President has invested nearly all of his political capital but in doing so he has created a huge Achilles heel which the Republican House can aim and strike at, at will, and which it is doing with gay abandon.

I remember the 1997 government shutdown very well indeed and the end of the world as we know it which was predicted at the time did not come to pass. I am equally quite certain that the current crisis will blow over in due course and that ultimately the sum of all fears will not amount to a hill of beans. Whatever slowing we might see in Q4 GDP will be made up for in a subsequent spurt in Q1 and Q2 2014.

Nathan Rothschild said: “Buy on the sound of the cannons and sell on the sound of the trumpets.” I say: “Buy on the sound of fighting politicians and take profits when they kiss and make up.”

Time to sell the Italian stocks you should have bought on Monday.

And as far as America never having been as divided as it is now…..get a life!

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