What it says on the tin
The last week has seen frantic activity in the lobbies of Washington as the U.S. congress attempts to pass a bill to address what is approaching an insurmountable amount of foreign debt. And while senators from the right and left will inevitably have to meet in the middle, they insist to do so fighting a fight which can have no winner. In the red corner the republicans propose one combination of saving and raising the debt limit, while over in the blue corner the democrats propose another combination; neither of which have any realistic chance of being passed unamended. For the only thing they all seem to agree on is that compromise implies failure. And failure, of course, is not an option in American politics.
August 2nd is the last day the U.S. can borrow money to honour their debt, and thus the deadline for an agreement to be reached. While few experts believe the US will actually default on their payments, one possible outcome of the congress’ indecisiveness – the likelihood of which increases for each day that passes without a solution – is a downgrade of the country’s credit rating due to a loss in confidence of the politicians’ ability to govern.
If this happens, a downward spiral will begin; interest rates on the foreign debt will increase and be passed on to American homeowners; leading to a decrease in consumer spending and confidence; loss of jobs; a weaker currency. And so it goes.
In a fight with no domestic winner, the result is viewed in a different light on the opposite side of the world, where there are several million winners. Australian consumers will continue to benefit greatly from an American dollar which seems intent on reaching ever new lows, and continue to migrate online and overseas for their retail activities in great numbers. The losers, then, are our retailers, who are struggling to make the tough decisions and take the actions necessary to compete on the global arena they have unwillingly entered. Few predictions can be made in a world where countries go bankrupt almost overnight, but Australian consumers and retailers are very much a part of it, and must act accordingly. Indecisiveness is the enemy, also in Australia.