It has been 11 days since the US government shutdown came to an end. And if the bond market were your guide, there would appear to be no lasting costs – the 10-year US Treasury yield dipped below 2.5 per cent this week for the first time since August.
Yet beneath the surface, Washington’s flirtation with a voluntary default has shaken confidence in American political institutions. There may be no immediate rival to the dollar as the world’s reserve currency. Markets are more preoccupied by prospects of a delay to the Federal Reserve’s tapering plans. But as John Kerry, US secretary of state, said this week, the world is now monitoring the US to see when it will recover its senses. It cannot afford to make a habit of political recklessness.
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