(By Deutsche Welle) The US has brought itself close to another self-inflicted fiscal crisis, with the government in shutdown and Congress flirting with default. The volatility could undermine confidence in the dollar as a safe haven.
Since the end of World War II, international investors have looked at the US dollar as a safe bet, reassured by the full faith and credit of Uncle Sam. In hard times, they parked their money in US Treasury bills to ride out the storm. But these days, Washington is not looking as reliable as it once did to some investors.
With Democrats and Republicans unable to compromise on a spending bill, the federal government shut down for the first time in 17 years. And Republicans have once again used the debt ceiling as leverage in budget negotiations with President Barack Obama, risking a default on US debt obligations, which could have a major impact on investor confidence.
Even a short-term compromise to raise the debt ceiling through the Thanksgiving holidays wouldn’t necessarily stave off the danger. In the summer of 2011, the threat of a default alone provoked ratings agencies to downgrade the US for the first time in history.
“Nobody knows where that can end,” Axel Merk, president of the investment advisory firm Merk Funds, told DW. “We took the risk with Lehman, and it was pretty bad, but I don’t think we’ve seen anything in comparison with what could happen if the US was truly to decide to not pay on time.”