I am elated to see that our representatives in DC have reached a compromise on the fiscal cliff. Kudos to them.
Why was this agreement achieved at the very last moment as opposed to, say, Dec 14th? Beats me, but this is symptomatic of political instability.
Let's be realistic and ponder whether we will ever have a normal political process again. What laws can ever be passed with no compromises, negotiations, and sights on the big picture? At this time, and for the past several years: none. Except, perhaps, for the minimum necessary laws before elections....
We have a political class that disregards the needs of the citizens that elects them. This is because we have only two official parties and too few elected representatives. It seems to me that these 2 items are the seeds of a severe constitutional crisis. On top of that we have the 2nd and 14th Amendments that require clarification.
Every week that passes shows that DC appears to be consumed by an an 'already advertised' crisis. This week's crisis (and for the next several weeks) is the debt ceiling. Nothing ever happens in DC until the very last moment.
If the financial markets do not punish our elected representatives by refusing to accepts such low returns as 0.5%/year on US government bonds then nobody can. What is the rationale for the financial markets to assume that the US government can pay its obligations back on time? I am not sure, but I would assume that the financial markets have more collective intelligence than the collective intelligence of our democratically elected representatives.
Perhaps short term myopic behavior is an attribute of the free market. However, as far as our democracy goes we can clearly see that it has hit a few speed bumps along the way. The objective of our democratic processes is to make US a better place for all Americans and not to blindly facilitate acceptance of some purely artificial political dictates (such as the 'no new taxes pledge').
If the financial markets see no problem with the US debt levels -given the low returns they offer no less!- then why are our representatives so 'worried' about that? The Congress and Senate are both equally responsible for the historically accumulated debt of the US government, after all.
What is the point of having a perfectly balanced budget with no national debt if people live in fear, poverty, and uncertainty? There is no historical evidence showing that a nation has lived better during balanced budget times than during deficit/debt regimes. I am willing to bet that North Kora has no budget deficit or national debt. Are they well off at all? On the contrary, they do not leverage the time component in their day-to-day economy.
Theoretically and wholestically, the total debt issued by anybody must be owned by somebody somewhere, so we are in perfect balance and harmony. Nobody forces anybody to buy any debt issued by somebody else.
The nature of the modern financial system is such that debt is at its core but this does not mean that we can legislate how the capital and financial markets should work.