Washington Plays With Fire - Here's the Worst-Case Scenario

Mark Larson * Money & Markets

Is it just me, or does it feel like we’ve been here before? Not once. Not twice. But repeatedly over the past few years.

I’m talking about being on the brink of a crisis, one sparked by budget and policy fights in Washington. Think the sequester battle at the end of 2012, the debt-ceiling debate in the summer of 2011, the 2009 battles over the Obama stimulus package — you name it.

And it’s not just Washington, either. Look at what happened in Europe between 2010 and 2012.

Throughout that two-year sovereign-debt crisis, as the price of the “PIIGS” bonds collapsed and the economy slumped, policymakers gathered for summit after summit. They cooked up “fix” after “fix,” only to watch the crisis continue to gather steam.

Things didn’t finally settle down until ECB President Mario Draghi issued his infamous “whatever it takes” comments more than a year ago. But even that didn’t fully fix things — just witness the economic implosion and banking-system collapse in European Union member Cyprus a few months later.

So what are my thoughts about the current D.C.-driven crisis? The obvious answer is that Washington is once again playing with fire. The economy has moved far beyond the credit crisis and Great Recession days of 2007-2009. But business and consumer confidence remains fragile, and economic growth is not as robust as it should be.

The longer the fight over a continuing resolution to fund the government lasts, and the longer Washington remains largely locked down, the more potential damage the economy faces.

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http://www.moneyandmarkets.com/washington-plays-with-fire-heres-the-worst-case-scenario-55303