But in truth, anything short of a comprehensive resolution of the Entitlement Cliff threatens to sap the economic prospects of the United States for generations to come. At present, however, the U.S. dollar, despite its inherent fatal flaws, continues to be perceived by many as the 'currency of refuge'. In contrast, the euro, although protected somewhat by central banks, does not enjoy the full status of an international reserve currency. Therefore, the Eurozone has been forced by the financial markets to jump off the cliff and endure economic austerity.
This privileged position has conferred on Washington the vital element of time to organize viable revisions to its entitlements. As a result, plans could be made to coordinate the restructuring and reduction of government spending, borrowing and taxation. A wise government could be looking to make an orderly descent from the top of the cliff, making provisions for solid footing and safety lines. But alas, this opportunity has been left unexplored.
Though a short-term fix may have been reached, the Entitlement Cliff still looms large and descending down this precipice could seal the fate of the U.S. dollar. As a result, the ability of U.S. politicians to deal with entitlement spending will have global economic consequences of the highest order.
The shockwaves of miscalculations if made by American politicians could reverberate around the world, affecting international financial markets and threatening the continued viability of fiat currencies.
John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.