The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage
NEW YORK (
) -- It is pretty much settled that the European Monetary Union, as it is now constituted, cannot survive. It is just a matter of whether the course of events will be disruptive, or will be coordinated by the European leaders. Given what we have observed over the past year-and-a-half regarding their unfolding debt crisis, I suspect the former. We may even see bank runs, frozen credit markets, plunging equity values and other ugly stuff if the political forces there don't get their acts together real soon.
But, let's not be so naïve as to think that we, in America, are immune from a similar scenario. No, the dollar isn't going to break down into a set of regional currencies, although I do suspect that the coming QEs (3, 4, 5...) will significantly lower its value. What I am talking about is the inability of the U.S. political system to effectively deal with the economic imbalances that have developed in America, mostly in this century. By always kicking the can down the road, as only the skilled politicians in Europe and America can do, they assume the risk that the inevitable changes that must come to restore balance will be disruptive, even violent, rather than controlled and coordinated.
Nov. 23, 2001 -- that is the next critical date for the financial markets, as they hang on the pronouncements of politicians, in this case, a subset of the U.S. Congress dubbed the deficit super committee. We have recently witnessed the skill with which Europe's political leaders manipulated market sentiment each week as they continually showed their mastery of the art of can kicking.
In the U.S., progress on its own debt crisis should be much easier to achieve than in Europe, as only two sides have to agree, as opposed to 17 disparate and culturally diverse entities that form the European Monetary Union. But, because we are only 12 months from major U.S. elections, real progress on deficit reduction is unlikely. The U.S. debt crisis will surely be kicked further down the road.
Even in the unlikely event that the deficit super committee finds the $1.2 trillion to $1.5 trillion that they are looking for (there appears to be a bipartisan subgroup within the super committee pushing for such a result), such cuts will be placed in the out years, only to be recast, manipulated, or simply forgotten or ignored by the next generation of the political elite occupying the halls of Congress in 2021. Further, in reality, $1.2 trillion to $1.5 trillion is only a drop in the bucket of the spending problem in Washington, D.C., and, even if agreed to, won't make much of a difference except to instill some hope in the equity markets, perhaps enough for 300 or 400 Dow points on or before Nov. 23.