Failed Republican brinkmanship might have opened way for another Clinton in the White House
Last week American politicians (or more specifically the Republican Party) saw the error of their ways and staved off a potentially catastrophic development. The solution was nothing other than their favourite current action of postponement – "kicking the can down the road" as it has become known. In this interview, George Glynos gives context, providing insight into what made the deal happen and looks ahead. Could this have opened the way for another Clinton in the White House? After all, similar Republican brinkmanship played a big part in re-electing Slick Willie almost two decades back. – AH
GUGULETHU MFUPHI: The United States Senate and the House of Representatives, voted last night to reopen the government and raise the nation's borrowing limit, ending the 16-day shutdown that brought the nation close to default. Joining us now is George Glynos Managing Director as well as Chief Economist at ETM Analytics. George, the last-minute deals being struck yesterday afternoon our time – naturally expected – but is it a big deal?
GEORGE GLYNOS: Well, it turns out in the end that this was more of a farce, just politicians playing a game of brinkmanship until the eleventh hour. It's difficult to now call it something significant. They should have gotten this done many months ago. People forget that the debt ceiling had in fact, been reached on the 19th of May this year, so this has been going on for quite a long time. It's not as though the negotiations only started a couple of weeks ago. It's just that a couple of weeks ago, it started to become a bit serious because they were running out of time, of course. I think the market was prepared for it. They were anticipating it, priced for it, so hence you haven't seen a huge amount of response post that announcement and I think, rightfully so. This should have been done and buttoned down a long, long time ago.
ALEC HOGG: That's interesting. Remember Bill Clinton, who was just about to lose, or get kicked out of the White House, and then the Republicans helped him as well in a similar way the last time around. I guess this is going to pave the way for Hilary to become the next President. Another lady…
GUGULETHU MFUPHI: I hear that. That's what's going around the rumour mill.
ALEC HOGG: What does George think of that?
GEORGE GLYNOS: Well, I think the Republicans didn't do themselves any favours in this, and if the opinion poll is anything to go by, they have lost quite a lot of face. Certainly, they've lost a lot of public support. The fact that the Obama administration remained as firm as they were in terms of the negotiations, shows one that they did in fact have quite a lot of popular support behind them in this whole thing. From that perspective, going into mid-term elections next year, it's going to be very interesting to see whether or not Obama and the Democrats – more to the point – can secure the House of Representatives as well. They have the Senate. They have the Presidency. If they get the House of Representatives, watch this space because you'll probably find the Obama administration pushing through quite a lot more that they haven't been able to thus far.
GUGULETHU MFUPHI: We also know that rating agency Fitch, has placed the US on a negative outlook. Coming closer to home there's news that Moody's have downgraded South Africa, following BMW's disinvestment – another chop to the system.
GEORGE GLYNOS: It is and it isn't. In the case of America, I would certainly agree with the rating agencies. I don't think this sort of behaviour is the kind of behaviour that you would expect from a Triple A-rated country whose bond market is effectively used as the benchmark for asset pricing around the world. I think a point needs to be made there and I think the rating agencies have done it. In the case of South Africa – turning our attention locally – this has been a long time coming. We're pinpointing it on BMW, but let's be clear: we've been running a very uncomfortably high deficit now since the Great Recession back in '08 and '09. We really haven't come to grips with how we're going to narrow that budget deficit. Long before BMW made this announcement we already had a credit rating downgrade, and it was for all sorts of structural reasons having to do with imbalances in the South African economy, the inability of government to be able to tackle some major issues. That really is the key focus here. The BMW story I see more as a symptom, rather than a cause of a credit rating downgrade. It's a symptom and it's a symptom of a far bigger issue. To my mind, we need to take a step back, pull back the lens, have a look at South Africa and the general trend that we've been going on over the past four or five years. We also need to recognise that there's quite a lot that we could have done better, and that government needs to get on top of this fiscal issue. That's why we're looking with great interest at next week's medium-term budget policy statement, because we want some guidance as to how they're going to start making their fiscal space more sustainable.
ALEC HOGG: Ja, but you've got to take issue on a number of those points. Firstly, in the budget speech last year, Pravin Gordhan did roll back a whole lot of spending – an enormous amount of spending. I think it was something like R20 billion that they managed to cut off. The second thing is, our fiscal debt is extremely healthy when you compare it with the US, the UK, Germany, pretty much anywhere else in the world. They have been counter-cyclical. In some ways, I think the rating agency just seems to find the bad things about South Africa and doesn't really give us credit for the good things. Of course, we can get better, but with BMW on the one side, you have Mercedes saying they're going to re-invest more. It's hard to keep a balance I guess, if you are a rating agent.
GEORGE GLYNOS: Again, as I said I wouldn't place too much emphasis on the BMW story in terms of the actual ratings outlook. I guess the point is that it's 'horses for courses' and one has to assess each economy on its own merits. At the moment, we have to appreciate that South Africa, in terms of the growth that it's generating for example, is well below par – well below what fellow African countries are able to generate and well below what other emerging markets are able to generate.
ALEC HOGG: But your point is well made, that the mini-budget that's coming, just around the corner, is going to be quite important.
GEORGE GLYNOS: Quite right.
ALEC HOGG: We need to watch the union. We've not done much research on that yet. I know what I'll be reading about this weekend.
GUGULETHU MFUPHI: So do I. Thanks so much, George. It's always a pleasure speaking to you.