this is radio tabs

Adam Smith talked about an "Unseen Hand" Maynard Keynes about "Animal Spirits. " How does one quantify an essentially organic process known as the Financial Markets? One can see the Financial Markets as a collective aggregate that is based upon emotion rather than rationality. Here one would state that there is only a presumption or illusion of control over events as the pendulum usually swings in short arcs. In times of crisis or stress the swing become ever greater as fear becomes the over riding sentiment.

What we have seen since the day that SP downgraded US Debt from AAA is a loss of confidence in the American and European political process. Put that date down as a watershed date in the history of Financial Markets as they have essentially lost patience with the political;process and are now reacting with a fear that has risen to heights not seen since the 2008 financial crisis.The Markets telegraph that message with a decline every time a politician comes on the Tellie and says something that the Markets do not like. The Financial Markets showing this dislike/fear have pushed the Banking, Bond and Equity metrics towards a cataclysm which has eventually caught the European politicians attention. Thus the reaction we have seen is that the markets are dictating to the political process that hard choices are going to have to be made. To this end we have seen several interim governments established in Europe which are NOT elected but appointed (Greece, Italy) and a Conservative victory in the Spanish election. .

With regards to Germany one has mentioned a return of the Sturmabteilung which is a reference to the German Brown Shirts of the 1930's. This reference is an abstraction of the fact that Germany as the largest and strongest European economy is dictating that an iron willed fiscal policy of austerity be instituted in the indebted Euro zone nations; before they acquiesce to bailing them out. To this end the Germans are advocating that Fiscal Union be implemented which is a loss of sovereign determinism in favor of Euro eg German hegemony. In other words what the Germans could not accomplish in WW2 they are succeeding with, with the use of monetary and fiscal policy which also can be called the Sturmabteilung. .

With regards to the United States the election of a Republican House of Representatives has mollified the Financial Markets until the 2012 election. The Financial Markets have only expected limited success in bringing the Budget deficit and Sovereign debt under control. The Financial Markets in other words are sanguine with the current state of dysfunction in the US government. However by the beginning of the summer of 2012 the markets are going to be looking forward to the likely outcome of the election and will begin to telegraph that sentiment in the financial metrics. If it looks like a favorable Republican outcome the markets will react positively. If it looks like a split decision with the Republicans in control of the Congress and a return of Barrack Obama as President the following question, of can we afford 4 more years of dysfunctional government and gridlock will come to the forefront and will be answered in those metrics. The answer that Financial Markets will telegraph is that the US can not afford to put off a reconciliation of its deficit and debt problems another 4 years. At that time a nearly 20T USD debt along with the other unfunded liabilities will have sunk the US like the Titanic under a mountain of debt. As stated before Financial Markets do not wait until the last Shekel or Dollar has been spent before reacting thus one can expect a relatively quick response to the outcome of the 2012 election.

If the Republicans do gain control of the government and institute a course of action that the Financial Markets deem as acceptable the US economy will muddle along with slow to middling growth until those policies start to bear fruit. If the Republicans fail to act in an acceptable manner of deficit and debt reduction there will be a negative reaction by the Financial markets and a severe crisis will result as the Financial Markets will have given up any hope of a reconciliation by the political process.

As of late there have been several Liberal commentators stating that the 2012 election might not be the point of resolution of the direction that the US is going to be moving in with regards to either being a Social Democracy or returning to its more historical roots of self reliance. This argument is specious in the following, time is no longer on the side of the political process to resolve the problem. The problem has been kicked down the road for decades and has grown so large that it will overwhelm the financial and political processes if it remains unresolved for much longer.