I was asked at a conference early in the summer whether or not the United States would be downgraded. I said that its possible but it would take some serious stones to downgrade the United States. Besides what would it even mean. If the United States is not AAA then how can anyone be AAA. No one is not exposed to US default risks.

Over the last few years in general my tendency has been to waive away as absurd any notion that the United States would default or that Treasuries are anything less than the most secure asset on the planet.

My thoughts and feeling have been shifting as of late. Indeed, for me the spectacle that was the debt showdown was a turning point. What was horrific was to see what appeared to be an utter lack of party discipline.

This occurred on both sides of the aisle but was without a doubt more prominent on the Republican side. There was a palpable sense that GOP freshman simply would not do as they were told.

Now, at the end of the day I was overwhelmingly certain a deal would come through. However, the level of brinkmanship shown was to great for me to feel comfortable with.

If things could go this badly when there is so little at stake, over a set of issues that is nearly meaningless in the long run, then that has to make one nervous about the future.

In my own mind the US government was downgraded last week. The S&P downgrade only confirms what I was feeling.

Now, we still have the problem that a downgraded US is a downgraded humanity. There is no substitute for Treasuries. What we have to face is that for the time being we are living in a significantly less safe world.

There is the urge to see this as an opportunity/call to action/warning that something needs to be done about the US political process in general and the modern Republican party in particular.

I don’t dispute this.

However, that cannot be the only serious answer. There is no obvious path towards reforming the GOP or repairing the US political system.

What we should and must begin to do is prepare to abandon the United States of America. No sentimental feelings of loyalty. No wishing we lived in a world that we do not. No hoping against hope that the land of our birth will somehow redeem itself.

We should begin to talk and think seriously about how to Internationalize the financial system and perhaps secure at least a viable competitor to the US in the issuance of safe assets.

We should begin detailed discussions and talks about the risks associated with China. We should begin to think heavily about the way the Chinese bureaucracy in structured. What are its long term weaknesses.

Are there forces which will push China towards openness and if so what is the plan for dealing with that type of change.?Is one party rule over the long run – 50+ more years – feasible?

Again this is no time for sentimental defenses of democracy or the open society of any of that. The financial world needs a stable home. We need a stable asset class. If the US cannot provide it, we should look for alternatives where we can find them.

I may be barking up the wrong tree with China and fundamental instability there may be too much to handle. Nonetheless, the search should begin immediately and with vigor.

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