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Grantham: U.S. Is Now a Banana Republic

The latest letter from Jeremy Grantham at GMO (.pdf) is out, and it captures nicely the anger felt by many in the investing class at Washington right now:

“My worst fears about the potential loss of confidence in our leaders, institutions, “and capitalism itself” are being realized.” Obviously, the latest debt ceiling nonsense is at the core of this.

Apparently the letter was actually written prior to the crisis resolution, but if anything, since then the sentiment has only been further embraced by the public, especially in the wake of S&P:

So now (July 30), the U.S. – with a dysfunctional Congress – has to decide between two of the ugliest choices seen in a long time. Should they cut government expenditures and therefore cut aggregate demand at a time of a critically weak economy on the cusp, perhaps, of a double dip? Or should they do nothing and allow a technical default, compromising the integrity of the dollar and sending a powerful signal to the world that the U.S., at least for now, is not a serious country and is probably past its prime. Ouch! Nobly trying to resolve this impasse, a small chunk of Republicans has seized the mantle of blackmailers and turned out to be very good at it. Certainly too good for President No-Show. Come to think of it, the choice was between technical default and looking like a Banana Republic and technical blackmail and looking like a Banana Republic! Just different bananas perhaps?

Read more: http://www.businessi…8#ixzz1UdKVxReS

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