1) “Is the American Political System the latest Bubble?”
The best way to look at this, I think, is that there’s a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number of government employees that the resources which were promised them will not, in fact, arrive.
Right now, we’ve already reached the point at which the government has broken very important promises indeed: We promised to pay hundreds of thousands of government employees a certain amount on certain dates, in return for their honest work. We have broken that promise. By Treasury’s own definition, it’s reasonable to say that we have already defaulted: surely, by any sensible conception, the salaries of government employees constitute “legal obligations of the US”
2) Making the Capital Markets Smarter – Some Food For Thought
A very simple measure of this is simply the high degree of localization of investment. Ghemawat in World 3.0 tracks liquidity and global flow of venture capital and estimates that the lion’s share of investment happens within 20 miles or so of the investor. This happens because the investors mitigate the risks of their own limited knowledge by only investing in companies that set up shop locally, down the street. To get the money, entrepreneurs flood to the location of the money rather than the location of the markets/problems to be solved.