What The Heck Is Going On In Washington?

What the heck is going on in Washington? In the aftermath of the US debt ceiling deal, this is a key question being asked. What is going on? Where do we stand? Where are we headed? Going against his initial rhetoric, President Obama seems to have given in to the Tea Party with no new tax hikes. On the "Daily Show," Jon Stewart poked fun at President Obama for not including tax increases in the debt ceiling deal. Germany's Spiegel Online recently presented an article saying that there is a "civil war atmosphere in Washington". From the article, the left-leaning "Die Tageszeitung" wrote that, "What is happening in Washington is nothing less than a culture war." Also from the article, the "Financial Times Deutschland" wrote that, "It was extremely dangerous to turn the issue of the debt ceiling...into a fight over the role of government." A culture war over the role of government is exactly what occurred during the recent US debt ceiling debate, and in the aftermath of the deal, the culture war continues. In order to deal with this culture war, it is clear that we need to have a national debate on the role of government. The growing intensity of both sides of the debate, both liberal-progressive and conservative, is not helping us reach a resolution to this question. It feels as if the left and the right are moving farther apart, and this is not good for political business. The great American political ideologies are becoming polarized to the point of being counter-productive. It's enough to make one ask, "What the heck is going on in Washington?" Paul Krugman, one of my favorite economists, recently wrote that in light of developments in Europe, he is starting to get "that 30s feeling." I wholeheartedly agree with Mr. Krugman on this point. In some ways, it is starting to feel like the 1930s, and that is quite ominous. The 1930s were a very difficult period economically that, in time, led up to World War II. This conflict between the left and the right in America today is somewhat analogous to the situation that led up to the Spanish Civil War in 1936, which pitted the left against the right on the battlefield as part of an overarching cultural conflict. In the United States today, we have a serious cultural conflict where it's becoming harder and harder for both sides to come to the table, let alone agree on anything. It would be better to come to terms with our differences and try to find common ground, as opposed to letting this culture war fester. Rather than one side trying to simultaneously shove its policies down the other side's throat on a national scale, why can't we try to come to grips with our differing opinions? Why not leave each side to its own territory and seek a state of compromise? It would be beneficial for the US to have a legitimate debate on the role of government and in which direction we want to take the nation. If this discussion cannot be resolved in Congress or through the media, then perhaps it will eventually be resolved at the ballot box. It would appear to some that President Obama and the Democrats want to make the US more like the Nordic model of a northern European welfare state. Is this the case? I don't really know, but that is how it appears. On the other side of the aisle, conservatives and the Tea Party want less taxes, less government, and greater civil liberties. These two perspectives are radically different, and having both sides attempting to institute their policies simultaneously is not working. Not only is it not working, but to be honest it pretty much looks ridiculous -- kind of like two people joined together in a three-legged race trying to run in opposite directions. To use another analogy, a medium-rare steak is great and an ice cream sundae is also great, but mixed together they make quite an unpleasant combination. For us, it is as if one side is vegetarian and the other side is allergic to dairy products. Thus, it becomes difficult watching politicians try to shove a medium-rare, juicy, salty, cherry-topped, chocolate-syrup-covered mess down the throats of the citizens they are supposed to represent. But, this is not even getting into how difficult it is to decipher a politician's true beliefs. Given President Obama's compromise with the debt deal, how are Americans able to determine a politician's actual political positions and intentions? Perhaps a debate would help. If we want the US to be like the Nordic model of the welfare state, then that's fine; if we want the US to be more like a laissez-faire society with greater civil liberties, then that's fine, too. At this point, personally I'm not too sure that it matters either way; both ideas have their advantages and disadvantages. There would be a few obstacles in attempting to convert the US to the Nordic model, but (that is a topic I may explore in a future article and) I think America can succeed either way. Nevertheless, let's at least have the debate so we know where we stand and where we're heading. As a US citizen, I am not sure what kind of country I'm going to be living in five years from now. Am I going to be living in a more Nordic-style welfare state or a more laissez-faire one with fewer taxes and greater civil liberties? As I've written about previously, in five years, am I going to wake up one day and be living in "Sweden" or "Switzerland"? To be honest, I would like to know. As for now, I'm sure many are uncertain as to what the government is going to do next and/or what the government is going to ask of them next, if anything. At the very least, let's start the conversation. Unfortunately, at this point it appears that the debate has gotten cluttered. A lot of the topics and policy moves can be misunderstood, nebulous, or just plain confusing. Not only has the debate gotten cluttered, but it would appear that there are too many cooks in the kitchen. There are a wide range of opinions, and not too many individuals seem to be on the same page. I think this is going to be a serious problem in this country. In short, the United States is fast becoming a backwards nation. We don't really know where we're going, we're not sure where we've been, and we don't really know what we stand for. We're not united ideologically; we don't seem to have a set of basic principles that unites us as a country. We're not even united by a single language at this point. Washington D.C. is sitting in the driver's seat, and we're not really sure where we're headed. We're not sure if the driver is asleep, lost, hiding intentions, trying to surprise us, or knows the way through the wilderness. Given the current ideological battles going on across the states in an array of significant issues including (but not limited to) health care, education, abortion, gay rights, unemployment, and taxes, it may be best for the current political stalemate to continue -- at least until the 2012 election. Lawmakers may want to let the smoke settle from the debt ceiling debate before moving forward with policy interests. Hopefully, by 2012 some of these issues will be worked out in the voting booths. At the very least, with hope, the 2012 election will give the nation some sense of direction, even if it means the nation will only stay put. Let us hope these issues can be worked out in the ballot boxes, lest they be worked out in the streets with societal unrest and violence. Heaven help us if this culture war evolves into a full-blown civil war. At this point, who knows what could happen. Either way, our nation could use some sense of direction as to where we're headed. ACTION ITEMS: Bullish: Traders who believe that America will work out its political issues in the next two to three years may want to consider the following trades:

• If you like the Nordic model with high taxes and a strong safety net, check out CurrencyShares Swedish Krona Trust (FXS).

• If you like an approach leaning more towards economic freedom and civil liberties, check out CurrencyShares Swiss Franc Trust (FXF). Also take a look at UBS AG (UBS) and Credit Suisse (CS).

Bearish: Traders who believe that America's political issues are going to lead to tremendous stagflation in the years may want to consider these trades:

• Go long EUR/USD and GBP/USD.

• Go short USD/CAD.

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