The craziest guy in the room at global debt talks is heard from…

On Monday, there was some throat clearing in debt crisis discussions in Washington and in Europe. The theatrics came from the one participant common to both discussions, one who had been omni-present but comparatively quiescent for the past few weeks.

This participant hasn't made headlines in the way that Barack Obama, John Boehner, Jean-Claude Trichet, or Georges Papandreou have recently. In fact, the participant has been virtually silent compared to the loudest, most flamboyant participants in the budget debates, the Eric Cantors and the Silvio Berlusconis. But yesterday, this participant said in its unmistakable, firm, monied accent:

I am here, I have been listening, I have watched your one-step forward, two-steps back, approaches, heard your ideological posturing, listened to your threats and I have one thing to say, none of you powerful men and women are as powerful as I am, none of you will have the last word on this. You will produce the outcome that I want or I will produce an outcome that you dare not contemplate. And I am not a politician. This is not empty rhetoric. I have no constituents to report to but myself. I have a long-term perspective that lets me absorb short-term pain. And, one more thing, I'm the one character that you don't want to tangle with in the fight. Make no mistake about it. I am the craziest guy in the room. I will move so fast, respond with such fury to what you may see as a casual throw-away comment or just another minor delay, that you won't know what hit you. But you will all be gone, out of work, forgotten or worse, remembered badly. Remember, I am the guy who made Herbert Hoover who he is today. And then you will ask yourself, why didn't we listen to him? "

This previously relatively soft-spoken guest didn't have to raise his voice to send this message … but the other participants really did have to listen to hear it. What we all should fear is that some ignored it, were too entranced with the sounds of their own voices to get the message.

The player who spoke out was, of course, the markets. The sharp drop in world stock markets and the spiking of the rates at which countries like Italy could borrow may have come primarily as a result of the concerns that arose late last week about the ability of Italy's political "leaders" to manage that country's debt burdens. But it was a message also to the participants in U.S. debt discussions. It said:

You toy with deadlines at your peril. Today was 150 points. But at some moment between now and August 2 if I see this coming off the tracks, I will speak much more loudly and remind you that I am the biggest narcissist among all of you preening narcissists. I am the market. You think it is about you and your politics and your sound bites and your next tweet. But it is always about me."

The message sent was that the next intervention of this cigar-chomping fat cat to the budget talks may come at any moment and it may feel like a sharp-right to the kisser. It could be 450 points that time. Or it could be 700. And it could say, in no uncertain terms: "Remember that Lehman Brothers moment? That was nothing."

And for all the talk of "Lehman Brothers moments" -- the point in the 2008 crisis in which Washington realized it could dither no longer and had to act -- it sadly seems this one will be necessary to drive home the message that this time around it's different, this time around it's much worse. This not a mere housing crisis -- although there is still one suppurating in the United States and one brewing in Spain and real estate bubbles ready for the popping from China to Brazil. This is not a mere banking crisis -- though the exposure of international banks to serious sovereign debt risks measures in the trillions and yesterday's down day for financial stocks carried a message that the markets are worried about them. It is not a crisis with roots in just country. The U.S., Europe, Japan, China, Brazil, and other major markets are all at risk now, all interconnected. It is not a crisis that comes after a period of expansion but instead it comes after a period of severe weakening in the developed world.

No this time, say this market rumblings if you listen carefully, the price of dithering and delay will be different, the costs incalculably higher, the challenges dramatically more complex and sweeping. The biggest economic disaster of the past 75 years, that of 2008 and 2009, will suddenly seem only to have been a prelude, an overture, a foreshadowing.

It's also not a crisis where the solution is as simple as governments writing a big check to restore market confidence. Because this crisis is not just about saving banks or countries that are "too big to fail" (but seem to be at risk of failing fairly constantly these days). It's also about fiscal mismanagement and the piling up of huge debt burdens. Which means the markets will want two conflicting signals to get out of it. The first will be a sign that the governments are getting serious about fiscal soundness. The second will be that the governments will do something to stop the free-fall that is the looming risk. That means that this time the only way to placate the markets will be coordinated, global intervention that offers both the promise of savings and serious stimulus. Spending and cutting.

You can feel the next intervention coming. It might be at the next breakdown of talks among Eurozone finance ministers. It may be after the next walkout for the cameras in Washington. It may be when a trial deal is floated that seems too small, too short-term, to narrowly conceived. And, because this participant in the talks really is the one with the shortest fuse, it may be because months of pent up anxiety will have no place to go.

But rest assured, if the negotiations lag further or continue to produce unsatisfactory responses or suggest an appetite for nothing but stop-gaps and punting, the message will come … and the this one player will, as always, have the last word.

Yesterday, in Pamplona, they were running with the bulls for a sixth straight day. And the inevitable happened as it has a habit of doing. Two people were impaled on the horns of the beasts thundering through that city's streets. It's a worthwhile lesson to politicians toying with the markets. Run with the bulls and you will get gored. And that's nothing compared with what happens when, to borrow an image from a recent post, you run with the bears.



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