Macroscope | US House speaker debacle points to underappreciated risks in advanced economies

In Brazil, thousands of radical supporters of the far-right former president stormed the nation’s Congress, Supreme Court and presidential palace, claiming – without evidence – that October’s election was rigged and calling on the army to stage a coup to remove the new head of state, Luiz Inacio Lula da Silva.

Yet, while the rampage was the most serious attack on Brazilian democracy since the end of military rule in 1985, it bore striking similarities to the shameful storming of the United States Capitol by followers of former president Donald Trump just two years ago.

Gone are the days when political risk was the preserve of vulnerable emerging markets. Since the 2008 financial crash, it is developed economies that have delivered the biggest political shocks, exacerbated by the underpricing of risks in countries that were long viewed as stable and predictable. The euro-zone debt crisis, Britain’s decision to vote to leave the European Union and the election of Trump blindsided investors and changed market perceptions of risk.

The recurring drama over the lifting of the US’ debt ceiling – a legal quirk involving a cap Congress sets on the amount the federal government can borrow, ultimately requiring legislative approval to raise or suspend the ceiling to avert a default on the nation’s debt obligations – was damaging enough when extremists in the Republican Party held less sway than they do today.