Monday, October 14, 2013

Shutdown that Debt Ceiling!

Dear Readers,
It's been over a month since I wrote a post -- what a crazy month! I've had several job interviews, so I've been crazy busy preparing for those, and I'm making great strides on the creative writing project I'm working on. That being said, what a crazy time in the markets this past month! Actually, I should state that more accurately: what a crazy time in the government this past month!

The U.S. government officially shut down on Tuesday, October 1 since Congress and the White House couldn't come to an impasse on funding Obamacare (which has already been made a law and been defended by the Supreme Court). This means that a lot of services are not available, national parks are closed, and, most unfortunately, some people are not getting the public assistance they rely on.

The shutdown is a big deal, but the market didn't really react to it, implying that investors don't really think it's a big deal. Consensus seems to be that it's about the egos of the leaders of the Republican party, primarily. I agree with that on one hand; however, the country is not run by Republicans alone, so Democrats are not innocent in this debacle. But, politically, the fallout appears to have wounded the reputation Republicans much more -- it's approval rating is at just 28%, the lowest in the history of Gallup polling (which, to be honest, isn't all that long; they've only been polling this for 21 years). This could certainly favor Democrats in the next round of elections, but that's over a year away. It could have the most positive impact on the Democratic presidential candidate. Favorable buzz is already beginning to swarm around Hilary Rodham Clinton for her possible run in 2016.

But back to the markets. As I said, the markets didn't even flinch at the shutdown. BUT it freaked out at the possibility of the U.S. hitting the debt ceiling and defaulting on its obligations. Default means that interest rates will rise rapidly because, suddenly, the U.S. has become riskier and investors demand to be compensated for risk.

The rest of the world is on edge about how the U.S. will resolve this issue because U.S. Treasury rates effect so many other rates around the world, and many holders of Treasuries live outside of the U.S. Actually, the Chinese government is the largest U.S. creditor, holding $1.3 trillion of Treasuries. As a result, officials in Beijing have stressed, like a mother of arguing siblings, that the U.S. had better figure itself out sooner rather than later.

Congress and the White House have only 3 days, until October 17, to come to a consensus. Needless to say, political agendas should not put the world markets in jeopardy. Now, the world waits to see who will be the bigger person in government.