On the Monday the U.S. government shutdown occurred the markets had already began to wince and predict some reaction for the future. The Dow Jones had fallen by almost 125 points and the official shutdown was still yet hours away. What does this tell us? This "partial" government shutdown is unlike the one in 1995. The situation under which it comes under with the world economy especially. The shut-down means that approximately 800,000 federal employees will be furloughed. This includes those at Social Security, the Veterans Department, FBI, FAA and at national parks and monuments as well as several others . This government shut-down really is a congressional showdown with the administration based on the politics of the healthcare policy. They continue to play hardball . Congressmen , sometimes looking more like consigliaris with strong arm tactics and hurling threats back at each other. The two sides(Democrats and Republicans) are playing "political chicken" with the American public. This game of who will blink first will have a very injurious effect no matter who blinks first. We are also treading extremely close to the Debt Ceiling deadline of October 17th which is a giant fiscal cliff never imagined. Why is that date important. First of all we are mandated to pay $30 billion USD of $60 Billion owed to creditors, immediately. The USA has had its credit rating already reduced. So, what signals does this send further to the world market and its creditors? It says that our economy is standing on shakey ground. Can the U.S. afford another credit down grade?
OCTOBER 17TH IS D-DAY: The U.S. economy is $17 trillion dollars in debt, creditors demand $30 billion of a $60 billion payment. We have over $90 trillion in unfunded liability. Currently China, Japan, Germany and England buy our debt as Treasury Bonds(T-bonds).But, we are facing a "T-bond bubble". Usually when an individual has "maxed'out" on their credit card limit, they either have to rip up the card and attempt to workout a way to pay it off,or either be forced to pay off the debt forcefully or file for bankruptcy .
The government of the U.S must look at #1 Furthering the Sequester with more cuts to government agencies and entitlements or #2) print massively amounts of money to keep the system working and prop up the U.S. dollar at home while reducing its value internationally which would be Quantitative Easing expanded or #3 do like Argentina and default on the loans we've taken from international banks. Each leads to a potential financial collapse , but just at different paces. #1 and #2 are a slow painful way to go because someone's job has to be cut, but those who survive get to live another day. We are seeing the effects of printing lots of "free money" is having . This is the "monopoly effect", named after the board game. This creates hyper-inflation at home much like the Weimer Republic in Germany after World War I where it took 50,000 Reich Marks for a loaf of bread, but in countries that have stronger economies these prices mean nothing. Other economies could easily "gobble up" U.S. assets.
This political infighting appears very frivolous to the international community who are monitoring this(Martin Sorvell, WPP). This makes the U.S. look weaker, particularly after having to pivot its stance with President Putin with the Syrian ordeal. Other monitors(Ben Collett, Systems Wide Brokers) of the world economy see that this government shutdown will cause a lack in volume in the market along with lots of confusion. Their will be very little risk appetite and interest rates will taper off. We will see more dollar weakness world wide.
The U.S. is between a rock and a hard place and it's going to potentially balloon into a financial meltdown the size of which have not been seen in the world ever. Get your "elected" congressperson to realize what they are doing with "your" money.If there was ever a time to "balance the budget" and not just continued lip service this is it. How did a simple civil debate about healthcare become now a threat that could bring down our economy like a house of cards. Whatever happened to compromise?
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