Ryan Plan

BarroMetrics Views; Ryan Plan

I am watching my trading screens when there was a jump in the e-mini. On a quick check of the internet, I found that a dissemination of a plan ascribed to Paul Ryan (see “Ryan sells conservatives on plan to end shutdown, debt standoff“).

When I read the piece, I saw little in it except a glimmer of hope. It goes to show how ingrained is the belief that a solution will be found before Oct 17.

Ryan’s plan calls for:

  • short-term  increase in the debt ceiling
  • attached to the increase would be ‘conditions… it would not come clean’

At this stage though, we can’t even say that the ‘plan’ is one that will be adopted by the House of Representatives.  At best it is only one of the options that is being considered by the Republicans. And, even if it were, there is still the question of whether the attached conditions will be accepted by the White House and the Democrats? They have consisted said ‘no negotiations’ unless the debt ceiling is raised.

Finally, even if accepted, all  the proposal does is to kick the can down the road. How far down the road? ‘Around 6-weeks’ is the number mooted. If so, then we may have serious problems given that Xmas is around the corner. More likely, I think, we’ll see the period probably around March 2014 – if the US settles on the plan as the solution. 

That’s the positive side.

On the other side, there is a real chance we’ll see no solution by Oct 17 (though we should see one by Oct 31). The being the case, will we see sharp drops in equity markets next week?  I have no doubts that if, by end Monday, there is no solution on the horizon, we will see a sharp increase in volatility.

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