BarroMetrics Views: US Govt Shutdown?
So far, the markets are ignoring the shenanigans at the Hill.
Commentators are suggesting that there is a belief the ‘polys’ will take the US to the brink but will, at the last moment, avert a shutdown.
This time, I think, it is different.
The difference is the Tea Party contingent is not playing by Washington’s usual rules. They have so far forced Boehner (Republican Speaker) to suggest legislation that will allow the US Government to continue borrowing money at the cost of overturning Obamacare.
The bill if passed by the House (expected to happen), then goes to the Senate where the Democrats have the option of passing the House bill as is or removing the non-funding provisions of Obamacare.
If the Senate adopts the latter option, the bill returns to the House where the House can pass the Senate version or where the House rejects the bill. The rejection will cause a partial shutdown of government when the new fiscal year starts October 1.
So far, the President has flatly rejected any compromise; the same can be said for the Tea Party. If the partial shutdown occurs, both sides can claim it was the other party’s fault – the Democrats could have passed the funding bill without Obamacare; the Republicans could have passed the bill with the Obamacare funding intact.
The question is how will the markets react should the shutdown occur? I would expect the US$ to rally, bond rates to ease as ‘flight to quality’ occurs. I also expect the stock market to drop.
(In case ‘poly’ is unknown to you: I learned that word when I went to Australia for my final years of high school:
- ‘Poly’ short form of politician
- Where ‘poly’ means ‘many’, and
- ‘tics’ means ‘blood-sucking parasites’)