October 1, 2013

The US Government Partially Shuts Down

In the United States the Democrat and Republican parties are still at loggerheads in Congress over "Obamacare", and as a result many "non-essential" services have been shut down, and getting on for a million US government workers have been told to stay at home. Here's a video report from Al Jazeera on the current state of the nation in the land of the free:

Note that President Obama said that:

Congress generally has to stop governing by crisis. They have to break this habit. It is a drag on the economy.

According to Reuters:

The back and forth offered no sign that President Barack Obama and Republicans can soon end a standoff over health care that has sidelined everything from trade negotiations to medical research and raised new concerns about Congress's ability to perform its most basic duties.

An even bigger battle looms in coming weeks, when Congress must raise the debt limit or risk a U.S. default that could roil global markets.

Stock investors appeared to be taking the news in their stride with investors confident a deal could be reached quickly. The S&P 500 closed up 0.8 percent and the Nasdaq Composite gained 1.2 percent. But the U.S. Treasury was forced to pay the highest interest rate in about 10 months on its short-term debt as many investors avoided bonds that would be due later this month, when the government is due to exhaust its borrowing capacity.

If Congress can agree to a new funding bill soon, the shutdown would have little impact on the world's largest economy. A week-long shutdown would slow U.S. economic growth by about 0.3 percentage points, according to Goldman Sachs, but a longer disruption could weigh on the economy more heavily as furloughed workers scale back personal spending. The last shutdown in 1995 and 1996 cost taxpayers $1.4 billion, according to congressional researchers.

I wonder what China thinks about the prospect of "a U.S. default"? Watch this space for more news, but don't hold your breath waiting for the warring parties to come to an amicable solution any time soon.

Tags: Barack Obama, Goldman Sachs, US Shutdown, Videos

Filed under Economics by Jim

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Comments on The US Government Partially Shuts Down

October 2, 2013

Jim @ 6:14 pm

Reuters reports this afternoon that:

U.S. stock index futures fell on Wednesday as a partial government shutdown in Washington entered a second day, adding to concerns about when the issue might be resolved.

There were few signs that Congress was making progress in agreeing on a spending bill that would reopen operations. The Democratic-led U.S. Senate voted Tuesday to kill Republicans' latest attempts to modify an emergency funding bill, and sent a "clean" measure back to the House of Representatives that would extend funding for government agencies until Nov. 15.

U.S. Treasury Secretary Jack Lew late Tuesday said the Treasury had started using its last tools to push back the date when the government will run out of legal borrowing authority.

October 7, 2013

Jim @ 4:12 pm

According to The Economist – "Don't Panic!":

America's short term cost of debt financing has quadrupled, as the FT points out, from 3 basis points to 13 (having briefly been 18). The cost of buying credit default insurance against a US default has risen nearly sixfold, from 11bp to 64bp. These may be big moves in proportionate terms but they are hardly seismic; if traders genuinely felt they might be out of pocket, they would demand a lot more. This looks like mild concern, rather than panic.

October 14, 2013

Jim @ 12:46 pm

According to The Independent today:

American lawmakers risk causing a “massive disruption the world over” that could tip the global economy into another recession if politics gets in the way of raising the country’s debt ceiling and the ongoing government shutdown remains unresolved, Christine Lagarde, the head of the International Monetary Fund, warned on Sunday as the US Senate became the focus of talks to end the budgetary deadlock in Washington.

Meanwhile according to the BBC:

The World Bank is warning of grave consequences for the global economy if politicians in the United States fail to increase the government's borrowing limit by Thursday's deadline.

The bank's president, Jim Yong Kim, says there is a danger of rising interest rates and slower growth, and that these could be disastrous for the developing world.

October 17, 2013

Jim @ 12:30 pm

According to the BBC this morning:

The US Congress has passed a bill to reopen the government and raise the federal debt limit, with hours to spare before the nation risked default. The Democrat-controlled Senate passed the measure by 81 votes to 18, and the Republican-controlled House of Representatives by 285 votes to 144. Despite reluctant support from the House Republican leadership, most of the party's lawmakers voted against it.

It came hours before the deadline to raise the $16.7tn (£10.5tn) limit. The bill yanked the US back from the brink of a budgetary abyss by extending the Treasury's borrowing authority until 7 February. It also funds the government to 15 January, reopening closed federal agencies after 16 days of partial government shutdown and bringing hundreds of thousands of employees back to work.

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