Partial Government ? 1 Day ? 2 Days ?

Partial government for 1-2 days ? Can’t be as bad as a Tube strike or milk or fuel strike right ? Or even the garbage strikes they had Europe.

Obama just about shot himself in the foot when he backed down on Syria because it shows OBAMA CAN AND WILL BACK DOWN.

I cannot claim to be following this debt ceiling debate like the thousands of pros out there but I read this nice WSJ piece that summarises everything neatly for the layman.

Points to Note (taken from the article above) :

* There have been 17 partial government shutdowns in the past 37 years ranging from one day to three weeks.
* Each of the five shutdowns during the four-year Carter administration had to do with disagreements over when the government should pay for abortion procedures.
* The lengthiest government shutdown during this period was the most recent one – a 21-day stretch from December 1995 until January 1996 when Mr. Clinton and Speaker of the House Newt Gingrich (R., Ga.) squared off over balancing the budget.
Confusion for me

“The U.S. Treasury will continue selling debt in the event of a government shutdown next week, while economic reports from the Commerce Department will be suspended and the Bureau of Labor Statistics will stop operations.”

>> How can the Treasury department sell debt if they cannot borrow ? Dialastrategist thinks it could be rolling over old debt. So there is nothing for us to worry about because there will still be safe haven US treasury bonds to buy.

>> Chance that there will be no Non Farm Payrolls to trade this Friday although it has not been officially declared.

Major US Treasury Obligations In The Coming Weeks

1 Oct $ 42 billion
3 Oct $ 25 billion
9,16,23 Oct $ 12 billion per day
1 Nov $ 67 billion

There are some bond coupon payments to make as well which may have to be prioritised to avoid default.

>> So bondholders may have the last laugh i.e. between the Fed and the foreign central banks.

Economic Implications

“vast majority of federal workers will be told to go home next week in the absence of a budget deal. Those who get to stay will come from two groups — one in which federal workers have been explicitly exempted and one in which workers have been deemed to be “essential” through analysis.”

This is expected to shave as much as 1.4% off 4Q GDP which is a serious matter.

Common Sense Conclusions

* There is no chance of a Taper now so party on for the time being
* Information will be patchy and biased and we can definitely expect to be the last to know unless we work for american banks* The shut down is temporary because Obama is a populist leader and will do anything to make himself the most popular President in history and wished he had kept his mouth shut about Syria
* Global central banks are likely to be paralysed into inaction so it is best time for hedge fund attacks

The relief rally once this is over will be huge provided nothing keels over in the meantime i.e. have a short shut down.

I have often wondered how behemoth-ial democracies ever survive in this world led by self interest and have given up thinking too much about it. Then I chanced upon this interesting Ted video, Why Mayors Should Rule The World, which I feel should be shared with my friends and I would stress, and re-stress, that I am not advertising the Singaporean model.

Finally, I confess I like Tube strikes, having been affected by 2 myself. My sympathies are with the Americans because I, too, am trying hard to live within my means.