THAT WHICH HASN’T HAPPENED IN MORE THAN 200 YEARS PREVAILED !
President Obama has signed the Bill ending Government shutdown (lasting 16 days) and raised the debt ceiling after the senate (by 81 – 18) and the House (by 285 – 144) passed it. The deal will finance the Government till January 15, 2014; and raise the debt limit through February 7, 2014.
October 16, 2013 was yet another day; another Crisis averted at the 11th hour. Reason for people to get spirited. Deal ensures back pay to furloughed employees. Bill also quadruples funding for Ohio River Dam project, a boon of sorts. Can we see another all time high for S&P 500? Quite possible !
It also appears that any reprieve will be short-lived. Risks do remain still. It possibly creates another uncertainty as to what will happen next time in January 2014. Another deadlock ? Read this ! “Senate and House negotiators need to reach an accord by December 13, 2013 on a long-term blueprint for Tax and Spending policies over the next Decade.” If a broad Budget Accord can’t be reached by then, Government will have to shut down again on January 15, 2014. Scary ?
What is it that made this compromise come to fruition ? Obama’s conviction; inexorability; tenacity; persuasiveness; and LEADERSHIP stood FIRM against the Republicans’ irrational odium of Obama and paranoid fears of his Health Care Act finally. The only twin concessions that the Republicans could extract in the end were : (a) minor tightening of the ‘income verifications’ for people obtaining subsidized insurance under Health Care Law; and (b) Budget cuts extracted in the 2011 fiscal slowdown were not reversed. Not a sign of victory at all, this, for Republicans anyway.
“Impact” : Stability of U.S.A. is not threatened but the manner in which the lawmakers squabbled, tied impracticable conditions to reopen the Government and the tenor of their arguments against the common weal, not just alienated them from the general public BUT had the great Nation’s relevance in the world shrinking. Peter G Peterson Foundation says that costs of fiscal uncertainty since late 2009 has increased the borrowing costs by 0.38% ; lowered economic growth by 0.3%; costing at least $150 billion in output. Unemployment rate is higher by 0.6% i.e. 9,00,000 jobs lost. Economists say that 4th Qr growth is 0.3% less or $12 billion less. S&P says that economy trimmed by 0.6% off inflation-adjusted GDP i.e. $24 billion. Growth will now be sub par, it adds.
America got debt to zero only once in 1835. Soon after there was a depression. There were at least 6 occasions when they had surplus for 3 years and reduced debt significantly, and on each of those occasions there was Depression soon after. Sovereign default hasn’t happened in the last 234 years and it did not happen this time too. The scenarios that possibly may unfold can be expressed as below:
1. The ripple effect of the present event will be felt around the Globe, India not an exception.
2. Already beleaguered emerging markets will be more cautious this time leading to poor investment.
3. There will be a decrease in Consumer Confidence since the uncertainty still lurks.
4. What is the Quantitative mechanism of Transmission between U.S. Economy and Global Economy, other than the general Perception that the U.S. economy impacts the global economy ? An expert analyst I respect and keenly follow raised revealingly. I strongly believe that it is the SOCIAL PERCEPTION of the investors, not least the individuals, that ultimately influences the markets in Different Regions and Different Countries. “WHAT RISES WILL HAVE TO ALSO FALL” – the expert averred. That being said, for the moment and for the next SIX months it will be more the “Local” factors and the “Local” sentiments that will guide the path our (Indian) economy will take with the policymakers implicitly becoming imitative to the powers that be in spelling out their moves.
October 16 is also “Person X Day”. Who do we commemorate and Honor ? Thomas Jefferson (3rd President) who urged all nations (democracies) to “Declare in the Constitution they form, that neither the legislature nor the nation itself can validly contract more DEBT than they can pay within their own age.”
“Dieu et mon droit”
12 Noon (IST), Thursday, 17 Oct 2013