What Next?

With the federal government open again, there’s a little less uncertainty in the economy. Things are back to normal and everyone is happy again. Right?

Unfortunately, the effects of the record shutdown are still hard to predict. As with any economic data, we won’t know until the quarter is over just what happened. We do have a few clues, however, and a few things that we can watch to know just where it’s going.

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Runnin’ on Empty

The Feds are about to run out of money.

No, we’re not talking about a government shutdown – that was avoided when yet another continuing resolution was passed to keep it operating through December. After that we have no idea what will happen. What we do know is that the Federal Highway Trust Fund is set to expire on October 29 unless a new bill is passed, which hasn’t been done yet.

Unlike the larger federal budget the attention this is getting is scant at best, so the possibility that it will be lost in the shuffle is pretty high. The implications are rather vast because federal funding is what keeps highway construction moving along. Without it, everything might grind to a halt as early as November.

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Dissin’ the Jobs Report

The September Jobs report finally came out after being delayed by the shutdown. Any way you look at it, a longer delay would have been better. According to the official Bureau of Labor Statistics (BLS) figures, the economy only added 148k jobs in September.

But there’s a lot more to it this time around lurking behind the scenes. The markets largely shrugged off the bad news and most of the reporting on the event was dismissive. It’s almost as though the anticipation was bigger than the event – like a disappointing Christmas (whoops! Can’t say that ‘round here!). Is it possible that financial reporting is starting to wake up?

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Appalling Behavior

As we continue to slouch towards a default of the US Government, the situation remains appalling. There is no apparent movement and many in Congress don’t seem to take the situation seriously. “I think, personally, it (a default) would bring stability to the world markets,” said Rep. Ted Yoho (R-FL), claiming that it would show that the US is serious about its debt problem. Nothing would change the mind of someone this willfully stupid about how markets work and what US debt (and US Dollars) represent to global markets.

But that’s just one Congressperson from one district, right? No, it’s not that simple. This is appalling behavior all around that threatens America’s economy, prestige, and ultimately our ability to function at all in any kind of organized way. I’d like to make it clear what appalls me, personally, about how this is playing out and why it’s not just a partisan issue.

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Losing? Change the Rules!

What would it take to end the shutdown or, more importantly, raise the debt ceiling in time to avoid default?  As polling shows that this tactic (not strategy!) has proven to be a terrible disaster for the Republican Party it would seem reasonable that there are enough votes in the House to pass a “Clean CR” or bill to fund the federal government and reopen everything.  CNN has polled the membership and found that indeed if the Senate bill was introduced on the floor of the US House it would pass rather easily with bipartisan support.

So why doesn’t a vote come up?  House rules normally allow any Representative  to bring a bill from the Senate with differences from the House directly onto the floor for a vote.  But in a highly unusual parliamentary maneuver the House simply changed the rules to take that out of the hands of any member and put it exclusively in the hands of Eric Cantor (R-VA).  And so it stands that he is the only person in the US right now that can end this standoff.

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Ready to Panic?

What does it take for international markets to panic?  With the debt ceiling due to be hit in a little more than a week, the short answer is that the “full faith and credit of the United States” is still worth quite a lot.   We’re only starting to see the first signs of a panic as an auction of 1-month TBills sold at a net rate of 0.355%.  If that doesn’t impress you, it’s worth noting that it was one third that a week ago.

Stocks started falling, too, with the DJIA losing just over a percent.

Allright, it’s not much.  Gold isn’t budging above $1330 or so per ounce and benchmark 10yr TBills are still comfy at 2.64%.  These are probably the best standards to watch for signs of panic as the stalemate goes nowhere.

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Endgame?

What will it take to end the shutdown?  There isn’t much that can be compromised in this situation, given that we have two issues at stake – the Affordable Care Act (aka Obamacare) on one side and the continuing resolution plus the debt ceiling on the other.  There’s just not a lot of give when you have this kind of asymmetry.  So it’s almost certainly going to be one side that caves.

As said before, it’s hard to imagine the President and his supporters in the US Senate giving in, so let’s just call that a low probability event.  It’s probably going to be a Republican give of some kind.  And one is brewing in the form of a general revolt of “pragmatic Republicans” who understand how dangerous this game is.

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