Debt Cap Raise Until Nov. 22 Gains Support to Bar Default
Comment of the Day

October 10 2013

Commentary by David Fuller

Debt Cap Raise Until Nov. 22 Gains Support to Bar Default

Here is the opening from this Bloomberg report on an important day
The White House endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for House Republicans' plan for a month-long reprieve from a default.

The idea, proposed today by House Speaker John Boehner, wouldn't end the 10-day old partial shutdown of the federal government. The plan would push the lapse of U.S. borrowing authority to Nov. 22 from Oct. 17.

Jay Carney, the White House press secretary, said today that President Barack Obama would support a short-term increase in the U.S. debt limit with no "partisan strings attached," though he prefers a longer extension. House Republicans haven't specified what they plan to tie to the measure and Carney said the White House would need to see a bill before accepting it.

"The president is happy that cooler heads at least seem to be prevailing in the House, that there at least seems to be a recognition that default is not an option," Carney said.

Boehner's plan marks the first sign that the parties may be able to resolve the impasse without the catastrophic economic consequences that the Treasury Department said would stem from a default. It wouldn't end the partisan budget fights that have led to fiscal brinkmanship at least four times since Republicans took over the House in January 2011.

"It's time for leadership," Boehner, an Ohio Republican, told reporters in the Capitol today. "It's time for these negotiations and this conversation to begin."

David Fuller's view This welcome development has considerably lowered fears that a replay of 2011's twenty percent sell-off on Wall Street in response to an earlier political impasse was underway. Moreover, it has temporarily silenced those who were predicting an imminent and much bigger global shakeout in equity prices. Today's short covering has been massive on Wall Street and I will show some of the upward dynamics below.

However, there are few if any US political winners in this situation. Many leaders in other countries have been concerned and angry over yet another US government impasse. Consequently, this unsettling standoff has resulted in a loss of confidence in US leadership, from the President and his administration right through the House of Representatives.

This statement by the IMF's Christine Lagarde, reported by Bloomberg earlier today was not without influence: IMF's Lagarde Urges U.S. to Show Leadership in Budget Chaos:

Politicians in Washington need to show leadership in resolving a political deadlock on the budget that risks damaging the country's economy and the rest of the world, International Monetary Fund Managing Director Christine Lagarde said.

"Leadership has to be demonstrated in this city," Lagarde said in an interview on Bloomberg Television with Tom Keene today. The budget chaos could "precipitate another crisis if it was to last longer."

The winners, for at least the short term, are equity investors as US tapering will not commence before December at the earliest. Meanwhile, Euroland's catch-up candidates remain in form. Japan appears to be in the latter stages of its medium-term consolidation.

There were a number of upward dynamics today, and not just for the USA. These are shown on daily charts with 200-day MAs. I expect sideways to higher ranging, unless we see closes beneath this week's earlier lows: Dow Jones, S&P 500, Nasdaq 100, SPTSX, SX5E, NKY and UKX, to mention few.

(See also Wednesday's opening comment.)

Back to top