As many of you might be aware of, the threat of a government shutdown this weekend still looms large. As of right now, there is no agreement on an extension and so the shutdown is a real possibility.
How will it affect the economy/capital markets?
According to Bloomberg:
"Both bond markets and equity markets right now are telling you that this is a nonevent, at least so far .... If you go back and look at 2013, when we had the last government shutdown, it was pretty much a nonevent. You did get about a 5 percent correction in equities, but it started well in advance. The markets have a tendency of telling you whether this is potentially meaningful or not"
While equities seem to be unaffected by fears of the shutdown (in fact the DOW and S&P are both up), the dollar is weakening against other currencies:
"The Bloomberg Dollar Spot Index hit a three-year low and headed for its longest weekly losing streak in almost a year, amid concerns over a potential U.S. government shutdown that outweighed any benefit the greenback normally gets from higher yields."
But does this even matter? Will the shutdown be inconsequential if it were to happen?
An article on CNBC brings up the possibility that the shutdown might necessitate a raise in the debt ceiling, which might face a lot of debate among politicians.:
"The debt ceiling has remained a nettlesome problem between Democrats and Republicans for years. Failing to raise the borrowing limit ultimately could cause the U.S. to default on debt payments, a move that would cascade through the economy. Government bond yields would surge and cause the cost of borrowing to soar as government debt loses its sterling credit rating."
What do you think? Is the possibility of a shutdown unimportant in the big scheme of things?
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