Markets Await Government Shutdown


It’s Monday morning and we are all waiting on our elected officials and expecting a government shutdown at Midnight. The issue is the limit the US has on how much money it can borrow. The US has currently issued enough debt that we are up against that limit and cannot issue anymore to fund operations. If the country’s two parties aren’t able to compromise on the issue, non-essential government employees will be furloughed.

From the perspective of an investor, I am surprised that there isn’t more reaction to the potential of a shutdown, which would have a significant economic impact. The sentiment I am picking up is that most professional traders are concerned about missing out on the next move up and are less focused on the potential downside. In other words, the markets are expecting a quick resolution to this situation. I agree with this notion as there doesn’t seem to be any patience from the American people for partisan games.

It was a very significant statement by the Fed Chairman Ben Bernanke at his press conference this month. The Fed had just announced that the would not be removing economy stimulus at this time, which was not what most economists were expecting. At the following press conference, Bernanke said there was concern about “fiscal policies restraining economic growth”. He was referring to the debt ceiling and sequestration fighting with the stimulus the Fed is undertaking to improve the economy.

The fact that he said this directly and publicly hopefully won’t be lost on our elected officials.