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Debt ceiling: Chaos potential makes Wall Street nervous



But what exactly are investors worried about? Basic economic indicators such as unemployment and consumer spending are still very strong.

At least part of the answer consists of two words: debt limit. The controversy over a border wall that has led to a partial government stalemate and has no end is a bad sign of the legislator's ability to reach an agreement on extending sovereign debt, a financial problem that has far-reaching implications. [19659002] At some point in the second half of 2019, the Treasury Department will lose the ability to borrow if Congress and President Donald Trump can not agree on how to get around the cap.

The current suspension of the debt ceiling, tacitly agreed last year, expires on March 1
st. But the Treasury Department will be able to cover its bills at least until the middle of summer through monetary movements – a series of maneuvers officially referred to as "extraordinary measures".

The inclusion of Bunds is no mean feat, especially since the federal government is expected to spend about $ 1 trillion more this year than it will bring in. It needs to borrow to offset the difference and make good all its obligations to federal companies, Americans, investors, other nations, and many other creditors.

US government debt is considered the safest in the world, as the United States has never given up its debt. A default could have devastating consequences, from rising credit costs to endangering the status of the dollar as the reserve currency of the world. The mere risk of a debt ceiling can unsettle markets. The only way out is for Congress to come to an agreement with Trump at a time when neither side is interested in compromise.

"Closing the government in and of itself does not have a massive economic impact," says David Lafferty. Main market strategist at Natixis Investment Managers. "But I think it's a symbol of the president's relationship with Congress, and most people believe that closing the government was the easier hurdle to overcome the debt ceiling."

The markets are really interested in the debt ceiling. In 2011, lengthy debt ceiling negotiations led credit rating agencies to downgrade US loans and drive the markets into free fall. The S & P 500 declined by about 17% from the end of July to the beginning of August this year, and did not recover well into 2012.

A 2013 Treasury mandate accused the Brinkmans of making the American recovery fragile the big recession.

Even though most Americans do not own stocks, falling stock prices can affect investment activity and create a negative feedback loop with consumer sentiment that pushes spending. An ominous sign of this downward spiral came last week, as the Conference Board Consumer Confidence Index posted its largest decline since July 2015.

Few observers believe that the US government would actually go so far as to pay its debts. Moody's Investor Service described the prospect of an actual default as "highly unlikely" in a notice published earlier this month. Due to the "inclination to contribute to political disagreement and weaken the budget decision-making process", the agency only marginally used the institutional strength of the US.

But history was not a guide in the Trump era, as the ongoing stalemate shows.

"They have had a stalemate with no one negotiating with each other and no real end in sight," says Christopher Smart, head of macroeconomic and geopolitical research for asset manager Barings. "It's not like" Oh, they talk for the next few days and haggle over how much they have to spend on border security. "The markets do not see anything that leads to progress, and when the congress reunites, the Democrats will hold a stronger hand."

Typically, the party that keeps the White House out of the divided government is using its influence the debt ceiling to make concessions to the president.

In 2011 and 2013, Congressional Republicans called for a deficit reduction that led to drastic cuts in agency budgets before approving the approval of more borrowing agencies. This time, Democrats could demand a permanent solution to the Deferred Action for Childhood Arrivals program, seek Republican approval for a comprehensive ethics law, or rescue the Affordable Care Act.

But Trump's chief of staff is Mick Mulvaney, who was a member of the deficit against one of the threats to squeeze the US economy off the beaten track rather than lending more money to the US Treasury during the Obama administration.

Concern over the unpredictability of Trump and his top volunteers has only been exacerbated by the events of the last two weeks, when Secretary James Mattis's rash and resigned call to Treasury Secretary Steven Mnuchin to the bank chiefs took place Investors should be worried about market liquidity if they were not worried at all, and another round of Trump's repeated broadsides against Federal Reserve Chairman Jay Powell for heightening interest rates further.

While many investors would prefer to keep interest rates low as well, they fear that reversing Powell will have the opposite effect.

"Similar to previous extreme recession-free market events, the Fed must send a clear message that they have raised interest rates," Canaccord Genuity analysts said Wednesday in a statement to clients. "We fear the President's open criticism has politicized the Fed's decision and made it harder to do the necessary."


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