What Happen after U.S. Shutdown?
On 1 October, the U.S. announced shutdown in its federal government and laid off about 800,000 civil workers for garden leave. However, this is almost next to nothing while compared to country’s population of 315 million. Many people are confident that President Obama will reach an agreement in the U.S. Congress with Republican Party and resume the operation very soon. However, the political impasse has lasted more than 5 days and longer than what most have thought!
Rated as World’s first economy, America is facing defunct in growth while federal debt keeps enlarging. The partial closure of federal government is just a hoax to create short-term plunge in regional markets. However, what is the real objective behind the President’s administration for making such a “strategic move”?
In my personal opinion, President Obama will finish his office-term in early 2015. Putting anyone in his shoes, a country leader would want to leave his name hanging in the Hall of Fame rather than to be smeared. To attain this, the Dow Jones Average Index (DJIA) must remain in the upside 30 percent range from whatever top price it has achieved so far. Hence, it will be a difficult task to taper the financial stimulus for another 6 – 9 months from now.
In broadest aspect, the U.S. government’s current account is not growing in surplus from national revenues. Consumer debts and spending are shrinking the GDP growth. Exports are struggling to poise for recovery while housing demands are still in meager purchase. Therefore, a drawdown in stock markets and slight waning of investors’ confidence from government shutdown are just planned recoils to boost the markets aftermath!
The U.S. government would not remain partial handicapped for more than 3 weeks or longer than in 1996. At today’s economy, the daily losses from government shutdown account about USD1 billion income. Perhaps, Obama administration refuses to negotiate with Republican Party in the Congress with a reason to illustrate the “checked losses” to his political opponents. Thus, he should have valid “firepower” to propose a continual budget spending for at least another 6 months in order to let everyone sleep well on high pillow!
Taking a look into the global economies, Eurozone has been dormant for many months while sweeping the massive sovereign debts under red carpet. Though the fear of ballooning bankruptcies has subsided among Euro nations, no good news have been heard on resolving the red figures!
Greece is going for the third bailout by International Monetary Fund and European Union in early 2014. Fiscal budget plan has to be shown in October – November to lenders for obtaining a loan grant for another 6 months. On the other hand, Syria crisis has been submerged for the time being as United Nation Council has called off the military actions. No one knows what will follow despite the viral threats of Arab Springs are still stoking the fire in the Middle East. At current global slowdown, there is nothing to be glad if the average low inflation cannot support high rising crude prices should the pipelines be cut off in Gulf regions.
To summarize my analysis, DJIA stocks and Asia equities will begin to recover right after U.S. Congress re-opens federal government. The DJIA might reach new marginal record high in Q1 2014 above 15,700 levels but the hot monies will be struggling to exit in Asia equities on fictitiously firm sentiments. Moving into second semester, keep a close watch on Eurozone debt resurgence while China is expected to call for slowdown in order to ebb RenMinbi for controlling inflation.
Hence, the current shutdown will lead to a short-term booster but create deep doldrums in red deficits. Moving into the near future, beware the day when the U.S. officials finally admit they could not pay for the huge deficits. The disaster will make men-in-the-streets pay for this huge negative debt following the dissipation of billions from stock markets melting down!
~ DAR Wong is the founder of PWFOREX.com and has 24 years of enriching experiences in global financial markets. The expressions are solely his own. He can be reached at dar@pwforex.com