Debt Ceiling

House Republicans Plan To Link Debt-Limit And Shutdown Into One Fiscal Fight

Nancy Pelosi tried hard this evening (in the post WH meeting presser) to position the Democrats in order to disavow the inevitable but now Bloomberg is reporting that:

*HOUSE REPUBLICAN PLAN WOULD LINK SHUTDOWN, DEBT-LIMIT FIGHTS

House Republican leaders plan to bring up a measure to raise the U.S. debt-limit as soon as next week as part of a new attempt to force President Barack Obama to negotiate on the budget by merging the disputes over ending the government shutdown and raising the debt ceiling into one fiscal fight. This is not what most sell-side strategists expected as a base-case; in fact it is close to a worst-case for many - especially given Obama's apparent unwillingness to negotiate.

White House Meeting Ends In Failure: Boehner Says Obama "Reiterated He Will Not Negotiate"

Any hopes that tonight's meeting between the president and members of Congress, which lasted about an hour, would yield results just went up in smoke:

BOEHNER SAID OBAMA REITERATED HE WILL NOT NEGOTIATE
BOEHNER SAYS TIME FOR SENATE TO APPOINT NEGOTIATORS

Reid chimes in:

  • REID SAYS BOEHNER HAS TO ACCEPT `YES FOR AN ANSWER'

Which means the government shutdown will proceed into its third day, with little hope for a political resolution on the horizon.

Government Shutdown: Where Do We Go From Here?

In and of itself, the government shutdown appears to be a limited market event. The indirect effect, however, is on the other main risk scenario for markets – the deal on the debt ceiling (which will need to be in place before October 17). An increase in the probability of breaching the debt ceiling would likely be destabilizing for the market. For one, the effect on growth will be far larger – our economists estimate that it would imply an immediate cut in spending equal to 4.2% of GDP (4Q average of the fiscal deficit). Second, it would raise the risk of a US sovereign default because the Treasury does not believe it has the authority to prioritize interest payments above other obligations. As such, with markets firmly focused on US fiscal matters - so where to from here?

 

Bankers Warn Obama, Don't Mess With The Debt Ceiling (Again)

15 Bankers just paid a visit to the White House, listened to President Obama, and explained what a total disaster it would be if the US debt-ceiling is breached and Treasuries technically default. While the politicians exclaimed how bad a government shutdown would be, the banks have turned the panic dial to 11 as Goldman's Lloyd Blankfein noted, bankers are “in a position to really know early what the consequences are,” and it would be catastrophic. The irony that the firm which the government is trying to fine $20 billion for selling fraudulent debt and giving bad advice is now providing the same government with advice on its own bad debt, is not lost on us as Dimon was among the visitors but it is Blankfein's warning, echoing Obama, that will get the headlines, "they shouldn't use the threat of causing the U.S. to fail on its obligation to repay debt as a cudgel."

Jamie And Lloyd Visit Obama

Five years ago today, the CEOs of the big banks visited one US president with one goal in mind: get billions in taxpayer dollars to get bailed out. Today, the same bank CEOs are once again at the White House, this time invited by a different president, "as part of the Obama Administration's ongoing efforts to mend relations with the financial services sector and woo their support for White House policy." One can assume that in addition to the trite generalities surrounding the shut government and the debt ceiling, one topic of conversation is how Wall Street can accentuate the severity of the ongoing governance crisis and most certainly includes such demands by Obama as "stop sending stocks higher when the only catalyst is my inability to create any sort of compromise."

Stocks Jump (But Bonds Don't) As Obama Invites Congressional Leaders For Tea

It seems the non-negotiating red-line-making President is willing to umm... negotiate. Depsite Harry Reid's fire-and-brimstone, the WSJ reports that:

*OBAMA SAID TO INVITE CONGRESSIONAL LEADERS TO MEETING TODAY (at 530pm ET)
*OBAMA SEEKING FUNDING MEASURE FOR GOVERNMENT, DEBT CEILING HIKE

McConnell, Reid, and Pelosi are also to attend. Oh to be a fly on that wall? For now, equity algos are buying first and thinking later as bonds remain more stoic.

Futures Slide In Delayed Shutdown Response

If yesterday was the paradoxical government shutdown "relief rally" pushed higher by a last minute VIX smashing ramp, today reality is starting to set in and global stocks and US futures are set to open lower. The FTSE MIB remains the only European bourse to trade in positive territory in today’s session, having touched upon 2 year highs as it is expected the political tumult that threatened to cause a collapse of the Italian government will be resolved today even as the latest news indicate Berlusconi's PDL will support the Bunga godfather after all. Other European equities have failed to benefit from this as market participants remain cautious ahead of the ECB rate decision today when Draghi may or may not (most likely) announce a new LTRO.

David Stockman Fears Intense Resentment Over "Disaster" That Is Obamacare

"Obamacare is a disaster," is the jumping-off point for David Stockman's latest tirade against the "greatest expansion to the welfare state in the last 80 years," that was rammed through congress on a totally partisan vote. In this brief Bloomberg TV clip, Stockman "understands why the Republicans are willing to hold up government if they have to," as there is growing intensity of partisanship and resentment that can only bode ill for debt ceiling discussions... "The Republicans have to take a stand."

 

Republicans' Latest Strategy: Piecemeal Funding For Programs, Excluding Obamacare; White House Promptly Rejects

Update: And another quick rejection: CARNEY SAYS PIECEMEAL APPROACH TO FUNDING GOVT ‘NOT SERIOUS’

If the president was hoping to shame the Republicans into caving and passing a clean Continuing Resolution, by constantly blaming them about the broader government shutdown, he will have to shift his strategy. Moments ago Reuters and other wire services report, citing Republican Peter King, that House Republicans plan to pass three funding bills today to reopen Federal Parks, veteran programs and fund for the District of Columbia. In other words, little by little, the GOP will provide funding for everything... except Obamacare, which they will keep as a trump card up their sleeve until the debt ceiling negotiation comes to a head some time in the next week.

Obama's "You Shut Down That Government" Speech - Live Webcast

The first speech by a standing president in 17 years to address a government shut down is certain to be full of sound, fury and lots of blame. Look beyond the traditional platitudes for any mention of the real danger to the US, the debt ceiling, which will hit in just over two weeks and if the shutdown is any indication, the preceding "negotiation" will hardly be smooth and by the numbers. Also, it will finally be disclosed if the teleprompter is a critical government service.

Guest Post: America's Endless Budget Battle

Perhaps investors are becoming inured to the United States’ annual debt-ceiling debacle, now playing out for the third year in a row. But, as the short-term antics become more routine, the risks of long-term dysfunction become more apparent. At least for now, the rest of the world has seemingly unbounded confidence – reflected in very low borrowing rates – in America’s capacity to put its house (of representatives) in order. No one can imagine that a country with so many unique economic advantages would risk such a damaging self-inflicted wound as default would cause. But this time could be different. Obama needs to force his Republican opponents to blink, and there is no guarantee that they will.

 

Wall Street Responds To The Government Shutdown

No, we are not talking the stock market reaction, which is driven purely by trillions in excess global, fungible liquidity sloshing around and as a result stocks are up on government shutdown day in a complete mockery of, well, everything. Instead, this is what Wall Street sellside strategists believe will be the impact of the shutdown (and how it ties in with the far more important debt ceiling negotiation). It should not be at all surprising that to virtually everyone, the shutdown (or any other negative development) is a "buying opportunity" which makes sense: after all the person who is truly in charge of the "wealth effect" will be up and running uninterrupted and there is no risk today's $2.75 - $3.50 billion POMO will be even modestly delayed.