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Market loses patience with 'catastrophic' Washington impasse
by David Campbell on Oct 04, 2013 at 07:48
America faces an ‘unprecedented’ and potentially ‘catastrophic’ slump if US lawmakers do not increase the debt ceiling before the country hits a technical default, the US Treasury has warned.
In a statement issued on the same day the IMF warned that US policy was ‘mission critical’ for the global recovery, the agency laid out the potential consequences of a failure to cut a deal.
‘Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse,’ it said.
The warning came on the third day of the government shutdown, with lawmakers in Washington at a continuing impasse, and as investors began to lose patience.
The Dow Jones Industrials index closed down 0.9% yesterday, leading equities around the world lower. Benchmark 10 year treasury yields fell 0.02% as CDS prices rose to a price equivalent to a 8.09% probability of default.
The Treasury warning was echoed by IMF head Christine Lagarde. ‘In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help.
‘The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy. So it is 'mission-critical' that this be resolved as soon as possible.’
Goldman Sachs chief executive Lloyd Blankfein on Wednesday implicitly criticised republican members of Congress who were seeking to use the budget settlement and debt ceiling to force the White House to delay or repeal the Affordable Healthcare act, president Obama’s signature policy.
‘You can litigate these policy issues. You can re-litigate these policy issues in a political forum, but they shouldn't use the threat of causing the U.S. to fail on its ... obligations to repay on its debt as a cudgel,’ said Blankfein, following a meeting between Obama and Wall Street bosses.
‘There's no debate that the seriousness of the U.S. not paying its debts ... is the most serious thing we have, and we witnessed that in August '11 and you saw the ramifications: a slowdown in the economy,’ added Bank of America chief executive Brian Moynihan following the same meeting.
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by Danielle Levy on Dec 06, 2013 at 07:46