It may seem farfetched, but due to political deadlock in the US, the government has been unable to agree an increase to the debt ceiling, forcing the non-essential government employees to cease working. As the 3rd quarter begins, the US has been unable to agree an increase in the borrowing limit to fund the government’s expenditure.
President Obama addressed the nation, making it clear than the government will not be held to ransom over Obamacare, and that these bills have been passed in the Congress and Senate. The Tea Party movement is a faction of the Republican Party and their primary aim is advocating the reduction in US debt, the current debt ceiling is a staggering $16.699 trillion.
"One faction of one party, of one house of Congress ... doesn't get to shut down the entire government." —President Obama #EnoughAlready— Barack Obama (@BarackObama) September 30, 2013
The effect of requiring non-essential workers to go on unpaid leave and some others to work for nothing (e.g. military) will not be felt immediately. This is the first federal shutdown in 17 years and 800,000 workers will be on furlough as the workday begins today.
From the media coverage, you would have expected fireworks as the clock reached midnight and a bill hadn’t been passed. However the markets seem to have initially shrugged it off. The greenback is weak in the FX markets, and Gold has ticked up slightly, but pretty minimal movement for the a stalemate from the world’s largest economy.
Treasury runs out of cash on October 17th
October 17th is the day when the political stalemate would reach crisis point. At this point if Congress hasn’t agreed to increase the debt ceiling, the Treasury would only have $30 billion of cash on hand. This would have the US government on the unprecedented path towards a default of its requirements.
The Congressional Budget Office has projected that that the Treasury will exhaust all of the borrowing authority created by those measures, as well as its cash balance, between October 22 and the end of the month.
Some of the interesting Tweets on the US Government Shutdown
Credit FAQ: The Debt Ceiling Debate Is Unlikely To Change The 'AA+' U.S. Sovereign Rating. Read here: http://t.co/CgAw8mI6X2— Standard & Poor's (@standardpoors) September 30, 2013
Talk of NFP coming out today seems far fetched, reports refer to CPI released early back in '96 but NFP compilation is much more lengthly— RANsquawk (@RANsquawk) October 1, 2013
NON FARM PAYROLLS COULD BE RELEASED EARLIER, POSSIBLY TODAY (DJ)— Russian Market (@russian_market) October 1, 2013
First trading day of Q4, and no obvious flight to safety after US govt shutdown: stocks and Treasury yields up, falling dollar lifts gold.— Jamie McGeever (@ReutersJamie) October 1, 2013