Five years after the financial crisis, America’s leaders are standing by as the economy heads to the brink.
Without a budget deal, the government is at risk of shutting down on October 1.
“The most maddening aspect of the looming budget brawl is that key players in both parties actually seem to welcome a crisis because it might help them in the 2014 elections,” wrote Potomac Research Group’s Greg Valliere this morning.
“With the city still reeling from a mass shooting, President Obama went ahead with a bitterly partisan speech yesterday, blaming Tea Party Republicans for a potential crisis,” continued Valliere. “He knows a radical image could hurt the GOP in the next election. And Republicans have incited a hard-core base that wants to shut down the government over Obamacare — now GOP lawmakers have to respect the base or face primary challenges from the far right.”
With the U.S. stock market near all-time highs, investors do not seem to worried about political turmoil. Maybe things will work themselves out.
“They believe that — as in the past — the fiscal showdown will end with a midnight compromise that avoids both default and a government shutdown,” said economist Nouriel Roubini. “But investors seem to underestimate how dysfunctional US national politics has become. With a majority of the Republican Party on a jihad against government spending, fiscal explosions this autumn cannot be ruled out.”
Valliere, one of the more savvy political analysts in D.C., is only getting increasingly concerned about trouble.
“We think the chance of a government shutdown on Oct. 1 is about 25% — up from 10% just a month ago,” he said. “We think the chance of a Treasury debt default is about 5%. And we think the chance of a Treasury fiasco in early November — with some but not all government obligations fully funded — is 55%. Troops will get paid, grandma will get her Social Security check, bondholders will get paid, but uncertainty will reign on other obligations — surely a headwind for the overall economy.”