Monday, October 14, 2013

US Fiscal Deadlock: Is a default probable?


There is conspicuous concern about the aftermath of the current fiscal impasse in the US. Debt ceiling has to be increased by the Congress by the end of October 17th, and there is a budget that needs to be passed by the house and whose delay resulted the government shut-down, with Obamacare being the bone of contention. (I must I have got it right...)

Large market players and the IMF are warning of the consequences of any delay in the payout of federal government's liabilities. What is the probability of such a delay?

The probability is minuscule! First of all, the US economy is the largest one and its political leaders will not sacrifice its prevailing status for any dispute. No matter how stubborn any of the two sides might be, nor the Tea Party, nor any Conservative, nor any Democratic will risk the magnitude of their nation whatsoever. Secondly, if the undoing of this Gordian knot exceeds the four-day deadline each side will subsequently have to engage in blaming the other for the consequences the non-resolution, and there is no public relations expert or Guru that can guarantee ex ante the victory in a "warfare of impressions"; it would be much easier for each of the two sides to convince their supporters that they did not take a step back. Ultimately, someone will retreat!

Besides, had Wall Street been anticipating any perturbation in servicing and in rolling over government's debt obligations, market declivity would have been enormous!