Two days out from the 17 October deadline, negotiations in Washington have (yet again) come to a halt. Key Senate figures had been working towards a compromise proposal, but those discussions stopped once news got out that House Republicans had rejected the plan without seeing any details, instead choosing to focus on their own initiative. If that wasn’t bad enough, it subsequently came to light that the House Republicans may not even have enough support to get their bill through the House, let alone the Senate. That this is the case has since been confirmed, with the Republican leadership cancelling a planned vote on the bill. There have since been some reports that the Senate has recommenced negotiations, but the House and Senate clearly remain miles apart.
We continue to see very little chance that a resolution will be found this week. 17 October is not the true deadline for non payment by the US government. Rather, it is 1 November and beyond where the real risk lies. Markets have, broadly speaking, remained sanguine on the fiscal situation to date, but recent market developments provide evidence that the market psyche may be shifting.
Here is what high profile investor and author of investment report "Boom, Gloom and Doom", Marc Faber:
"It's basically a dysfunctional government that we have that is far too large that is essentially wasting money left, right and center. The Republicans are wasting money on the military complex and the Democrats are basically buying votes with transfer payments, with entitlement programs, it goes on. It is a huge waste. The problem is that I don’t see a solution."
We remain of the view that the US is highly unlikely to default on its debt obligations and that an '11th hour' solution will be found.
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