Why are the markets so calm about the US shutdown and debt ceiling debates?

The "Fear Index" is languishing at 17.

The government of the world’s largest economy is shut down and the current debt limit of $16.699 trn was expended in May. Since then the US Treasury has only managed to keep the show on the road by using what it calls "extraordinary measures" but even they will all have been exhausted by 17th October, (-ish).

It now looks increasingly likely that the two questions of passing the Continuing Resolution Bill to allow the government to keep spending money, and raising the debt ceiling, so that the US can repay principal and interest as they become due on current debt, and subsequently issue yet more IOU’s, will become co-mingled.

The trouble is that there is now a three party system in the States; Democrats, Republicans and the Tea Party, and the latter seem to have become almost impossible for House Speaker Boehner to rule, as evidenced by their insistence that the Continuing Resolution Bill was sent to the Senate only following the addition of amendments that would de-fund President Obama’s cherished Affordable Healthcare Act. Amendments that stood zero chance of ever getting through the Democratic controlled Senate.

The moderate wing of the Republican Party is now livid with the Tea Party-one gathers Republican Senators recently fired a volley of angry questions at prominent Tea Party member Ted Cruz, (he of the recent 21-hour filibuster on this matter), their main point being to ask what is his overall strategy, how did he ever think in a million years that he or the Republicans as a whole would come out of this in better shape for next year’s mid-term Congressional elections?

In the chilling words of Vanderbilt University public policy professor Bruce Oppenheimer, "The thing that's different about these Republicans, (the Tea Party), is their unwillingness to bargain," and  "I'm not sure if it's because they lack government experience or they've made such strong promises to their constituencies, but they've put their feet in cement and can't or won't move."

This will very probably end with Boehner leading enough Republicans into a deal to vote with Democrats to get the requisite legislation through, even if this contravenes a party policy known as the “Hastert rule” which prevents a bill getting to the floor that doesn’t command majority Republican support.

A further disturbing factor was the Treasury’s perhaps naïve assurance that in fact Oct 17th isn’t a firm deadline, as they can russle up another $30bn to keep things going to the end of the month.

What I find most chilling, however, is the markets insouciance towards the whole debate, especially the debt ceiling. The Vix Index of equity market volatility, the so-called "Fear Index", is languishing at 17, whereas it reached 48 during the last debt ceiling impasse in August 2011, as the S and P 500 Index fell 15 per cent in a matter of days. Admittedly simultaneously the Eurozone crisis had markets on the edge then, but one gets the distinct feeling that everyone now believes there will be eventual agreement, and sees any dip in prices as a chance to buy stocks, or is sitting comfortably overweight.

Markets always cause the most pain they possibly can; in a world where everyone thinks a solution will be found, but actually has no idea how, there is a distinct chance that before this is over the markets suddenly wake up to the gravity of the risks involved and suffer a very significant pull-back, if not a crash.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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Sarah Champion wants to un-resign and join Jeremy Corbyn's shadow cabinet again

The MP is understood to have emailed asking for her job back. 

Sarah Champion, MP for Rotherham, is to rejoin the shadow cabinet less than a month after her dramatic resignation. 

On 28 June, in the aftermath of Brexit, she tweeted: "I have just stepped down from my shadow minister job, but not my responsibilities to my constituents, party or victims of abuse."

Now, she has reportedly emailed Jeremy Corbyn's team to request an un-resignation from her position as shadow minister for preventing abuse. 

According to the Guido Fawkes blog, she wrote: "I would like to formally retract my resignation and ask to be reinstated to my role as Shadow Home Office minister for preventing abuse and domestic violence with immediate effect."

Unsurprisingly, perhaps, given their staffing issues on the shadow cabinet, the Corbyn team is understood to be welcoming her back. 

Shadow chancellor John McDonnell has repeatedly urged ex-shadow cabinet MPs to come back. On 1 July he said: "Wouldn't it be better if people came back and worked with us?"

And on Sunday, he alarmed weekend TV viewers by turning straight to camera and telling the nation: "We've got to stop this now."