Concern is growing over the United States budget shutdown
extending further into October as it becomes more likely the
standoff will merge with a fight over raising the US debt
Craigs Investment Partners broker Chris Timms said the
partial shutdown of the US Government showed no signs of
ending quickly, as lawmakers hardened their positions and
sought to shift blame to the other side.
The fight over raising the debt limit later this month would
mean the issue moving from just budget funding to whether the
Government could pay all its bills.
The result could be a dangerous and unpredictable fiscal
super-storm that might be harder to resolve than the shutdown
alone or the 2011 debt limit struggle that sent financial
markets plummeting and brought the US to the brink of
default, he said.
House Republicans were seeking a way out of the impasse
yesterday, flinging five proposals for partial funding at the
Democrats and seeking to engage the Senate and President
Barack Obama in direct talks. Mr Obama warned Wall Street
should be concerned a conservative faction of Republicans was
willing to allow the country to default on its debt.
He would not hold budget talks with Republicans until they
allowed the US Government to reopen and pass a Bill to raise
the US borrowing limit. The US Government closed
non-essential operations on Tuesday, after Congress failed to
reach a new budget deal.
''I think it's important for them to recognise this is going
to have a profound impact on our economy and their bottom
lines,'' Mr Obama said in an interview on CNBC, following a
meeting with US financial sector leaders.
Mr Obama said Republican House Speaker John Boehner was
unable to say no to ''a small faction'' of the Republican
Party, and if a few people ''are allowed to extort
concessions'' then any president who followed him would find
himself unable to govern effectively.
Mr Timms said the situation in Washington was fluid and it
was difficult to predict with any precision what decisions
the parties would take and how the fiscal debates would
''Clearly, the chances of an extreme outcome have risen with
the most probable scenario a small deal that allows some
political cover for all.''
Should the situation worsen, a larger fiscal package
including changes to the sequester (automatic budget cuts),
reform of the tax code and modifications to the entitlement
programmes could provide greater cover for both sides, he
''Ironically, the worse things get, the greater the changes
of a bigger fiscal deal.''
The passage of tax reform and less blunt austerity measures
was still a long shot, but the government shutdown and debt
ceiling debate was contributing to a ''very dynamic
environment'' in which entrenched interests might have less
influence than usual, Mr Timms said.
Craigs expected a brief government shutdown would not derail