US government shutdown 2013

The US avoids a default and government shutdown ends, but more political drama set to come in December when a new sequence of deadlines begins. Wall Street falls, dollar down. Dagong downgrades US credit rating. Analysts unimpressed by deal…

 


Powered by Guardian.co.ukThis article titled “US debt ceiling deal fails to cheer markets – live reaction” was written by Graeme Wearden, for theguardian.com on Thursday 17th October 2013 14.10 UTC

Goldman Sachs shares are also dragging the Dow down, dropping 2.6% after third-quarter results missed forecasts.

Goldman and IBM (-6.5%), along with United Health (-3.3%), are basically responsible for the entire triple-digit drop on the Dow in early trading. Most other stocks are flat, or up a bit.

Updated

A catch-up

Time for a summary of events so far today.

The US has averted the risk of a catastrophic debt default after Congress finally agreed a spending bill to reopen the Federal government and extend the debt limit.

The short-term deal, signed after midnight Washington time (read it here) gives the government the authority to borrow until early February, and also approves budget spending until January 15th. Here’s the key points.

Hundreds of thousands of government workers have been asked to return to their desks, as analysts ponder the political fallout. The IMF also weighed in, urging America to avoid a repeat of the debt ceiling debacle that has loomed over the global economy.

The short-term nature of the deal has disappointed the financial markets, who expect a repeat of recent deadlock and conflict in the months ahead. Most European stock markets have fallen so far today.

Wall Street just opened in the red, with the Dow dropping over 100 points in early trading.

Early this morning, China’s Dagong agency downgraded the US credit rating, from A to A-. It warned that:

The government is still approaching the verge of default crisis.

The dollar has lost ground in the currency markets, amid speculation that the Federal Reserve will continue its stimulus programme at the current rate until March 2014.

On a brighter note, the cost of insuring US debt has dropped, and the prices of short-term Treasury bonds have risen.

Financial experts are relieved that the risk of a US technical default is off the agenda, at least until early 2014. But many expect further brinkmanship and conflict on Capitol Hill in the coming months. Here’s some early comment …and here’s a bit more.

In Washington, Democrat and Republicans will begin discussing long-term budget issues, as part of the ‘budget conference’ agreed in the deal.

Shares drop in New York

Wall Street is open, and shares are dropping in early trading.

The Dow Jones index fell by 116 points in the first few minutes, a drop of 0.7%,x to 15257. The S&P 500 and Nasdaq indices are also in the red, following today’s losses in Europe.

The Dow is being dragged down by IBM, whose shares have fallen 6% after it missed revenue forecasts last night, blaming a slowdown in China.

Why Dagong downgraded America

China’s Dagong credit rating agency has now uploaded its statement, confirming that it had downgraded the US by one notch to A- .

Dagong Downgrades the U.S. Sovereign Credit Ratings to A- Dagong Global Credit Rating Co., Ltd.

As covered earlier, Dagong is alarmed by the Federal shutdown (now finally over), and worried that America is sliding deeper towards the verge of a “default crisis”.

For example:

The partial U.S. federal government shutdown apparently highlights the deterioration of the government’s solvency, pushing the sovereign debts into a crisis status.

The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function.

The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts.

Dagong is also concerned that the US national debt will keep rising, and criticised the ‘monetisation’ of US liabilities through the Federal Reserve’s QE schemes.

The agency also pointed to the disfunction on Capital Hill:

As the issue of paying sovereign debts falls into a tool that the parties make use of to realize their own interests, the political environment is unfavorable for eliminating the risk of its sovereign debt default in the long term.

US short-term government debt is being treated as an ultra-safe haven again, with prices rising back to their previous levels after dipping in recent days.

Makes sense, as there’s no danger of America defaulting in October and November.

These price rises have driven down the interest rates on one-month Treasury bills to the lowest rate since the end of September. A bill that matures on 14 November is now yielding just 0.01%, compared to 0.15% yesterday.

Dollar keeps falling

The US dollar continues to slide. It’s now lost one and a half cents against the pound, which is trading at $1.611. The euro has also gained more than one cent, to $1.365

Toby Nangle of Threadneedle Investments warns that the US dollar’s status as the world’s premier reserve currency has taken a knock over the last few weeks:

That a technical default has been averted is to be welcomed, but the public brinkmanship involved in arriving at this temporary extension of the debt ceiling has been unpalatable and serves to further chip away at the U.S. dollar’s status as unquestioned reserve currency.

Threadneedle now expect the Federal Reserve to resist tapering its bond-buying asset purchase scheme until March 2014. More here on the WSJ

Jane Foley of Rabobank agrees that the Fed probably won’t taper until March 2014. This promise of much more quantitative easing is pushing the dollar down, she adds, writing:

Poor old dollar….

The prospect of another uncomfortable debate in government raises the prospect that the Fed could potentially defer tapering until its March policy meeting. As a consequence we will this week lower our USD forecasts across the board; our new forecasts will be published tomorrow.

The weekly US jobs data has just been released, and shows that more people filed new benefit claims than expected last week.

A total of 358,000 new jobless claims were filed in the seven days to October 12, down from 374,000 the previous week, but rather higher than the 335,000 that Wall Street expected.

Here’s some more snaps:

17-Oct-201313:30 – US JOBLESS CLAIMS 4-WK AVG ROSE TO 336,500 OCT 12 WEEK FROM 324,750 PRIOR WEEK (PREVIOUS 325,000)

17-Oct-2013 13:30 – US CONTINUED CLAIMS FELL TO 2.859 MLN (CONS. 2.915 MLN) OCT 5 WEEK FROM 2.902 MLN PRIOR WEEK (PREV 2.905 MLN)

17-Oct-2013 13:30 – US INSURED UNEMPLOYMENT RATE UNCHANGED AT 2.2 PCT OCT 5 WEEK FROM PRIOR WEEK (PREV 2.2 PCT)

17-Oct-2013 13:30 – US LABOR DEPT OFFICIAL SAYS NO NOTICEABLE INCREASE IN NEW CLAIMS FROM NON-FEDERAL WORKERS AFFECTED BY THE GOVERNMENT SHUTDOWN 

The full spending bill is online here as a pdf.

Goldman Sachs cuts bonus payments

Goldman Sachs bonus pool for the last quarter was around 35% shallower than last year, after the bank saw net profits applicable to shareholders, and revenues, drop.

From today’s results statement:

The accrual for compensation and benefits expenses (including salaries, estimated year-end
discretionary compensation, amortization of equity awards and other items such as benefits) was $2.38 billion for the third quarter of 2013, 35% lower than the third quarter of 2012.

The ratio of compensation and benefits to net revenues for the first nine months of 2013 was 41.0%, compared with 43.0% for the first six months of 2013 and 44.0% for the first nine months of 2012. Total staff increased 3% compared with the end of the second quarter of 2013.

The topline net earnings figure from Goldman is $1.52bn, or $2.88 a share, up slightly from $1.51bn a year ago.

Goldman Sachs is pinning its hopes on Congress resolving the long-term uncertainty over America’s budgets, as it releases its third-quarter results which showed a 2% drop in net profits compared with last year.

Goldman reported a sharp drop in net revenues in the last three months, to $6.722bn compared to $8.612bn in the three months to June 30. Weak bond trading activity is one factor.

Lloyd C. Blankfein, chairman and CEO, said:

The third quarter’s results reflected a period of slow client activity.

Still, we saw various signs that our clients are prepared to act on significant transactions and we believe that the firm is well positioned to help our clients accomplish their objectives.

As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery.

Goldman also reported net profits (applicable to shareholders) of $1.429bn in the three months to 30 September, down from $1.861bn in the previous quarter, and $1.458bn a year go.

UK business secretary Vince Cable has moved another step closer to launching a new business bank, by naming former Standard Chartered exec Ron Emerson as chairman (via Jill Treanor)

Over on Business Insider, Henry Blodget is laying into the 144 Republicans (here’s a list) who voted against the spending bill last night.

Blodget’s not too impressed with the deal (like most people we’ve quoted today):

It’s not a long-term deal, of course.

In fact, it’s not even a medium-term deal.

It’s a two or three month deal.

Which means that the Congress-people elected to lead our country will once again soon be in their favorite position in the world: In front of TV cameras grandstanding about how “the opposition” is destroying the country and demanding that everyone kowtow to their every demand.

But he’s particularly irked that a senior player like Paul Ryan (the Republican Party nominee for Vice President in the 2012 election) could oppose a deal that fended off the default risk, saying:

[Ryan] has a reputation for being fiscally responsible, on account of some budget ideas he has put forward in recent years. Ryan’s vote to send the U.S. into default should delete this reputation for fiscal responsibility once and for all.

Here Are The 144 Republicans Who Voted To Send The U.S. Into Default

A new straw poll from Citigroup suggests America won’t suffer a credit rating downgrade from a ‘big three’ agency (rather than China’s Dagong) in the next six months:

Reuters has peered into the details of the spending bill signed by president Obama shortly after midnight in Washington, and found that it contains many commitments beyond simply extending the debt limit.

Amid the 35 pages are $450m for Colorado flood relief and more than $600m for fire management and fire suppression, plus money to spend up paying benefits to veterans . There’s also an extra $1.2bn for a dam in Kentucky, plus fresh authority for the Department of Defense to continue to support African forces pursuing Joseph Kony and the Lord’s Resistance Army.

There’s also no pay rise for Congress, it says:

Also notable is what the 35 pages do not include.

Congress likely was wise to spell out that its members will not see any pay increase as a result of the deal. The bill states that members will not receive any cost of living adjustments during the fiscal year 2014 that began on October 1.

The East Coast of America is waking up to a new day with a functioning government and no imminent risk of stumbling into a debt default.

Bloomberg TV has been talking about the political ramifications of last night’s deal. Ian Bremmer, Eurasia group president, argued that a ‘grand bargain’ (of sorts) has been carved out:

Bremmer said:

There was a grand bargain – the Republicans have imploded, but [Barack] Obama has frittered away the first year of his second term as president.

Obviously not the long-term agreement on fiscal policy which is needed.

One important element of last night’s deal is that the House and the Senate will set up a ‘budget conference’, which will deliver a report by mid-December.

Peter Cook, Bloomberg’s chief Washington correspondent, says that this panel will meet this morning to start discussing long-term fiscal plans.

They’re going to meet over breakfast… to try and get things off on the right foot.

No surprise that the cost of insuring US government debt against default has fallen this morning.

A one-year credit default swap (which would pay out if America defaulted) has dropped by 7 basis points to 51 bps, data provider Markit reported.

It had hit a two year high of 75 basis points yesterday (meaning it costs $75,000 to insure $10m of Treasury bills).

More importantly, perhaps, this is still more than the cost of a five-year CDS contract (which is trading at 32 basis points).

A one-year CDS contract should be cheaper, given the risk of long-term uncertainty. But in America’s case right now, the uncertainty is still in the short term.

Market update

Three hours into the European trading day, and the main stock markets are all in the red as the US debt ceiling deal leaves investors underwhelmed.

The French and German stock markets have fallen by 0.7%, while over in Moscow Russia’s main index has slid by 1.5%. Britain’s FTSE 100 is slightly lower.

David Madden, IG analyst, reckons that “traders are worried that the US will be downgraded” by Fitch, which two nights ago put America’s AAA credit rating on negative watch.

Madden adds:

Stock markets are not longer celebrating the deal that was struck yesterday between the Democrats and Republicans to avoid an armageddon style default – the focus has now switched to the US credit rating as traders wonder whether or not it will remain unchanged.

The agreement reached has indeed brought about an end to the shutdown and pushed back the debt ceiling talks until February, but investors simply view this as the government hitting the snooze button yet again.

Ratings agency Fitch is edging even closer to lowering the US credit rating, and if other agencies follow suit we could see a repeat of August 2011*.

* - when S&P became the first agency to downgrade the US, after the previous debt ceiling deal was raised.

Updated

The US debt ceiling deal continues to get an underwhelming response in the financial world, with the FTSE 100 still in the red (down 20 points at 6551).

As flagged up at 8.37am, City experts are worried that Congress only extended the US debt ceiling by four months, and only fund the Federal government until January.

Many fear a rerun of last month’s battles, once US politicians sit down to consider longer-term budget .

Luke Bartholomew, investment analyst at Aberdeen Asset Management, calls it a “a hollow victory for Capitol Hill”:

The debt ceiling standoff has ended with the starting gun being fired on negotiations on automatic budget cuts in the form of the sequestration. That could be a good thing if it means some of the more arbitrary cuts are replaced by reasoned ones. But that will require Republicans and Democrats to cooperate which can never be assumed.

The US can take a sigh of relief for now but the New Year could bring a dangerous sense of déjà vu.

“These budget talks have cast a cloud over the US’s international reputation and heaped pressure on the Fed. A decision to taper QE was expected in December but the government shutdown means the Fed is deprived of the very economic data it’s said it will base its decisions on.”

Here’s our latest news story on the US debt ceiling deal, and Christine Lagarde’s warning that America must stop flirting with disaster over its borrowing limits:

US shutdown: IMF chief calls for stability after debt crisis averted

Updated

British Gas hikes prices by 9.2%

Meanwhile, in the UK, British Gas has thrown more fuel on the debate over household energy prices by hiking tariffs by an average of 9.2%.

Parent company Centrica announced that gas prices will rise by 8.4%, while electricity bills will see a double-digit increase of 10.4%.

British Gas’s increase is even higher than the 8.2% increase announced by SSE last week. It comes less than a month after Labour leader Ed Miliband vowed to freeze prizes if he won the next election.

In a statement, British Gas said it was a ‘difficult decision’, and acknowledged that “hard-pressed households” are suffering as real wages keep falling.

Ian Peters, managing director of British Gas Residential Energy, blamed wholesales energy prices and charges imposed by the government.

“I know these are difficult times for many customers and totally understand the frustration that so many household costs keep on rising when incomes aren’t keeping pace.

We haven’t taken this decision lightly, but what’s pushing up energy prices at the moment are costs that are not all directly under our control, such as the global price of energy, charges that we have to pay for using the national grid that delivers energy to the home, and the cost of the Government’s social and environmental programmes.

Updated

Back on those reports that Dagong has downgraded the US credit rating — journalist Alexander Smith has got hold of the full statement, and uploaded it here.

Here’s a flavour:

For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency.

Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.

Dagong should be calling me back at some point to discuss the situation….

Updated

Good economic news in the UK — retail sales rose by 0.6% on a monthly basis in September, twice as fast as expected.

The Office for National Statistics reported that spending on household goods jumped by 3.0% compared with August, while textiles and clothing spending was up 1.2%.

It’s another encouraging development, following yesterday’s drop in the number of people claiming unemployment benefit. It’s also a little curious, given wages continue to lag well behind inflation.

Last night’s deal to avert a US debt ceiling disaster should also cheer the high street, as the crucial festive period approached. Richard Lowe, head of retail & wholesale at Barclays, says Britain could enjoy a good Christmas:

September’s figures bring to a close a summer of good results and good levels of growth in the sector.

Looking ahead, the high street is already filling up with glittering displays to tempt shoppers in the lead up to what we expect to be a strong Christmas.

I’m still trying to find the full statement from Dagong. (its website keeps flashing up error messages).

In the meantime, Reuters’ IFR Markets bureau flags up that the agency also left the US rating on a ‘negative outlook’, suggesting it could cut the A- rating further.

Here’s IFR take, from the Reuters terminal:

Chinese rating agency Dagong has downgraded the United States to A- from A and maintained a negative outlook on the sovereign’s credit.

The agency suggested that, while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged.

“Hence the US government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” Dagong said in a press release.

Dagong’s ratings are hardly followed outside of China.

The agency also classifies most countries it follows very differently from major agencies such as Moody’s, Standard & Poor’s and Fitch.

For instance, like the major agencies, Dagong rates Norway Triple A. However, the US was rated A and the United Kingdom has an A+ rating with Dagong, while Moody’s for one, has the UK at and the US at Aaa, the highest level on the New York-based agency’s scale.

Yet, the Chinese agency is not alone in pointing out that the creditworthiness of the United States is not as good as it once was.

Yesterday, Fitch put the Triple A rating it gives to the US under negative watch.In August 2011, Standard & Poor’s downgraded the US to AA+ after a protracted debt ceiling debate in Congress brought the government to the verge of a shutdown.

Apart from the symbolic meaning of the downgrade, though, Dagong’s move is expected to have no effect on markets.

Although, as fastFT points out, the gold price has risen this morning:

Gold prices were higher after the reports circulated, with spot prices up $29 on the day at $1,310 a troy ounce.

Even before today’s reported downgrade, Dagong only classed America as a “High credit rating” nation, with a single-A rating. That’s several notches below AAA.

Why? Because Dagong has long been concerned that America’s national debt is too high, and questioned whether the US is really committed to repaying its creditors (as this Bloomberg story from 2010 shows) .

Updated

Dagong rating agency downgrades US- reports

China’s Dagong credit rating agency just downgraded America’s credit rating, following the short-term deal hammered out last night, according to reports.

Dagong has cut the US rating by one notch to A-, from A.

Dagong has warned that the debacle over the US debt ceiling shows America’s “incapacity” to solve its national debt crisis.

The agency also cited the damage caused by the shutdown on the US economy, saying America would probably have to actually borrow even more money to cover the lost economic activity.

Dagong isn’t one of the Big Three ratings agencies, so this shouldn’t send ripples through the financial markets.

And a cut from A to A- is less dramatic than losing America’s AAA credit rating (as Fitch is now threatening to do, and S&P did in 2011). But it shows the concern in Beijing over the situation.

Updated

After initial relief, the US dollar is also falling this morning. It’s lost half a percent against both the pound (which has risen to $1.603), and the euro ($1.361).

Reuters says the fall is due to traders pondering the damage caused to the US economy ($24bn of lost output, according to S&P)

This could make it harder for the Federal Reserve to slow its quantitative easing stimulus programme (which is pumping $85bn into the US economy each month).

“We would expect this impasse to shave off part of fourth-quarter growth and hurt consumer confidence especially from the government sector,” said Simon Derrick, head of currency strategy at BNY Mellon.

“What this does is push back expectations of Fed tapering to early 2014 and this is dollar negative.”

US debt deal – what the City experts

The broad reaction in the City is that the US deal is a short-term sticking plaster, not a long-term fix. Analysts expect more conflict on Capitol Hill.

 Michael Hewson of CMC Markets predicts another battle in January.

The compromise solution has the government reopened until January 15th, the debt ceiling raised until February 7th and a pledge to negotiate further deficits cuts by December 13th. While this staves off the immediate uncertainty it also means that we have to go through this entire circus again in the New Year.

Talk about kicking the proverbial can down the road, the only difference is we get to use the phrase with respect to the US instead of Europe. Isn’t irony sweet? Oh joy, Happy New Year everybody!

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, believes the world economy will shake off the impact of the shutdown.

The shutdown of the U.S. government will probably not have helped Q4 GDP. Nevertheless the worldwide economic upturn remains on track going into 2014.

Anita Paluch of Gekko Markets reckons the Federal Reserve won’t rush to slow (or ‘taper’) its stimulus programme:

Good news – the tapering will be delayed, the bad news – the 11th hour deal is not a solution but just a problem postponed.

And Ishaq Siddiqi, market strategist at ETX Capital, says European stock markets are also suffering from weak corporate earnings.

 Overnight, we heard worrying news from IBM who blamed stalling sales in China as the reason for sliding group revenues. eBay meanwhile warned of tougher trading conditions in the US while Black & Decker blamed the US government shutdown as a reason to warn on profits.

In Europe this morning, we’ve another ugly set of earnings from the likes of Metso, Remy Cointreau [luxury sector posting poor numbers – LVMH missed expectations this week] while KPN shares are under pressure after American Movil pulls out its takeover bid for the Dutch telecom company.

European markets open lower as traders see trouble ahead

Shares are falling in early trading in Europe, as the US debt ceiling deal fails to cheer the markets on this side of the Atlantic.

The FTSE 100 has dropped 17 points, to 6553. The German DAX and French CAC are also down by 0.3%.

The City is disappointed that Congress didn’t agree a longer-term deal. Traders are already anticipating another bruising battle on Capitol Hill in early 2014.

Mike van Dulken, head of research at Accendo Markets, says there’s lots of work still to do.

The budget needs to be re-negotiated within 2 months, the government will be re-opened and funded for just 3 months and the debt ceiling issue pushed back for 4 months. The muted market reaction (US & European futures down) suggests them already pricing in a standoff re-run in Dec, Jan and Feb.

Neither party can be proud, although Democrats look to have the upper hand, showing prepared hold firm and blame ultimately being directed at Republicans (or at least factions) refusing to give up on their rejection of Obamacare.

Traders have also been digesting S&P’s estimate that the shutdown cost the US economy $1.5bn each day — that’s a lot of missed business for firms across America, and the globe.

Updated

Overnight, World Bank President Jim Yong Kim summed up the relief in the corridors of power, saying the global economy has “dodged a potential catastrophe”.

IMF: US must end the debt ceiling uncertainty

The International Monetary Fund has welcomed the news that Congress has raised America’s $16.7 trillion debt ceiling before its borrowing authorisation ran out, at midnight tonight.

But IMF chief Christine Lagarde warned that America must break the cycle of uncertainty over its debt limits. She also called for the ‘sequester’ (deep spending cuts) to be replaced by a less harsh method of fiscal consolidation.

Lagarde said:

The U.S. Congress has taken an important and necessary step by ending the partial shutdown of the federal government and lifting the debt ceiling, which enables the government to continue its operations without disruption for the next few months while budget negotiations continue to unfold.

Looking forward, it will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner. We also continue to encourage the U.S. to approve a budget for 2014 and replace the sequester with gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan.

Earlier today our Australian economics blogger, Greg Jericho, held a Q&A on the debt ceiling deal and its implications for the global economy.

Here’s a flavour, on why the debt ceiling should be canned:

The main thing that needs to be done is just abolish the debt ceiling. The market doesn’t give a stuff about it being raised – the bond yields never go up because it is raised, they only go up when Congress threatens to block move for it to be raised.

But I can’t see it happening, purely because there are those who view it as a weapon in their arsenal that they can use to force spending cuts etc. But what today has really shown is that if the other side refuses to budget, the threat to allow a default ends up being an empty one.

Greg Jericho answers your questions on the US debt default crisis – as it happened

From Washington, my colleagues Paul Lewis and Dan Roberts report on how the deal leaves the Republican party licking its wounds:

The US Congress passed legislation to rescue the country from the brink of a looming debt default on Wednesday night, bringing an end to the two-week crisis that has closed large portions of the government and revealed deep divisions in the Republican party.

The bill, a temporary fix that will last only through to the start of 2014, passed easily with broad bipartisan support in the Senate, where Democratic and Republican leaders forged the agreement just hours earlier.

But it was able to pass the Republican-dominated House shortly after 10pm only with the support of Democrats. It laid bare a rupture between moderate and more rightwing Republicans, who triggered the crisis by using their budgetary leverage in what turned out to be a futile effort to undermine Barack Obama’s signature healthcare reforms.

Only 87 House Republicans voted for the bill. The party leadership was opposed by 144 members, including Paul Ryan, the former vice-presidential candidate and a key figure in Congress.

In brief remarks at the White House shortly before the House vote, Obama said he hoped the deal would “lift the cloud of uncertainty” that had hung over the country in recent weeks.

Updated

The state of play

My US colleagues live-blogged all the action from Washington (and quite gripping it was too).

Here’s their closing summary:

• The House and Senate both passed a bill this evening funding the government and raising the debt ceiling until early 2014.President Obama says he will sign it “immediately,” as in, tonight.

• The 16-day government shutdown is over. Government employees will receive retroactive pay for the shutdown period.

• Fiscal talks will now shift to a budget conference between the House and Senate, where a negotiated report is due by mid-December. The talks will be led by the budget committee chairs of each chamber, senator Patty Murray and congressman Paul Ryan.

• President Obama will speak tomorrow about his budget priorities. He claims that he’s willing to discuss “anything.”

• Speaker Boehner, despite passing a bill with mostly Democratic support, is not expected to lose his job. He even got a standing ovation from the House Republican conference today.

Congress passes bill to raise US debt ceiling and end shutdown – live

Updated

Relief as Obama signs spending bill to avert default

Good morning. America is returning to normality this morning after the deadlock in Congress over the US debt ceiling was broken.

Just after midnight East Coast time, president Barack Obama signed legislation to reopen the Federal government, fund its operations until January 15 2013 and extend the country’s borrowing authority for another four months, to February 17.

So, a short-term fix, but one which averts the danger of America defaulting on its debts and triggering a financial panic.

Hundreds of thousands of federal workers, many of whom have been idle for the past 16 days, are now expected to return to work — as businesses count the cost of a two-week hiatus.

The deal leaves the Republican party in some turmoil. The majority of its members in the House of Representatives voted against the bill, underlining the split between radical Tea Party members and moderate Republicans.

Shares on Wall Street roared ahead as the deal neared, and Asian stock markets have mostly risen overnight. Japan’s Nikkei jumped 119 point to 14,586, + 0.8%

We’re not expecting a big rally in Europe this morning, though. Most analysts reckoned Congress would do the right thing eventually. But the fact some members of Congress were prepared to risk a default may have caused lasting damage to America’s pivotal role in the global financial system.

I’ll be tracking the reaction to the deal over the next few hours, along with other events across the world economy, the eurozone, the financial markets and the business world.

Updated

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USA 

Pressure mounting on Republicans to make deal. Investor confidence appears to hold. Senate action expected. Live blog coverage of Congress’ attempt to reopen the US government and steer the world’s biggest economy clear of the default cliff…

 


Powered by Guardian.co.ukThis article titled “US pushed to brink of default as hopes hang on bipartisan Senate deal – live” was written by Tom McCarthyin New York, for theguardian.com on Wednesday 16th October 2013 13.26 UTC

The Senate convenes at noon today. The House is scheduled to meet at 10am. President Obama is scheduled to have lunch with vice president Biden and has meetings today with his secretaries of treasury and state.

Good morning and welcome to our live blog coverage of Congress’ attempt to reopen government and steer clear of the default cliff.

Tuesday was a bad day on Capitol Hill. It began with hopes for a bipartisan Senate deal. Then House Republicans announced they were going to make a deal of their own. ”Whatever proposal we move forward will reflect our emphasis on fairness,” majority leader Eric Cantor said. But there was no proposal to follow. The leadership could not bring the hard-right faction on board.

Today begins with hopes for a bipartisan Senate deal. The Wall Street Journal has published an editorial telling Republicans that enough is enough: “Republicans can best help their cause now by getting this over with and moving on to fight more intelligently another day,” the paper concludes. The conservative National Review reports that GOP members indeed are ready to just “get it over with”.

The markets showed a bit of queasiness in yesterday’s tumble-jumble, but declined to panic.

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Senate leaders join struggle to find passable bill. Stock markets only mildly perturbed. “Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports…

 


Powered by Guardian.co.ukThis article titled “US shutdown: Congress reconvenes after weekend of choppy talks – live” was written by Tom McCarthyin New York, for theguardian.com on Monday 14th October 2013 15.31 UTC

Texas Senator Ted Cruz, whose quixotic campaign to “defund” Obamacare was the stick in the spokes that got us here, could – could – cause a default all by himself, Joshua Green reports in Bloomberg BusinessWeek:

How could this happen? Because the Senate can move quickly when necessary–but only by unanimous consent. Let’s say Harry Reid and Mitch McConnell strike a deal today (that’s looking unlikely). Cruz surely won’t like it and has said repeatedly, “I will do everything necessary and anything possible to defund Obamacare.” If he’s true to his word, he could drag out the proceedings past Thursday and possibly well beyond. “If a determined band of nut jobs wants to take down the global economy, they could do it,” says Jim Manley, a former top staffer for Reid. “Under Senate rules, we are past the point of no return–there’s not anything Reid or McConnell could do about it.”

Read the full piece here. There’s no indication that Cruz is that crazy?

“Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports.

Updated

Congress won’t act until markets panic, they say. Comforted by the implication that Congress can and will act, markets don’t panic. But Congress won’t act until markets panic. Comforted by…

Anatomy of a deal

How might an eventual deal look? What are the sticking points?

Congress must decide how long to extend the debt limit and how long to fund the government for. Legislators must also decide the level at which to fund government – whether or not to retain the deep “sequester” cuts that took effect on March 1, and for how long.

Republicans would like a shorter debt limit extension in order to maintain leverage in budget negotiations. Democrats would like a shorter-term funding bill in order to accelerate the end of the sequester, which chunked $85bn off the budget between March and October.

At the end of September, Senate Democrats passed conciliatory legislation that would have funded the government at sequestration levels through November – but the bill was rejected by House Republicans. Token Conservative New York Times columnist Ross Douthat retold the history in a recommended Twitter lecture on Sunday:

But now the “original” potential deal to keep government open over the short term at sequester levels is gone, and everything seems back in play. The distance between the two sides on the debt limit extension and the term of the spending bill is a matter of months, NBC’s John Harwood reports:

The Washington Post’s Greg Sargent sees a possible deal by which Democrats would demand the destruction of the debt ceiling as a counterweight to Republican demands on spending:

So here’s what Dems should do. If Republicans refuse to budge off their insistence on lower spending levels, Dems should call their bluff by demanding a permanent disabling of the debt limit as an extortion tool as part of any short-term compromise. (Yes, Republicans will say No. But bear with me.)

If, somehow, a deal is reached this week in the Senate that involves Republicans giving ground on spending levels, Dems should make the push for a permanent disabling of the debt limit a key goal in the next round of formal, long term negotiations.

In the short term, if Dems accept sequester level spending into early next year in exchange for permanent disabling of the debt limit, it would not be an awful outcome.

Read the full piece here.

Senator Joe Manchin of West Virginia, a centrist Democrat, offered a relatively optimistic view of the negotiations this morning on CNN. Talking Points Memo caught the spot:

“I think we’re 70-80% there, putting the extra 20-25% to it,” Sen. Joe Manchin (D-WV) said Monday on CNN.” “When should the (continuing resolution) come due, when should the debt ceiling come due, and does that give that time for the budget conference, the budget committees to sit down and work through this? Those are the details that have to be worked out.”

Updated

Leaders of the World Bank and IMF warned at a meeting in Washington DC Sunday of the disastrous consequences of a US default, the New York Times reports. Some damage has already been done, as borrowing costs for the United States – over the short term, at least – are creeping up.

Christine Lagarde, managing director of the International Monetary Fund, warned of “massive disruption the world over” if the United States plunges into default. At the start of the month she said it is “‘mission-critical’ that [the US default risk] be resolved as soon as possible.”

From the Times report on the Washington meeting:

Participants at the meetings remained on edge, given the gravity of the threat. Ms. Lagarde said “that lack of certainty, that lack of trust in the U.S. signature” would disrupt the world economy.

Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. “The fiscal standoff has to be resolved without delay,” he said in a statement released by the I.M.F.

Read the full piece here.

The Dow Jones Industrial Average opens the day down just a bit, about a half-percent. The bets are still on, for now.

President Obama spoke yesterday with House minority leader Nancy Pelosi, and the two party leaders in the Senate – Democrat Harry Reid and Republican Mitch McConnell – have been holding talks through the weekend that were expected to resume this morning.

Talks between the president and the House Republican leadership – so hopeful as of Friday evening – foundered on Saturday. “No deal” Wisconsin Rep. Paul Ryan told reporters at the Capitol.

The needle they’re collectively trying to thread is legislation raising the debt ceiling that would be acceptable to both Senate Democrats and House Republicans. The current legislation thought to be under discussion would also provide for reopening government and settle a budget through the New Year.

If a catchall deal proves unworkable, Congress may have to pass the debt limit bill separately. However it may actually be easier to pass a catchall deal, because there are more variables and thus more room for negotiation – and compromise.

Guardian Washington correspondent Dan Roberts (@RobertsDan) is tracking the action:

Democrat majority leader, Harry Reid, appeared briefly in the Senate to say he had a “productive and substantive” discussion with Republican Mitch McConnell and was optimistic about a deal, but suspended public proceedings until 2pm on Monday while his backroom talks continued.

The only outward sign of movement from the White House came in a Sunday afternoon phone call with House minority leader Nancy Pelosi, in which President Obama reiterated his insistence on Republicans agreeing to end a government shutdown and extend the debt ceiling before he would negotiate any budget concessions.

Read the full piece here.

Early Halloween.

Good morning and welcome to our live blog coverage of yet another moment of truth in Washington. If the nation’s legislators can’t cut a deal soon – they have a day or two; just exactly how long is a matter for debate – then we get to find out if Warren Buffett was just being a hysterical ninny when he compared default to “a nuclear bomb”.

Negotiations through the weekend failed to produce a deal, or clear a pathway to a deal. Since Friday, talks between House Republican leaders and the White House have fallen apart, and talks between the party leaders in the Senate have sprung up. The House is scheduled to convene today at noon, the Senate shortly thereafter.

The top priority for Congress is to pass legislation that would raise the debt limit sufficiently to fund the Treasury’s accounts payable. They also need to pass a bill to reopen the federal government, which has been partially shuttered for 14 days now (it closed on 1 October). In the current environment, having the government closed is only Code Orange. The debt limit is the Code Red bit.

Investors are holding their breaths to see what the stock market will think of the weekend’s dithering. Knowledgable analysts have suggested that a stock market crash may be the most likely spur to get Congress to actually act. The bond market is closed Monday for the Columbus Day holiday, but stocks are open. The Dow still was relatively unbothered by the crisis on Friday.

The Treasury has said the “extraordinary measures” it has taken since May to cover expenses will be exhausted Thursday, at which point the government will be operating on about $30bn cash on hand and a prayer, with neither expected to last long

Updated

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Meetings intensify as shutdown enters 11th day. Public blames unpopular Republicans, poll shows. Negotiations thought to include larger budget issues. Senate majority leader Harry Reid proposed to vote on a bill to extend the debt ceiling until the end of 2014…

 


Powered by Guardian.co.ukThis article titled “Senate Republicans meet with President Obama for shutdown talks – live” was written by Tom McCarthy, for theguardian.com on Friday 11th October 2013 16.00 UTC

No votes are scheduled in the House today. But it’s open. They could ramp up any time.

In the Senate, majority leader Harry Reid moved Thursday evening to vote on a bill to extend the debt ceiling until the end of 2014. That legislation, or a version of it, could work its way into a broad agreement between the sides, although Republicans have rejected the idea of adding so much headroom.

The headroom, lest anyone needs reminding, is currently running out fast:

What’s a “spending cut”? 

Updated

The Republicans have arrived to the White House, CBS News reports.

Anatomy of a deal

The White House has said repeatedly that the president will not enter budget negotiations until Congress reopens the government. Those negotiations now appear to be happening.

The question is, if a deal emerges, will it require Republicans to pass the stopgap spending bill the Senate passed on 27 September with no add-ons pertaining to Obamacare or anything else – “clean,” as they say?

And what will the Republicans require in return for doing so? “We need to get something for the [continuing resolution] and something for the debt ceiling,” Rep. Raul Labrador of Idaho has explained.

One of the leaders of the negotiations on the Republican side is Paul Ryan, the former vice presidential candidate and reputed budget wonk. “Suddenly a man who seemed in danger of being eclipsed as the face of his party has re-emerged as essential to its rescue,” New York Times congressional reporter Jonathan Weisman writes. So what does Ryan want?

Ryan laid out areas for negotiation in a Wall Street Journal editorial Tuesday. They are Medicare (means-testing for relatively affluent recipients); federal pensions (cutting them) and taxes. He also alluded to the Keystone pipeline which would connect Canada “tar sands” oil deposits to the Gulf coast with dire environmental implications.

Ryan did not mention Obamacare, significantly, meaning a plan he brokers could encounter resistance from the hard-right House faction for whom destroying the law is a top priority. The health care law is partially paid for by a tax on medical devices. The deletion of the tax as part of a deal would allow the Tea Party to claim it had dealt the law a blow.

Democrats have been insisting all week that even a “clean” stopgap spending bill is not great for Democrats because it extrapolates from base spending levels that take into account the “meat-cleaver” sequester cuts. When sequestration becomes part of the new normal, there’s an argument to be made that the Republicans have won, no matter how bad their numbers are.

The chairman of the House appropriations committee said Republicans will test the president on his vow only to cut a budget deal on the condition that government reopens, Bloomberg Business week reports (via @robertcostaNRO):

Obama “would like the shutdown stopped,” Representative Hal Rogers, a Kentucky Republican, said after the White House session. “We are trying to find out what it is he would insist upon” in a spending measure to open the government.

What will they get?

Guardian Washington bureau chief Dan Roberts says Senator Ted Cruz, the grandstanding outspoken Tea Party standard-bearer, will be among Senate Republicans attending today’s meeting with the president.

Invited to horse-trade with the president. Not bad for someone who’s only held national elected office for 10 months.

Welcome to our live blog coverage of renewed activity on Capitol Hill to end the government shutdown and lift the debt ceiling. 

They seem serious this time. A meeting Thursday afternoon between House Republican leaders and the president produced late-night talks on what could be a broad deal. Big budget questions appeared to be on the table, in addition to the two emergencies. A pair of influential House Republicans, the chairmen of the appropriations and budget committees, said publicly that the talks had legs. The White House said the president “looks forward to making continued progress.”

Shelved was the Republican “offer” of Thursday morning to temporarily raise the debt limit. Gone was the notion that the Tea Party would redouble its fight to cripple Obamacare. House Republicans left a Friday breakfast talking about passing a stopgap spending bill to reopen the government, according to Robert Costa of the National Review. That step previously seemed beyond reach because of the strength of hard-right resistance.

Coincidentally, NBC News and the Wall Street Journal released one of their regular polls Thursday evening showing that the Republican party had, through the shutdown and default brinksmanship, achieved its worst rating in the history of the poll: 24% positive, 53% negative. The poll said the public blames Republicans more than the president for the shutdown by a margin of 53-31. The poll showed that Obamacare is rising in popularity.

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