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Will the US Government Shutdown Impact Markets?


As the government shutdown, the stock market largely shrugged. Yesterday the Dow Jones actually rose 62 points suggesting investors don't see the current shutdown as a long-term problem. Here with more analysis is Jack Rasmus. He's a Political economist as well as the author of “Obama’s Economy: Recovery for the Few” font-family:"Verdana","sans-serif";mso-fareast-font-family:"Times New Roman";
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Dr. Jack Rasmus: The stock markets are more concerned with what is happening with the Fed taper of its QE and on September 17th the Fed made it very clear it was going to continue pumping 85 billion a month into the economy. That is their first and foremost major concern. Second, the markets are concerned about real data on economies in the US, Chinese, Eurozone economies, jobs, retail, sales; and what is happening with banks in Eurozone, Italy, China, manufacturing exports, emerging markets etc. Third in line of concern at the moment, I would say would be the debt ceiling situation. But that is still several weeks off, plenty of time to deal with that.

In contrast, the government shutdown really doesn’t affect markets that much, which is not surprising. The last time we had a government shutdown in 1995-1996, stocks and bond markets were totally unaffected by it and were hardly impact at all by the crisis. So it is not strange that we see the same development going on here today.

Now the real risk is if the shutdown continues for whatever reasons, which I don’t think it will, for another 2-3 weeks, and then it converges with the debt ceiling deadline. That deadline for the debt ceiling is probably closer to the end of October than the October 17th date, the Obama administration is now saying. Then you have a different scenario in terms of impact on financial markets and the US economy.

Rob Sachs: ‘We came to that before when we had this debt ceiling debate and people were saying this would be Armageddon, it is outrageous – the idea that the US would not pay its debts. But what was the role of Wall Street before in preventing that from happening? What can Wall Street do now to urge congressmen and those on Capitol Hill to come to some type of agreement?’