By Lambert Strether of Corrente.
Imaginary gardens with real toads in them. –Marianne Moore
Here’s a survey of Default/Shutdown information for the morning of the 17th, a crucial date. Or not! The first section, “The Great and the Good,” collects views from global movers and shakers mostly on Default (they’re against it), starting with the Chinese, who came back as the bond market. The Second Section, “The Rest of Us,” collects statements from the United States on the shutdown (bad for business). I deliberately left the quotes long, because all the speakers really seemed to want to stretch out about the role government plays in their lives.
The Great and the Good
Commentary: U.S. fiscal failure warrants a de-Americanized world Xinhua (official). Most Treasuries.
As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.
Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.
As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.
Most recently, the cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.
US must grasp global impact of debt crisis: Japan AFP. Next-most Treasuries.
“Many of them don’t seem to understand well the magnitude of the international impact this problem could have,” Aso said at a news conference, according to Dow Jones Newswires.
“In the worst scenario, there will be a default, which is serious” for Japan, one of the biggest holders of US government bonds, Aso was quoted as saying by the Nikkei daily.
“The impact is big at a time when the (Japanese) economy is about to grow,” he added.
But Aso also sounded an optimistic note, saying he expects the issue will be resolved.
“I guess there will be some compromise in time,” he told reporters. …
Japan holds some $1.1 trillion in Treasuries, making it the biggest lender to the US government after China.
Is Israel prepared for the possibility that the U.S. government will reach its legally mandated debt ceiling on Thursday?
If the worst-case scenario comes to pass, and the deadlock between the White House and Congress is not resolved in time, the U.S. bond market could collapse. A shock like that would reverberate across the global economy, including Israel’s.
In fact, such an apocalyptic scenario is being shrugged off by policy makers in Jerusalem. When asked by TheMarker what steps they were taking, one official said that was akin to asking about the contingency plans in the event Tel Aviv is hit by an atomic bomb. Another laughed off the question by suggesting the only policy option left would to invest in an online currency like Bitcoin.
As the responses to TheMarker’s queries shows, Israel has done little or nothing to prepare for a crisis of this magnitude or to assess the extent of its exposure.
[LAGARDE:] Do you remember 2008, the beginning of the great recession?
[LAGARDE:] Well, if there was a combination of the government shutdown for a period of time and, more seriously, more damaging if the debt ceiling was not lifted with a degree of certainty and enough time so that people could sort of have the assurance that the economy was in good standing, that would bring about so much uncertainty, so much risk of disruption that the standing of the U.S. economy would, again, be at risk. That some of the obligations that the first economy in the world has would not be respected. And I think, you know, there was a lot of discussion amongst the finance ministers from all over the world about the technical aspects of it. And you can argue forever as to whether the impact is going to be 2.5, 3%, 5%, how much public spending will have to be cut, how many more people will have to be unemployed. But one thing is certain around the table, it was that if there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over and we would be tipped again into massive rupture. That was that tip at the big table.
The debt-ceiling doomsday device Martin Wolf, FT
[T]he administration also needs to decide what it would do if the ceiling were not to be lifted in time – be it now, next month or at a later date. The least bad answer would be: keep borrowing. The president cannot state he would do so, before the fact. Indeed, he must deny it, since knowing this would lower his opponents’ incentive to raise the ceiling. Yet, if it came to the worst, he would have to borrow, invoking the need to preserve the credit of the government, without which it would be permanently damaged.
Borrowing under a constitutional cloud would be risky. The simplest way to minimise these risks would be to borrow short-term. After all, the US Federal Reserve must ensure that the interest rate remains zero, in order to preserve its monetary policy. The House of Representatives might impeach the president for the “high crime” of ensuring the US government fulfils its promises, but this would fail in the Senate. Someone might challenge Mr Obama’s decisions in court. But how could a judge conclude that the president acted unconstitutionally if Congress has given contradictory instructions?
It is insane that such a discussion is even possible. Abolish the ceiling now. It is an invitation to mischief.
The default has already begun Felix Salmon, Reuters
The harm done to the global financial system by a Treasury debt default would not be caused by cash losses to bond investors. If you needed that interest payment, you could always just sell your Treasury bill instead, for an amount extremely close to the total principal and interest due. Rather, the harm done would be a function of the way in which the Treasury market is the risk-free vaseline which greases the entire financial system. If Treasury payments can’t be trusted entirely, then not only do all risk instruments need to be repriced, but so does the most basic counterparty risk of all. The US government, in one form or another, is a counterparty to every single financial player in the world. Its payments have to be certain, or else the whole house of cards risks collapsing — starting with the multi-trillion-dollar interest-rate derivatives market, and moving rapidly from there.
Federal Reserve Bank of Dallas
President Richard Fisher said the central bank could reduce the turmoil from any U.S. debt default, which he said is unlikely. “I’m very confident” in the ability of the Federal Reserve Bank of New York to “mitigate the chaos that might ensue should we default,” Fisher said today in a speech in New York. “I don’t think that’s going to happen.”
Investors holding $120 billion of Treasury bills coming due tomorrow are increasingly worried that they won’t get paid.
Rates on the bills, maturing the same day Treasury Secretary Jacob J. Lew has said the U.S. will exhaust its borrowing capacity, surged 12 basis points, or 0.12 percentage point, to 0.32 percent yesterday, according to Bloomberg Bond Trader prices. The securities, issued a year earlier, traded at a rate of negative 0.01 percent as recently as Sept. 26.
“That is how fear manifests itself,” said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, who helps invest $3.5 billion and holds about $500,000 of Oct. 31 bills in one account. “The market is discounting a day, or several days delay in payments.”
As yet another political deal to raise the debt ceiling neared collapse in Congress on Tuesday, some Wall Street money managers have a new wheeze: that the “real” debt ceiling deadline is not Thursday, but instead 1 November.
“We do not fully understand the October 17 date,” wrote David Kotok of Cumberland Advisors. “But we do see November 1 looming as a massive entitlement payment date.”
Right or wrong, there’s a chorus of money-management voices pinpointing 1 November as the real drop-dead date to raise the debt ceiling.
Michael Drury, the chief economist for McVean Trading, said on 6 October that “the real fight is now focused on what concessions can be extracted for raising the debt ceiling and avoiding default – supposedly on October 17, but certainly by November 1 when the next large social security payment is due.”
Kristina Hooper, the US investment strategist at Allianz Global Investors, told clients in a note that November 1 is the “critical deadline.”
Brian Gardner, SVP of Washington research for investment bank KBW, also cautioned his clients that October 17 is not the drop-dead default date for the US government. “The Bipartisan Policy Center estimated that the X-date is between October 22 and November 1,” Gardner wrote on Tuesday, “so passing the 17th without a deal may not cause the disruptions in the markets that some fear, at least not immediately.”
— Matt Stoller (@matthewstoller) October 15, 2013
The Rest of Us
Gregory Poland, an infectious-disease expert at the Mayo Clinic:
Let me take you back to February 2009. Out of nowhere, a few unusual respiratory illnesses in a rural part of Mexico, and then a few of those cases in Texas, and then a bunch of those cases in the Northeast states. Within a couple of weeks, CDC investigates, sequences the viruses and pushes the button. “Nation: We’ve got a novel pandemic virus.” What would happen if that happened now? There would be delayed recognition, thousands more would get ill, would die. we would be flying blind. It would be delayed development of a vaccine to cover it, we wouldn’t know what antivirals to use.
The other thing could happen too. The season just kind of pedals along—no new viruses no surprises, no new viruses or infectious disease threats anywhere in the world. And the shutdown resolves and we’re a little behind on next year’s vaccines. We’re somewhere in that spectrum.
Climate scientists fight U.S. government shutdown Des Moines Register
Climate researchers are fighting the U.S. government shutdown with a petition that asks Congress to fund critical work in Antarctica before it’s too late this year.
Research in Antarctica often begins this month as temperatures warm. Scientists say they have a short window in which to collect measurements from ice sheets or lakes before glaciers and permafrost start thawing in mid-November. They say missing one season could ruin multi-year projects and cost extra money to restart.
[A] graduate student doing research in the South Pole, Elizabeth George of the University of California, Berkeley, says scientists could lose “not only this season but years worth of work.” Even if the government resumes in two weeks, she says, “the damage to decades of scientific research will be irreversible.”
Northwest storms, Alaska’s crab fishery: How the shutdown hurts Seattle Post-Intelligencer (SW):
The government shutdown is taking its toll on America’s — and the Northwest’s, and Alaska’s — ability to forecast who’s going to get hit and where. If you work on the water, it’s particularly vexing.
A Senate Commerce Committee hearing on Friday featured an exchange between Sen. Maria Cantwell, D-Wash., and Alaska fisherman Capt. Keith Colburn, of “Deadliest Catch” renown.
“Our own situation with the weather buoys that we have in the Northwest — it’s critical, vital information for us about weather that impacts fisheries,” said Cantwell. “I guess, Captain, you could say, ‘Well, we don’t have to worry about it because we’re shut down.’ But when they are fishing, it’s vital information.
“Instead of the buoys working, and giving information, last week we had a forecast between the Seattle area and Vancouver Island and we had no idea what was going to happen.
“When you’re talking about 60-to-70 mile per hour winds and weather forecasts . . . Not understanding whether the storm is going to hit in Seattle and what needs to be done, or whether the storm will hit in British Columbia, that’s where we were last week. We didn’t have the information, because there weren’t people on the job.”
Congress created the National Organic Standards Board (NOSB) to advise the USDA Secretary on policies impacting the organic industry and to specifically oversee and carefully review for approval any synthetic and non-organic material and ingredient used in organic farming and food production. Additionally, the NOSB reviews the approved substances that “sunset,” as the law governing organics requires that the materials be reevaluated every five years.
Now, the semiannual NOSB meeting, scheduled for the week of October 21, in Louisville, Kentucky, has been canceled.
“The USDA might have received a temporary reprieve with the cancellation of the NOSB meeting this month in Louisville, but the stakeholders who truly care about the integrity of the organic label, and the principles it was founded upon, are not going away,” affirmed Kevin Engelbert, a certified organic dairy farmer from New York and another former NOSB member.
One sector of the U.S. economy is thriving on the threat of a debt default apocalypse.
Survivalist industries — from tactical training schools to doomsday bunker manufacturers — are reporting an uptick in business over the past few days, as a first-ever U.S. default has inched closer to reality. The trend is seen from Virginia to Florida, California to Indiana.
“We’re not quite Greece, but there’s a realization we’re moving slowly toward it,” said Robert Allen, owner of Sigma III Survival School in Huntington, Ark. “Economic collapse is the most common cause of people wanting to start preparing.”
Tuesday, Oct. 15,is the filing deadline for the roughly 12 million Americans who received an extension on their 2012 taxes. And having 90 percent of its staff furloughed in the partial government shutdown doesn’t mean the IRS doesn’t want your money.
“The IRS is shut down, but the tax law is never shut down,” says Joshua Blank, professor of tax practice and faculty director of New York University Law School’s Graduate Tax Program.
Pintful: Government shutdown hits North Carolina’s craft beer makers Charlotte News-Observer
The political impasse in Washington means a little-known government agency called the Alcohol and Tobacco Tax and Trade Bureau is closed. The TTB, as it is known, is a division of the Treasury Department that processes beer excise taxes and approves new breweries, recipes and labels.
It comes at a key time in the beer calendar, when breweries are trying to debut new seasonal beers for the winter months to satisfy a market always seeking new tastes and boundary-pushing recipes.
Kayne Fischer, a co-owner of Natty Greene’s Brewing Co., which has operations in Greensboro and Raleigh, said the “timing couldn’t be worse.” Natty Greene’s is redesigning all its labels and trying to expand into the Virginia and Washington, D.C., markets.
Expecting delays in Washington once the government reopens, Sumit Vohra, CEO at Lonerider Brewing in Raleigh, said he has postponed brewing any new beers until next year. “We don’t want to brew another one until they are back online,” he said. “There’s a shelf life to beer.”
Shutdown pinches smaller Washington aerospace firms, not Boeing yet Puget Sound Business Journal
In Seattle, Clay Lacy Aviation, an aircraft sales and charter company at Boeing Field, is ready to deliver a 12-passenger Bombardier business jet, worth about $3 million. But the company can’t close the transaction without finalizing it with the FAA registry in Oklahoma City, said Brad Wollen, vice president of aircraft sales.
So the used aircraft, ready to be sold to an overseas buyer, is instead sitting on the tarmac at Boeing Field in Seattle.
“Those (FAA) people now are out on furlough, nobody can buy or sell an airplane in the United States,” Wollen said.
This transaction is just one of 10,000 transactions monthly that require filing with the registry office, said Ed Bolen, president and CEO of the National Business Aviation Association, in an interview.
Hyundai Motor America CEO John Krafcik gave an interview to Bloomberg News in which he said that now, 15 days after it began, the shutdown is threatening to shave 10% off car sales this month.
Ten percent may not sound like a lot, but in terms of the auto industry, it’s massive: almost 112,000 fewer cars that would have been sold last month if it had happened then. It isn’t the shutdown itself that appears to be putting a lid on sales. It’s the uncertainty it creates.
“It’s that anxiety that keeps customers, potential buyers, on the sidelines when making a big purchase like an automobile,” he told Sara Eisen of Bloomberg Surveillance. “We’ll probably see the industry off five to 10% this month, compared to where it was in September. I think a lot of it has to do with this shutdown discussion.”
Krafcik comments dovetail with an unscientific online survey conducted by Kelley Blue Book that found 18% of potential car buyers may be stay away from the car lots until the government reopens.
“They’re worried about losing their homes, they’re worried about losing their cars, they’re worried about where they’re going to live if they’re going to be homeless, so it’s quite the undertaking for them right now,” [Audree Morrison, a veteran of the Michigan National Guard] said. “It’s very hard when you see things that you know should be getting done in a different way, and veteran’s benefits and taking care of them, I believe, should really be top priority in the country right now, and to see that not being top priority and seeing all these soldiers and these service members getting hurt from that and not knowing where they’re going to turn after all this time they’ve put in to serve and risking their lives or giving their lives and having their spouses and children left behind, it’s very difficult to watch.”
I wouldn’t even venture to predict what’s going to happen, although for whatever reason Mr. Market seems to have decided that 11/1 is the date to watch, not 10/17. I think Yves has the right frame though: Using the lens of negotiation positions. Remember: The Senators — and how uncomfortable for those Senators who don’t look at themselves in the mirror and see a President, like all of ‘em — are only agents: Obama on the one hand, and the House Republicans on the other, are the principals. So it’s no wonder that the Reid and McConnell are all lovey-dovey and calm; they’ve got no skin in the game. And it’s no wonder that the principals are having a hard time getting to Yes; both believe they were elected fair and square, neither trusts the other (and with good reason), and both are engaged in a party/tribal/regional/cultural grudge match of inconceivable proportions. If Mr. Market swoons — and can’t whoever’s got their hand up Mr. Market’s *** just take care of that? — the principals will come to an agreement fast enough, and get back to the happy and mutually agreed upon task of gutting Social Security and Medicare and then feeding on the steaming entrails, but paradoxically Mr. Market thinks — or is allowed to believe he thinks — that the whole sorry spectacle is kayfabe (which of course it is too, this being Washington), and is looking out the window, humming to himself, instead of swooning as he ought. How reflexive.