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Stocks Gain, Currencies Calm with Debt Limit Optimism

Posted by Joseph Trevisani on Oct 4, 2013 10:53:00 AM

ScreenHunter 1869 Oct. 04 12.14

House Speaker John Boehner is attempting to move the acrimonious budget stand-off between the Republicans, the Democrats and President Obama in Washington onto the even more fraught topic of the Federal debt limit.

Mr. Boehner, a Republican from Ohio, said yesterday that he is determined to prevent a U.S. default even if it requires Democratic votes, according to two Republican Congressmen, as reported by Bloomberg.

The debt limit, which must be raised to permit the Federal Government to borrow the funds to pay all of its bills, has always been a far more dangerous impasse than the partial government closure that began on Tuesday, because at the extreme the government could theoretically default on bond payments, with dire and unpredictable consequences for the world financial system.

The Treasury has said that it will run out of money on October 17th, though there are other estimates that the date may be closer to the end of the month. The government also technically has the option, though there is debate about the ability since it has never been tested, to prioritize payments so that bond interest and redemptions are not jeopardized.

Parts of the Federal government deemed non-essential have been closed since Tuesday at 12:00 am because Congress had not appropriated the funds to continue operations. About 800,000 federal employees have been furloughed.

The Dow has closed lower in nine of the past eleven sessions, including a 131 point loss yesterday. As of this writing the average is 44 points higher at 15,040.Currency ranges have been limited and declining over the past week as traders waited on the political developments that will largely determine direction.

The Republicans have been expected to use the debt limit deadline to try to force spending and other concessions from the White House. President Obama has said that he will not negotiate with Congress over either the budget or the debt limit.

But if Mr. Boehner is serious about not permitting default and can convince the Republicans to pass a debt limit increase without conditions, or does so with Democratic votes, the Senate and President Obama would have little choice but to go along, even if there had been no prior resolution to the budget impasse and government shutdown. 

That may be the path the Speaker is trying to corral his party into supporting.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading


 

 

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