What does it take for international markets to panic? With the debt ceiling due to be hit in a little more than a week, the short answer is that the “full faith and credit of the United States” is still worth quite a lot. We’re only starting to see the first signs of a panic as an auction of 1-month TBills sold at a net rate of 0.355%. If that doesn’t impress you, it’s worth noting that it was one third that a week ago.
Stocks started falling, too, with the DJIA losing just over a percent.
Allright, it’s not much. Gold isn’t budging above $1330 or so per ounce and benchmark 10yr TBills are still comfy at 2.64%. These are probably the best standards to watch for signs of panic as the stalemate goes nowhere.
As we have noted before, the economy has been poised for a good holiday season and possibly a general take-off immediately after. 2013 has been shaping up as the year we hoped it would be. 2010 was the bottom, 2011 was the first sign of recovery, and 2012 was the foundation. This year has been all about normalizing real growth into something that investors and the working public would start to believe in.
How much has this been screwed up? Gallup does a weekly poll of economic confidence, asking 3,500 people two questions – rate economic conditions in this country today and are economic conditions in the country as a whole are getting better or worse? This poll just suffered its biggest one week loss since the collapse of Lehman in 2008, all in reaction to the shutdown. And this is without considering the damage a default would do.
The other sign that things are getting a little panicky is that banks are indeed stocking up ATMs with extra cash, anticipating a run. Ready for a repeat of 1929?
But without movement in the 10yr TBill and Gold we can’t call this a real panic, not by a longshot. We’re only seeing the first prudent signs that people with money are taking a few steps to cover their butts and the general public is frustrated. It’s enough to spoil the holidays, at least if this lingers much longer, but it’s not nasty.
Meanwhile, in China, Vice Finance Minister Zhu Guangyao is still being very polite, despite their having $2.4T on the line. “We ask that the United States earnestly take steps to resolve in a timely way the political issues around the debt ceiling and prevent a debt default,” he said. “This is the United States’ responsibility.”
So everyone is playing nice, except for the American consumers. Their stand is probably based on their knowing someone who has been put out of work by the shutdown or having been otherwise inconvenienced by it. There is no reflection of the potential for a real financial Armageddon on the order of Lehman in any of the data we can find yet.
If things are to change and someone is going to get desperate, what would be the first sign? It’s very hard to tell, but it seems that ordinary workers and consumers are probably going to flinch first. That would imply that gold will be the first thing to move, but this is only a guess. It’s probably worth watching a little bit of everything if you want to play the momentum of a market stampede.
Then again, the best move might be to hide away and not pay attention to anything until this is all over. Without government agencies to feed us official stats, the real damage won’t be known until it is long over. Right now, a month long shutdown might cost $50B.
That is the price of having an utterly dysfunctional Republican Party. Expensive, isn’t it?