There is little that separates the US political class from those in India. The Republicans and the democrats do not see eye-to-eye on various issues, just as India’s ruling party and the main opposition party. But unlike their Indian counterparts, a US politician's action or inaction on the recent debt ceiling issue can have a major impact on the global markets.
US is once again on the verge of a partial shutdown. Last time this scenario occurred was in 2011 followed by a S&P downgrade. The stock market took a hit of 16% as a immediate fallout.
Republicans and Democrats have failed to reach a conclusion on increasing the debt limit of borrowing which can result in a partial shutdown. The US government will exhaust its borrowing ceiling of $16.7 trillion set by its Congress and can default by mid to late October. US Congress needs to strike a deal by October 1 to avoid a shutdown and increase the borrowing limit by October 17, to avoid a default.
If a shutdown does take place, nearly 800,000 federal workers will be sent home affecting normal life as trash pickup, parking enforcement, libraries, zoo, national park, passport renewal and new licences and vehicle registrations will be affected. In short a further slowdown.
But not many believe that the politicians will allow a shutdown, as is reflected in the relatively robust markets as compared to the volatile markets in 2011. However, in case it does, it can send the markets down sharply over the new few days which would make the politicians see sense and resolve the issue.
In any case, financial commentrators believe that the prolonged debate on the US budget and the ego clash over Obama Care is expected to hit growth rates going forward. If this is the case, then US markets will lead the next round of fall.
