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Under the debt limit: the potential of chaos makes Wall Street go


But what are the investors so worried? The key economic indicators such as unemployment and consumer spending are still very strong.

At least one part of the answer is in two words: debt limit. The confrontation on a border wall that led to a partial closure of the government, which has no end to sight, is a bad omen for the ability of lawmakers to reach an agreement on the extension of the Government loans, a financial issue that has much longer effects.

At some point in the second half of 2019, the Treasury Department will lose the ability to apply for loans if the Congress and President Donald Trump are not in agreement on how to move around the lid.

The current suspension of the debt limit, which was agreed silently last year, will expire on March 1. But the Treasury will be able to cover your accounts at least in the middle of summer moving money: a series of maneuvers formally designated "extraordinary measures".

Federal debt is not a small issue, especially since it is expected that the federal government will spend about $ 1 trillion more this year than it will be. You must deduct to compensate and compensate all your obligations with federal contractors, American workers, investors, other countries and many other creditors.

US government debt is considered the safest in the world, because the United States has never renounced its debts. A predetermined value could have devastating consequences, since it leads the costs of high loans to endanger the status of the dollar as a world reserve currency. The simple risk of a debt ceiling crisis can alter the markets. The only way out is for Congress to reach an agreement with Trump, at a time when neither party seems to be interested in the compromise.

"The closure of the government itself does not have a massive economic impact," says David Lafferty, chief marketing strategist at Natixis Investment Managers. "But I think it is symbolic of the relationship that the president will have with the Congress. And most people believe that the closure of the government was the easiest obstacle to overcome the debt ceiling."

Markets really worry about the debt ceiling. In 2011, protracted negotiations around the debt ceiling prompted rating agencies to lower US credit, sending markets to a free fall. The S & P 500 fell 17% from the end of July until the beginning of August this year, and did not recover its position well into 2012.

A brief report from the Treasury Department of 2013 accused Brinksmanship of endangering the fragile America's recovery since the Great Recession.

Although most Americans do not have shares, the fall in equity prices can hinder investment and create a negative feedback cycle with consumer sentiment that depresses spending. A symptom of this downward spiral came this week, when the Consumer Confidence Index of the Board of Conferences recorded the biggest drop since July 2015.

Few observers think that the US government would get to lose debt payments. In a note published earlier this month, the Moody's Investor Service characterized the possibility of a real breach as "very unlikely." The agency defended a measure of the institutional strength of the United States only slightly due to the "propensity of adding to the political discord and weakening the budget process" of debt of the debt.

But history has not been a guide in Trump, as illustrated by the continuous closure.

"You have a stop with anyone negotiating and there is no real purpose," says Christopher Smart, head of macroeconomic and geopolitical research at the Barings active director. "It's not like" Oh, they'll talk over the next few days, and they are bargaining about spending on border security. "Markets see nothing that leads to progress. And when Congress reunites, Democrats will have a stronger hand ".

Normally, under the divided government, the party that does not have the White House uses its leverage on the ceiling of the debt to extract the concessions of the president.

In 2011 and 2013, Congressional Republicans demanded deficit reductions that led to strong cuts in the budgets of the agencies before voting to authorize more creditworthiness. This time, Democrats could use it to ask for a permanent solution for the Deferred Aid program for the arrival of children, or to obtain the Republican approval for an ethical law bill, or to save the Law of Economic Assistance.

But the head of the Trump team is Mick Mulvaney, who, as a deputy against the deficit, was one of those who threatened to expel the US economy from a cliff in A place to let the Treasury chair more money during Obama's administration.

Concerns about the unpredictability of Trump and its main assistants have only been aggravated by the events of the last two weeks, which saw the sudden and appreciated resignation of Defense Secretary James Mattis, the uncomfortable call from Steven Mnuchin, Secretary of the Treasury , to the bank's general authorities to reassure investors. The liquidity of the market when they were not worried in the first place, and another round of repeated Trump plans against Federal Reserve Chairman Jay Powell to continue increasing interest rates.

Although many investors also prefer to maintain low interest rates, they also worry that the withdrawal of Powell will have the opposite effect.

"Similar to events prior to the extreme non-recession market, the Fed has to convey a clear message that they have raised rates," analysts of Canaccord Genuity wrote in a note to customers on Wednesday. "Our fear is that the open criticism of the president has politicized the decision of the Fed, making it more difficult to do what is needed."

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