Sides in Fiscal Fight Get No Push From Markets, Voters
Voters and investors are putting little pressure on President Barack Obama and Congress to resolve their fiscal standoff, even as a partial government shutdown lingers into a second week and the U.S. moves closer to a possible default.
With polls showing majorities of Democrats and Republicans backing their parties’ stances and the reaction in financial markets muted, both sides are holding firm to long-standing positions. That means the stalemate may linger until the Oct. 17 deadline that the Treasury Department has set for Congress to raise the country’s $16.7 trillion debt ceiling.
Fights over budgets and debt have gone to the brink before, raising expectations that lawmakers and the president will pull back again.
“We understand that they’ll take us close to the edge but are reasonable enough not to go over the edge,” James Dunigan, who helps oversee $118 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “It continues to be just a game of chicken and rhetoric.”
There are signals that concern is building as the stalemate drags on. While the benchmark Standard & Poor’s 500 Index (SPX) is up 16 percent since the start of the year, it tumbled 1.2 percent to 1,655.45 in New York yesterday for its biggest drop since August and lowest close in a month.
The Treasury sold $30 billion of one-month bills yesterday at a rate of 0.35 percent, the highest since 2008 and more than double the rate on comparable one-month securities yesterday, signaling a lower risk appetite in capital markets.
The impasse is also affecting consumers. Gallup’s Economic Confidence Index dropped 12 points in the past week, the second-largest decrease after fall in September 2008 following the collapse of Lehman Brothers Holdings Inc.
In 2011, the last time that Obama and Congress were at a stalemate over the debt ceiling, Standard & Poor’s lowered the government credit rating. Bond investors weren’t dismayed and yields went down while equity markets were briefly rattled.
Obama yesterday offered the possible contours of a resolution, saying he could accept a short-term deal to fund the government and raise the debt ceiling while he negotiates with Republican leaders over fiscal policy and his signature health-care law.
“If reasonable Republicans want to talk about these things again, I’m ready to head up to the Hill and try,” Obama, 52, said at a White House news conference.
He maintained his demand that Republicans drop their conditions for dealing with either issue, which House Speaker John Boehner rejected.
“What the president said today was if there’s unconditional surrender by Republicans, he’ll sit down,” Boehner, 63, said at his own news conference at the Capitol. “That’s not the way our government works.”
Former New Hampshire Republican Senator Judd Gregg said he still expects reason to prevail.
“I honestly still believe there’ll be an agreement before there’s a default,” said Gregg, now chief executive officer of the Securities Industry and Financial Markets Association. “It’s not an imaginable course of action from the standpoint of reasonable people.”
The public isn’t in a compromising mood.
A majority of self-identified Democrats, 58 percent, say it would be unacceptable for Obama to agree to change the health-care law even if it’s the only way to end the shutdown, according to an Oct. 3-9 poll by the Pew Research Center in Washington.
Almost the same share of Republicans, 54 percent, say they wouldn’t support Republican leaders dropping their demands to change the health-care law, the national survey of 1,000 adults found. Among those who back the Tea Party wing of Republicans, 72 percent oppose any concessions.
Republican lawmakers say those numbers are backed up by what they are hearing from constituents.
“We’re getting calls supporting it,” Representative Markwayne Mullin, a freshman Oklahoma Republican aligned with the Tea Party movement, said about the shutdown. “In my district, they understand why we’re fighting and what we’re fighting for.”
Obama, too, has seen political benefits from the conflict.
His approval rating in an ABC News/Washington Post poll released Oct. 7 rose from 41 percent to 45 percent in the past week. Disapproval of Republicans over the same period grew from 63 percent to 70 percent in the survey, taken Oct. 2-6.
In an effort to move the talks, Obama has been sounding the alarms, warning yesterday of the “chaos” that could result if the country defaults. He and his advisers have been contacting top business leaders with ties to Republicans to enlist their help.
“If the market and the economy starts to go south, then it is very easy for them to go to their congressional districts and say, ‘Guys, I have to compromise, look what’s happening,’” Andres Garcia-Amaya, global market strategist who helps oversee $400 billion at JPMorgan Funds, said in a phone interview from New York. “If they don’t make a compromise on their own, the market and the economy will force them to.”
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