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Forex Flash: Partisan groups jockey for leverage – Westpac

By FXstreet.com,  January 09, 2013, 08:51:00 AM EDT

FXstreet.com (Barcelona) - According to the Westpac Strategy Team, "In what is essentially a repeat of the August 2011 drama, Republican leaders are forcing the White House to accept substantial spending cuts, however with a real doubt that the ceiling will be raised just in time." House Speaker Boehner has been quoted on multiple occasions as accepting that any default would be a financial disaster.

This would of course also be the advice from the Republicans' business donors. The postponed "fiscal cliff" spending cuts mean that a deal needs to be made on spending before March anyway, with markets actually potentially welcoming measures such as chain-linked CPI indexation for Social Security.

The key question in this scenario is if Boehner has no intention of allowing default, then will the Democrats call his bluff? What sort of leverage does Boehner have if he is assumed to be willing to rebuff the Tea Party minority and vote with the Democrats to raise the ceiling? "This scenario would generate some nervous headlines as times as the default date approaches but would not cause the same turmoil as in August 2011 - the ratings agencies would most likely hold their fire until H2 2013."




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.


This article appears in: Investing, Forex and Currencies

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