The Blows to Confidence - Real Time Insight


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I'm not worried right now about a debt default that shatters global investor confidence in US Treasuries. I think that scenario will be avoided. I'm concerned about another source of confidence.

Here's the latest on the situation from Politico at 1:51 ET...

House Republicans were awaiting a response Friday from the Obama administration to a proposal to lift the debt ceiling, end the government shutdown and set up six weeks of budget talks.

Senior GOP aides said they wanted guidelines set for the budget talks. Once those were determined, it would expedite Congress's lifting of the debt ceiling and funding of government. Government could be reopened as soon as next week if a framework for this process is agreed to.

House Republicans have scheduled a 9 a.m. party meeting for Saturday. Right now, Republicans want to lift the debt ceiling through Nov. 20. They also want to reopen the government but it's unclear how long a continuing resolution would last.

Hmmmm... still sounds like a lot of moving parts here. Even if they come to some agreement today or this weekend to re-open the government, there are multiple tracks of negotiations they seek to have. In other words, plenty of room for error and disagreement down the road.

The GOP has its hands full trying to juggle conflicting priorities here and not run the country into the ditch.

Which brings me to my question for the day that had me taking profits into the big rally of the past two days:

Does a longer government shut-down begin to impact consumer and business confidence in a way that snowballs and puts a dent in 4th quarter earnings?

We already hear the running estimates of how much the government shut-down hits the economy and GDP, something like $300 million a day.

But that figure, however inaccurate, doesn't reflect the blows to consumer and business confidence and, by extension, future spending decisions. Spending decisions are not always quantitative. They begin with perception and confidence.

And if/when they get cut back drastically because of a big macro theme that scares people (like their government not working), it is probably going to be felt in a different and bigger way than your run-of-the-mill "consumers held back because of... (insert "higher gas prices" or "weather" or "a tax increase").

In this light, I find it very hard to imagine how a 6-week shut-down wouldn't have a big impact on the economy.

What's your view of the world's most valuable currency, confidence, in this crisis?

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