Pre-Market Equity Trading: Avoided US Debt Ceiling Crisis


Investors should definitely be relieved. The alarm bells had been ringing on Wall Street for weeks and JPMorgan Chase was already working hard to prepare for a possible default in the world’s largest economy.

But the reprieve is only temporary. Once the Senate interim measure is approved by the House of Representatives, the Treasury will be able to pay its bills until December 3. Incidentally, this is also the deadline to avoid a government shutdown.

That’s right: the United States is now less than two months away from a potential simultaneous government shutdown (when existing legislative approvals for government spending expire) and default (when the debt ceiling prevents the Treasury to pay its bills).

It bears repeating that virtually all economists and market experts agree that a US default would sink inventories and seriously damage the economy. We are talking about instant recession.

According to Moody’s Analytics, nearly 6 million jobs would be lost, the unemployment rate would drop to almost 9% and stock prices would fall by a third, wiping out about $ 15 trillion in household wealth.

And why? Raising the debt ceiling has nothing to do with new spending or borrowing. Instead, it allows the government to conduct activities already authorized by Congress.

Treasury Secretary Janet Yellen, who once headed the Federal Reserve, believes lawmakers essentially take the U.S. economy hostage every few years in order to score cheap political points.

“This has led to a series of politically dangerous conflicts that have left Americans and world markets questioning whether America really wants to pay its bills,” Yellen told CNN’s Erin Burnett on Thursday.

“It’s an impossible situation. Congress needs to debate these issues when it decides spending and taxation, not for, every several years, put the brakes on and say, ‘Well, now we’re not going let the Treasury secretary pay the nation’s bills, ”Yellen added.

Observers sometimes point out that the United States has never failed. But it turns out that this may not be strictly true.

In fact, there have been at least three instances where Washington “failed to pay all of its obligations on time or made payments on terms that disappointed creditors,” according to this fascinating 2016 article from the Congressional Research Service.

The first snafu followed the War of 1812, when military spending and delayed revenues prevented the Treasury from paying interest on the federal debt. The second came during the Great Depression, when President Franklin Roosevelt suspended the gold standard and the owners of the Treasury lost.

More recently, the Treasury failed to make timely payments to some small investors in the spring of 1979, when automatic data processing was at a relatively early stage, the newspaper said.

So how do we know that a US default now would be disastrous? The short answer is no, but it really isn’t worth finding out.

“Other countries that defaulted in the 1930s or the 19th century apparently suffered no lasting damage to their borrowing capacity,” the Congressional Research Service concluded. “Nonetheless, the preponderant role of US Treasury securities in global and domestic financial arrangements means that systematic delays in Treasury payments could now have serious consequences.”

Why the job recovery will remain bumpy

Friday’s jobs report will let us know whether August’s disappointing numbers were just a twist – or the start of an unwanted trend.

Either way, the recovery could be bumpy until America goes through the Covid crisis, reports my CNN Business colleague Anneken Tappe.

“The pandemic has always been at the helm of this recovery,” said Nela Richardson, chief economist at ADP on Wednesday. “The name of the job recovery game is still ‘spotty’.”

Last year the job market was fragile and during the colder months the struggling leisure and hospitality industry lost jobs, which could happen again this year. Meanwhile, hundreds of thousands of women left the workforce in September 2020 as children returned to virtual classrooms and parents had to step in as teaching assistants.

It remains to be seen if either of these phenomena returns.

The numbers: Economists polled by Refinitiv predict that half a million jobs were added to the economy last month. The unemployment rate is expected to fall to 5.1%, just a hair below the August rate of 5.2%.

That would be more than double the disappointing 235,000 jobs created in August, which underperformed expectations by about half a million.

Tesla Heads To Lone Star State

Tesla Headquarters has a new home.

“I am delighted to announce that we are moving our headquarters to Austin, Texas,” CEO Elon Musk said Thursday at a meeting of Tesla shareholders.

The electric car company is currently based in Palo Alto, Calif., Near its original headquarters in San Carlos, and its first plant, in Fremont.

But the company has repeatedly fought with California officials. And Musk said Thursday there was a “limit to how tall you can get in the Bay Area.”

He cited affordability of housing and long commutes as other negative factors. The Austin factory, meanwhile, is five minutes from the airport and 15 minutes from downtown, he said.

Musk himself said in December that he had moved to Texas and that one of his other companies, SpaceX, was developing a massive rocket system known as the “Starship” in South Texas.

Despite the headquarters move, Musk said Tesla plans to continue to grow “significantly” in California.

“It’s not a question, in a way, that Tesla is leaving California,” he said. The company intended to increase production at its Fremont plant by 50%.

Following

The U.S. employment report for September will be released at 8:30 a.m. ET.

Also today: OECD could announce global corporate tax deal

Coming next week: Investors will be watching the latest inflation figures in the United States.

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