US businesses antsy that debt ceiling deal will yield more gridlock

The saga has left global businesses uneasy about continued political brinksmanship further down the line.

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October 17, 2013 23:58
2 minute read.
113th Congress in Washington

113th Congress in Washington. (photo credit: REUTERS)

 
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WASHINGTON – Though global markets heaved a sigh of relief when the US Congress averted economic calamity Wednesday by raising the debt ceiling, the saga has left global businesses uneasy about continued political brinksmanship further down the line.

The deal to raise the debt ceiling and end a 16-day US government shutdown – a sequel to a 2011 crisis that lost the US its AAA rating from S&P – set up the possibility of another showdown in early 2014. The government will be funded only through January 17, while the debt ceiling increase will carry the country through February 7, although new rules give the Treasury Department more flexibility to pay its debts.

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“Congress’s decision to raise the debt ceiling and approve a temporary budget for the government was taken at the last minute, as expected, and did not solve the US fiscal problem, as expected,” said Uri Greenfeld, the lead researcher at Psagot Investments.

The cloud of uncertainty did not disappear, but is simply sailing toward February, he said.

Already, the effects of the shutdown can be felt in the US economy, which due to its size has repercussions for Israel and other world economies.

S&P calculated that the shutdown reduced annualized GDP growth by 0.6 percent in the fourth quarter, costing the economy some $24 billion.

Bloomberg’s monthly Consumer Comfort index found that the share of people who believe the economy will get worse “jumped by the most since the collapse of Lehman Brothers,” the event that set markets spiraling in the 2008 financial crisis. Coupled with the high likelihood of future standoffs, the uncertainty will have repercussions for the value of the shekel as well.



An analysis by foreign exchange trader FXCM argued that these crises weaken the dollar, which will make the shekel stronger, pressing Israeli exporters. “The political cloud will continue to hover over the dollar and weigh down the currency,” the analysis said.

One glimmer of hope is that the political backlash against the shutdown will push politicians toward a deal. According to the Pew Research Center, even Republicans have lost patience with the Tea Party, whose representation in the House drove the shutdown.

“The Tea Party’s favorability rating has fallen across most groups since June, but the decline has been particularly dramatic among moderate and liberal Republicans. In the current survey, just 27% of moderate and liberal Republicans have a favorable impression of the Tea Party, down from 46% in June,” the survey found.

Nearly half the general public views the Tea Party unfavorably.

Speaking before the House passed the bill that averted the debt ceiling breach Wednesday night, US Congressman Chaka Fattah (D-Pennsylvania) said that during his visit to Israel earlier in the week, the leaders he met with “had difficulty understanding” the American political deadlock.

“We can conduct the affairs of government in a way that gains us respect around the world rather than befuddlement,” he said.

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