“For the past week, financial market pundits have repeatedly asked the question, why are investors so “complacent” about the potential risks associated with a temporary shutdown of the U.S. federal government? The answer to this question is multi-faceted, in our view. Broadly speaking, Global Markets Intelligence (GMI) Research sees two risks associated with the government shutdown. The first risk is that prolonged partisan bickering in Washington D.C. could have a negative psychological effect on consumer confidence, personal consumption, and, ultimately, business confidence that leads to a postponement of hiring by prospective employers. The second risk, also arising from an extended stalemate over budgetary issues, is that the current political paralysis leads to a sovereign credit downgrade by one or more of the credit rating agencies. Since the current marketplace consensus anticipates a fairly quick resolution to the budget impasse in Congress (7-10 days), most investors don’t see either of the aforementioned scenarios as high probability events at the moment.”
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