Odds on another US debt showdown in January

The likelihood of US politicians agreeing a plan to finance government spending before the January 15, 2014, deadline is less than 50%, says one investment analyst.

If the bipartisan committee does not agree, Congress will be forced to implement across-the-board cuts known as sequestration, or else it will shut down the government again.

The last partial government shutdown resulted from a failure by Congress to put in place a budget for 2014 in time for the new financial year – started on October 1 – which left federal coffers short and meant 800,000 workers were not required to go to work.

“I believe Congress is more likely to accept the next round of sequestration cuts than to shut down the government again in January,” says Andrew H Friedman, principal at Boston-based asset manager Eaton Vance. “That will set up another intense debate later in 2014 about raising the debt limit.”

Although Friedman says the negotiations on the debt crisis could be “harrowing”, he says the US will not default on its national debt.

That means the January deadline could present a buying opportunity.

“As I had predicted early this year, the market suffered a temporary downturn in September 2013 as we approached the twin deadlines for funding the government and raising the debt ceiling. Because I knew Congress would not allow the nation to default, I suggested that this downturn would be a buying opportunity, as the markets would rebound once an agreement was in sight. This is exactly what transpired.”

©2013 funds europe

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