Congress Kicks the Debt-Ceiling Can to February

The fiscal drama is almost over, thanks mainly to Fitch Ratings. Their credit warning notice convinced the warring parties to take a break.

If the newest deal passes the Senate and House agrees, the federal government will re-open soon and the debt-ceiling argument will resume in February.

No one is particularly happy with this outcome. Tea Party Republicans failed to stop Obamacare. John Boehner proved how powerless he is over his own party. Democrats still haven’t reversed the "sequester" spending cuts. President Obama canceled his Asia trip and missed hanging out with Vladimir Putin.

On the positive side, it looks like we will get through the holidays in relative peace. Investors can go back to the more-important economic and corporate news, at least for a month or two. The stock market had a nice rally today, as did gold and oil.

The long-term impact is harder to assess. We can avoid (or at least postpone) default, but this didn’t exactly inspire confidence. Today I’ll share some reader mail from abroad. Americans need to know what people think of us — even when it’s not pretty.

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The Bloomberg chart below nicely illustrates the debt-ceiling fight’s market impact. It shows you the yield changes over the last 10 days for U.S. Treasury Bills maturing tomorrow, Oct. 17.

[Source: Wonkblog]

Interest rates relate directly to perceived risk. Lenders demand more yield when they see a chance the borrower will default. Oct. 17 was the day Treasury Secretary Jack Lew said it might happen.

T-bill yields have been either zero or very close to zero since Ben Bernanke opened the faucet in 2008. Last week the annualized yield on this particular issue — the first in line to default — rose as high as 0.5%. With today’s deal, it fell back to almost zero.

We don’t know what would have happened in the absence of an agreement — but we’ll get another chance to find out in a few months. Mark your calendar.

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Have the last few weeks damaged the U.S. image abroad? Does the world really want to "De-Americanize," as the Chinese Xinhua editorial said? People around the globe told me what they think.

Here are some examples. To my fellow Americans: Some of this is harsh. I’m sharing it because I think we should know how others see us.

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Reader Ron W. writing from Canada: "As your first cousin and largest trading partner, it’s a catch-22 question for Canada. More than any others, we’ve learned to live with you but haven’t tried living without you, yet.

"When you get a cold, we can still get pneumonia. We are so much alike that thousands of us have become some of your most-famous entertainment, business and even political stars without you knowing it. More than any, we really connect.

"It’s when you ‘group think’ that you scare us and the rest of the world into wishing for a more ‘de- Americanized world.’ God wouldn’t spell her name Gold, love guns, change corporations into people, reward the rich at the expense of the poor or export such bad values outside that ‘heaven.’

"However, until something more humanistic arrives, replacing it may be even more discouraging."

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Reader Nicholas H. says: "Hi Brad, I’m an Australian working and living in Azerbaijan. I’ve long held the view that America [is] like the Roman Empire and about to hit that ‘fall.’ While the magnificent things that America has contributed to the world can’t be denied, the corresponding ‘Americanising’ has been relentless.

"The most informed, educated and open minded Americans are often found living outside of their own country, as here in Azerbaijan. The American value system often conflicts with local ideas, customs and outlook on life, yet outsiders are subjected to that American value system on a daily basis. Just as the Romans imposed their way of life on every nation they conquered, so do Americans.

"Their macro focus on their own country and own issues is astonishing to the rest of the world. Even well-aligned Australians feel their own identity being overrun with the American ideals. We as Australians are not just blending with Americans but being overrun by their products, film and television, politics, value systems … it’s like we are becoming a 53rd state!"

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Reader Dermot B. wrote from Germany: "The USA is behaving like a spoilt child fighting his brothers and sisters, and not caring what others think about such stupidity. When all laugh at him, he screams in rage hysterically and as he gets older, he continues such stupid habits, even as he assumes authority. Now the world watches in alarm as such stupidity can cause immense harm not only to himself but also to all those around him.

"This is the position the USA is in today, and to protect itself the rest of the world must decouple itself from the USA. This will cause immense changes, and will reduce the USA to the status of a country like Argentina with perpetual financial problems, huge devaluations, very large unemployment, and political chaos — making it a laughingstock for the rest of the world, who will cooperate with China and other Asian countries to rebuild a new world order."

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Reader Joe K. says: "As an American living in Philippines, I have a different perspective than some others. When China makes bold statements like this, it sounds to me like they are boasting, as if they could replace America.

"The fact is America is a cultural leader. America is the country that everyone wants to emulate in culture. It is true that some other places are concerned about NSA scandals, but for the most part, most common people in other parts the world are just confused about this theater going on in Washington. I doubt they think too deeply about it. They have their own political theater, in their own countries. So given time, they expect this to be resolved.

"The major feeling about China amongst other Asian countries is distrust. Things are going to have to get very bad before people trust China over the USA. I don’t think many people have confidence that China could be a world leader."

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Reader J.P. from Belgium says: "A de-Americanized world does come up in talks that I have with different persons. They are not so much worried about a budget-deal, because most of them think or hope that the senators and Congress are smart enough to avoid ruining the financial system, but the most critics I hear are about the scandals that the NSA is causing.

"They really dislike the idea that some guy/girl sitting at a desk in the USA can and will look into their private conversations, even if it’s for his/her personal amusement. I hear regularly that this is the famous ‘bridge too far’ for most of those people who are just hardworking family men or women. Thanks for your interesting articles."

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Those are just a few examples. As I did last night, I will post more at our Uncommon Wisdom Daily blog. Thank you to our many thoughtful readers around the world.

Don’t miss the other "De-Americanizing" reader stories from last night. These links will take you straight to each one:

Want to agree or disagree? Send me your thoughts. You can also leave comments on the blog pages.

If you’re interested in real estate, late yesterday I also posted some Housing Market Reports from readers around the country.

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I’ll leave you there today. Unless something else happens, tomorrow I want to pick up the conversation about mobile technology, "tech-cessories" and "wearable" devices. If you have any new thoughts, go ahead and send them to me now. I may include them tomorrow.

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U.S. stocks were up from the beginning today, and managed to hold the gains through the close.

  • The Federal Reserve released its Beige Book economic survey. Regional Fed banks reported "modest to moderate" growth.
  • Twitter picked the New York Stock Exchange to be home base after the impending IPO. This won’t change much for investors, but bragging rights are very important to NYSE and Nasdaq honchos.
  • Homebuilder confidence fell to a four-month low. The National Association of Home Builders/Wells Fargo sentiment index came out weaker than expected, but still positive.
  • Billionaire Mark Cuban is officially Not Guilty of insider trading. He had been accused of avoiding $750,000 in stock losses back in 2004.

Good luck and happy investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily