Fitch warned the US AAA credit rating could be imperiled if the government shutdown persists. In theory, this would drive up US borrowing costs. But like a lot of things lately, this comes off mainly as a bluff. There’s a difference between a willingness to pay off one’s debts & an ability to do so. Let’s not mistake the former for the latter.
Meantime, there’s growing confidence (for now) the US & China will strike some type of trade accord. This may turn out to be a far more significant deal than anyone expected as European trade officials are publicly begging not to be left out. It’s remarkable stagecraft: as the whole world is looking up at this fictitious wall (ahem, metal barricade), Harry Houdini is ushering in what may end up being a transformative trade agreement between the world’s two biggest economic powers. I have no doubt this deal could still fall apart but the national media has dropped the ball here – giving far more attention to domestic politics because it sells newspapers and less airtime to trade because it’s perceived as trivial (it’s not).
The 1985 Plaza Accord shook world markets as a coordinated dollar depreciation versus the yen changed the balance of global economic power. Is something similar about to occur? Perhaps the Wall debate is merely a ruse.