Pre-market trading: US debt ceiling crisis averted

Investors should undoubtedly be relieved. Alarm bells had been ringing on Wall Street for several weeks, and JPMorgan Chase was already in full swing preparing for a potential failure of the world’s largest economy.

But the postponement is only temporary. Once the Senate stopgap measure is approved by the House of Representatives, the Treasury will be able to pay its bills until December 3rd. Incidentally, this is also the deadline for averting a government shutdown.

That’s right: the United States is now less than two months away from a possible simultaneous closure of the government (when existing legislative approvals for public spending are due to expire) and default (when the debt ceiling prevents the Treasury from paying its bills).

It is reiterated that virtually all economists and market experts agree that a US standard would tank components and do great damage to the economy. We are talking about immediate recession.

According to Moody’s Analytics, nearly 6 million jobs would be lost, unemployment would rise back to nearly 9%, and stock prices would fall by a third, wiping out about $ 15 trillion in household wealth.

And for what? Hiking the debt ceiling has nothing to do with new expenses or loans. Instead, it allows the government to carry out activities already approved by Congress.

Finance Minister Janet Yellen, who used to head the Federal Reserve, has some thoughts that lawmakers are essentially taking the U.S. economy hostage every few years to score some cheap political points.

“This has led to a series of politically dangerous conflicts that have prompted Americans and global markets to question whether America is serious about paying its bills,” Yellen told CNN’s Erin Burnett on Thursday.

“It’s an impossible situation. Congress has to debate these issues when deciding on spending and taxation, so as not to put a hard stop every two years and say, ‘Well, now we will not let the finance minister pay the nation’s bills.’ , ā€¯Yellen added.

One point observers sometimes make is that the United States has never failed. But it turns out that this may not be entirely true.

In fact, there have been at least three cases where Washington “was unable to pay all of its obligations on time or made payments on terms that disappointed creditors,” according to this fascinating 2016 paper from the Congressional Research Service.
Goldman Sachs warns of a 'real risk' that America could default on its debt

The first snafu followed the war in 1812, when military spending and delayed revenue left the Treasury unable to make any interest payments on federal debt. The second came during the Great Depression, when President Franklin Roosevelt suspended the gold standard and state owners lost.

Recently, the Treasury failed to make timely payments to some small investors in the spring of 1979, when automatic data processing was at a relatively primitive stage, according to the newspaper.

So how do we know that an American standard would now be catastrophic? The short answer is that we do not – but it is really not worth finding out.

“Other countries that defaulted in the 1930s or in the 19th century apparently had no lasting damage to their ability to borrow,” the Congressional Research Service concluded. “Nevertheless, the prominent role of US Treasuries in global and domestic financial arrangements means that systematic delays in the Treasury can now have serious consequences.”

Why job recovery will remain uneven

Friday’s job report will shed light on whether August’s disappointing figures were just a blip – or the start of an unwelcome trend.

Either way, the recovery may be erratic until America gets all the way through the Covid crisis, reports my CNN Business colleague Anneken Tappe.

“The pandemic has always been in the driver’s seat of this recovery,” Nela Richardson, chief economist at ADP, told reporters Wednesday. “The name of the job recovery game is still ‘uneven’.”

Last year, the labor market was fragile, and in the colder months, the fierce leisure and hospitality industry lost jobs – something that could happen again this year. Meanwhile, hundreds of thousands of women left the workforce in September 2020, when children returned to virtual classrooms and parents had to step in as teaching assistants.

Whether one of these phenomena returns remains to be seen.

The figures: Economists asked by Refinitiv predict that half a million jobs were added to the economy last month. Unemployment is expected to tick down to 5.1%, just a hair below the August rate of 5.2%.

That would be more than double the disappointing 235,000 jobs added in August, which underperformed expectations by about half a million.

Tesla is on its way to Lone Star State

Tesla HQ gets a new home.

“I’m excited to announce that we are moving our headquarters to Austin, Texas,” CEO Elon Musk said Thursday during a Tesla shareholders’ meeting.

The electric car company is currently based in Palo Alto, California, near its original headquarters in San Carlos, and its first factory in Fremont.

But the company has repeatedly sparred with California officials. And Musk said Thursday that there is a “limit to how much you can scale in the Bay Area.”

He mentioned housing available and the long commutes as other negative factors. The Austin factory, on the other hand, is five minutes from the airport and 15 minutes from downtown, he said.

Musk even said in December that he was moving to Texas, and one of his other companies, SpaceX, is developing a massive rocket system known as the “Starship” of South Texas.

Despite the relocation of headquarters, Musk said Tesla plans to continue to “expand” significantly in California.

“It’s not a question of Tesla leaving California,” he said. The company intended to increase production from its Fremont plant by 50%.

Next

The US job report for September will be published at 8:30 ET.

Also today: the OECD could announce a global corporation tax deal

Coming next week: Investors will look for the latest inflation figures from the US.

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