Tea Partiers for Quantitative Easing?

Soon after the decision, the chairman of the Kansas Fed, James Bullard, said that the decision had been “borderline”(sic) and that the “tapering” could start as early as late October.

That is what the numbers suggest. But, when we look at the big picture, we see another element–political risk. Probably in less than one week, on October 1st, the US Government will go through a partial shutdown, since Tea Party Republicans refuse to approve more government funding unless “Obamacare” is de-funded (the logic of using Government to kill a Government program democratically approved by the Government escapes the author of this article, but this is another matter). Around October 24th, the US Treasury will run out of money to pay off the debt.  That means that Congress will have to raise the debt ceiling but, again, Tea Party Republicans are opposed unless Obamacare’s budget is killed or, at least, severely curtailed.

So far, analysts think that the US Government will probably shut down, which will mean endless disturbances for  citizens and businesses, and that an agreement on the debt ceiling will be, presumably, reached when the US economy will be on the cliff of the default.

What does that mean? Simply, market instability, specially regarding the default risk. The fact that this is a politically motivated (and manufactured) crisis matters, and is the reason why the markets are not frantic (yet). But, if no deal is reached, by mid or late October we will have more volatility and instability than we wish.

What is the 101 answer to those situations? Keeping liquidity high. If the US goes through a serious budget crisis, there is no chance that the Fed will taper. Tea Partiers–those gold-standard lovers who would like to dissolve the Federal Reserve–can be the best friends of Quantitative Easing.