With the risk of a default on Treasury debt rising by the hour, the relative indifference among Wall Street, businesses and consumers to the political dogfight in Washington is shifting to high anxiety.
Attitudes are less Meh, been there, done that, and more: OMG, this could be for real!
The level of uncertainty is on the rise, according to an index created by Stanford University economists who track the impact of policy uncertainty on business and the economy.
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It is a sharp reversal. Until this week, the level of uncertainty had been lower than it's been for much of the last two decades, But the index is rising fast—and that could spell trouble for any already weak economy in the months ahead if the level of uncertainty continues to rise.
"In August, everyone was asleep and Congress was out, and in September things were left until pretty late in the game," said Nicholas Bloom, one of the creators of the Economic Policy Uncertainty Index. "But the daily index has been surging" in the days leading up to Tuesday's government shutdown, he said.
Until the reality of that government shutdown began to sink in, the index had been languishing, far below peak levels reached in July 2011, when petty partisan bickering over the debt ceiling sent the Treasury to the brink of default.
That recent relative calm about the prospect of budget chaos may have resulted from a deepening numbness to "fiscal cliff" foolishness and "sequestration" stupidity. Bloom likens the response to a kind of fiscal roller coaster ride.
"Once you have survived a couple of these, the next one seems much less scary," said Bloom. "On a roller coast, as you climb the first hill you have a huge fear ahead of what going to happen. But after you've been through two or three, the fourth one isn't so scary. That's what happening now. We've kind of become accustomed to this."
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The low level of anxiety about the looming debt ceiling standoff may also be underpinned by the belief that the results would be so catastrophic that even the most irrational, diehard congressional ideologues realize they can't actually go through with threats to force the Treasury to default.
"The logistical disruptions (of a default) are so enormous to me that's it's reason enough they'll be forced to come to a deal," said Peter Boockvar, chief market analyst at The Lindsey Group, an economic advisory firm. "The debt ceiling is a big deal but it's not going to end up (happening) because I don't think we're going to trip over that wire."
Stocks sold off on Monday as the congressional game of chicken over the federal budget reached its conclusion, with House Republicans insisting on delaying the 3-year-old health-care law as a condition for letting the government continue to operate. Once the shutdown was confirmed, the market began moving higher again.
To be sure, businesses and investors have plenty of other things to focus on, from the recent decision by the Fed to keep its foot on the monetary gas pedal to the cloudy outlook for the holiday shopping season and the latest economic data.
Uncertainty over the duration of the government shutdown only increases uncertainty about that economic data, though. That's because most government workers who track new jobs, changes in gross domestic product and thousands of other data have been sent home. (It's not clear whether Friday's widely watched monthly employment report will be released on time: a call to the Bureau of Labor Statistics was handled by an answering machine saying the department was closed.)
The dearth of data could also cloud the Federal Reserve's policy decision making—though the central bank's interest rate committee will meet as scheduled this month to help provide a little more clarity. (The Fed isn't affected by the shutdown because it pays for its own operating expenses out of revenues generated from interest on U.S. Treasurys and other debt holdings in its vaults.)