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At the very last moment, politicians in Washington DC decided that the U.S. would not default on its debt responsibilities. Official bankruptcy has been averted for the time being. Time to celebrate, hooray!
There are a few lessons to be learned from the drama that has played out over the last few weeks.
1. Washington is dysfunctional
There are really three parties in Washington now: the Democratic Party, the Republican Party and the Tea Party. It was hard enough when only two factions were left to negotiate and legislate. With three separate philosophies all seeking to move agendas towards their goals, you can assume gridlock is alive and well.
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2. Get ready for January
Don't think that the drama we saw in October is the end of this wonderful theatre. The debt ceiling, as well as a spending plan, has only been approved until January so this will play out again with the same noise and fervor. We need to normalize our expectations and recognize that for better or worse, this is how Washington operates.
3. The Federal Reserve is also in the dark, so don't expect tapering this year
With delayed and distorted economic statistics likely to trickle out after the shutdown, the Federal Reserve will likely take limited action as it assesses the economy, which may deter it from reducing quantitative easing in the near term.
4. The United States' reputation has been impacted globally
I discuss investment strategies with senior strategists from around the world. They are astounded and perplexed by how the United States is mishandling its economic affairs. While I do not believe the U.S. dollar's status as the world's reserve currency will change, the country's reputation and credibility has been damaged.
5. Gross domestic product (GDP) growth will also be affected
Consumer sentiment has plunged and for good reason. Consumer sentiment can indicate the level of spending that will occur at some future point in time. The damage is not irreparable but restoring confidence will require some effort. If you lay off hundreds of thousands of government workers who stop spending and drag the country through a series of headlines suggesting disaster is imminent, this will undoubtedly have an impact on GDP growth.
I believe the United States is slowly recovering from the worst downturn since the Great Depression. Jobs are being created and with interest rates low, economic activity will likely trickle forward. That's the good news.
The bad news? Damage that was wholly avoidable has been done to the economy. It's an embarrassment and the recent political gymnastics will slow the U.S. recovery. Shame on Washington's politicians; the impact of the ridiculous posturing will be evident for many months (if not years) to come.
I for one am sick of it; are you?
— Michael Yoshikami is the CEO and founder of the investment committee of Destination Wealth Management.