Life without budget is difficult but possible
In theory, when one of the leading economies "runs a fever", stock markets observe a rally. Take for example September worries of investors regarding US FRS cuts in the economy support program or passions of Syria, when expected military operation increased the demand for imperishable assets, like gold or...US dollars.
So, what is happening now on the markets? On Tuesday, October 1, when Democrats and Republicans failed to agree, the dollar fell. However, after yesterday's meeting between President Obama and Congress representatives, there is a hope of negotiations.
In case of failure, however, the service industry will suffer the first. Under the shutdown, national parks and museums will close, pension and veterans' benefit cheques will be delayed, and visa and passport applications will go unprocessed. Programs deemed essential, though, such as air traffic control and food inspections, will continue. Moreover, Mr Obama has signed legislation ensuring that military personnel would be paid. The defence department had advised employees that uniformed members of the military would continue on normal duty, but that large numbers of civilian workers would be told to stay home.
It is the first shutdown in 17 years - the US government has not undergone a shutdown since 1995-96, when services were suspended for a record 21 days. Before that it happened other 16 times. The reasons usually included social programs. As a rule, conservative Republicans insist on extension of social package (healthcare, education, etc.), initiated by Democrats. But the matter concerns not just the amount of financing, but election pledges of Democrats. If Republicans manage to block financing of programs, proposed by Democrats, it may define the results of forthcoming elections. In fact, it is a pure fight for power, when Democrats and Republicans argue not about the health of American people, but about political positions and heft.
Following rather serious foreign policy failure in Syria, when US military operation has not been realized, the image of President-Democrat has been tainted. And now there is a budget problem. In fact, Republicans do not lose anything agreeing on passing the bill on extension of social package, and considering the risk of default they can always say "we told you so, there was no need to overload the budget". However, the fact that Republicans have chosen drastic measures to oppose proves they want to appear as country's saviours.
Ukraine's benefits from US crisis
The manifestation of US budget crisis in Ukraine results only in the reduction of functions of US embassy for now, but in the future may completely bust the myth about All-mighty US Dollar.
Thus, the dollar rate has lost some positions, easing pressure on hryvnia, while prices for dollar on the cash market do not move at all. Taking into account the measures of NBU aimed at stabilization of the currency market, the weakening of dollar on the world market has strengthened hryvnia.
In particular, Maria Salnykova, an expert of the FOREX CLUB analytical center in Ukraine, told ForUm that current situation in US causes fall in dollar against euro, pound, Swiss franc and Japanese Yen. "Until the situation is settled the dollar will keep falling. It is expected that by October 17, deadline for US government to increase statutory borrowing limit, an agreement will have been reached and the budget for 2014 will have been adopted. For the moment, however, we observe the fall in assets, including gold, but after a positive solution of US dilemma we expect dollar to restore its positions on the world market. And after that, euro, pound and other currencies may fall, while gold will rise in price," the expert said.
As for Ukraine, Maria Salnykova believes that current situation in the US brings the stability of national currency in focus. "Government bond yields of developing countries, including Ukraine, have grown. As of October 3 it made 11.8% against 10.07% of last month. In a long-term perspective, these events are positive for hryvnia. People see that dollar is not the perfect currency, and we expect the share of dollar deposits in Ukrainian banks to shrink."
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