US Politicians are Holding World Economy Hostage

iSPYETF

An envoy or ambassador is a delegate representing a government. As official representatives they can earn a lot of praise or a heap of reproach for their government.

By extension, politicians can be considered an envoy or ambassador of their country. Unfortunately, it appears, many such politicians are unaware of their actions far-reaching effects.

Yes, we are talking about the government shutdown and how other nations perceive the U.S. fiscal drama.

Embarrassing?

The president of the German Trade Association likens the US budgetary standoff to “ideological warfare that’s keeping the world economy hostage.”

The managing director of the German Industry and Trade Association cautions that the world economy shouldn’t be used as a pawn for a political party’s agenda.

The U.S. economy is of great importance for global trade. European (in particular German) businesses invest heavily in the U.S. and the partial government shutdown has a negative impact on transatlantic trade.

In short, German officials are afraid that the Washington stalemate will not only affect US indexes like the S&P 500 (SPY), but also German stocks (EWG), European stocks (VGK) and ultimately international stocks (EFA).

This fear is intensified by the fact that German export growth in 2013 is the weakest since 2009. German exporters are struggling with weakening demand from China (FXI). They need a confident US consumer with a bulging wallet.

Obviously, every country looks for its own advantage in the global trade market and every government is ‘fighting its own demons.’ 

The US budgetary standoff may have less of an economic impact than feared, but it could have been avoided and paints U.S. politicians as incapable.

AAA Lesson

Lest we forget how Standard & Poor’s explained their August 5, 2011 decision to strip the U.S. of its cherished AAA rating. To wit:

“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. This weakens the government’s ability to manage public finances.”

Purely based on recent statements by U.S. politicians, you’d think they learned from Standard & Poor’s wakeup call: 

“This is not about me, and it's not about Republicans here in Congress. It's about fairness for the American people.”

"You don't get to extract a ransom for doing your job, for doing what you're supposed to be doing anyway or just because there's a law there you don't like.”

But talk is cheap and actions speak louder than words. 

As you might be able to tell, I am politically neutral. I simply look at what’s going on and try to figure out how it affects stocks, investors and subscribers to my Profit Radar Report.

As it turns out, government shutdowns have a surprising effect (or lack thereof?) on U.S. stocks. Here is a detailed look at how the S&P 500 reacted to the last eleven government shutdowns. 

How Government Shutdowns Really Affect Stocks

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF 



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