The Distillery: Washington reboot

An agreement has been reached and it appears a deal will soon be signed to ‘restart’ Washington and raise the debt ceiling, with the compromise agreement to provide at least a few months’ relief. The issue prompts one commentator to ponder just how bad a default would have been for the global economy, while another argues we have been deceived about the threat all along. A default event was still some way off.

The markets, meanwhile, have been remarkably sanguine throughout the whole debacle, making it a surprisingly good October in one scribe’s eyes.

Given the debt ceiling debate will likely restart again in a few months, the deliberations of Fairfax’s economics correspondent Peter Martin provide food for thought. How would a US default affect Australia?

“Would it push up the Australian dollar, would it push it down, would it send so much money flooding into Australia that foreigners were virtually paying us to take on our debt or would it dry up the flow so we couldn't borrow at all? It's hard to know because it's unthinkable.”

The only thing we know for sure is that the impact would be severe. However, according to the Herald Sun’s Terry McCrann, October 17 was never that close to a default. Almost everything we have been told about the crisis has been wrong, he contends.

“Specifically, that unless the US Congress votes to increase the US government ceiling overnight, the US will default on its debts, banana republic – or indeed Greek republic – style. The truth is, that would only happen if the Obama administration deliberately chose to break not just the law but its fundamental constitutional obligations.”

The Australian Financial Review’s Philip Baker, meanwhile, takes a look at action on sharemarkets. October has a reputation for being a poor month for equities, but all the bad news this month has hardly registered. And based on the moves on Wall Street overnight, we are set to move higher.

“Known for hosting some of the major disasters in financial markets and with enough bad news out there to make any bear happy, it hasn’t, so far, been the wild ride many would have expected. The main measure of volatility on the Chicago Board Options Exchange is the VIX, which is also known as the fear index. Over the past five years it has traded at an average of almost 24 index points. It closed on Tuesday night at 18.5 points...”

The crisis in America serves as the starting point for a discussion of fiscal targets by The Australian’s David Uren, who notes that they proved impotent through the GFC. And Australia isn’t immune from the mistakes of the rest of the world.

“Australia's rules have been too easily fudged. No one can tell you the length of the "economic cycle" over which the budget is meant to average a surplus. They have also been accompanied by little accountability. There are no consequences for failing to meet them and no one is charged with monitoring compliance.”

In company news, CSL’s latest buyback has The Australian’s Richard Gluyas singing the praises of the group’s management. “When you’re onto a good thing, stick to it,” he suggests.

Elsewhere, the AFR’s Matthew Stevens discusses the IR manoeuvrings of Glencore in Queensland, while the Herald Sun’s McCrann says the Warrnambool Cheese and Butter board is foolish to dismiss Bega’s advance without a second glance.

Finally, Fairfax’s Elizabeth Knight spots a budget opportunity to sell student loans and the AFR’s Tony Boyd introduces us to the “mysterious world of mandate switching” in the super sector.