6 Things To Ponder This Weekend

thenews 2013.09.21 13:56

As we wrap up a most interesting, and volatile, week there are some things that I have discussed previously that are now brewing, interesting points to consider and risks to be aware of. In this regard I thought I would share a few things that caught my attention as I look forward to wrapping up the week that was.

1) Angela Merkel Election No So Assured

Some months ago in a missive entitled "Is The Eurozone Crisis Set To Flare Up?" I discussed the potential threat to the Eurozone being the dethroning of Angela Merkel by her opponents who are staunchly opposed to further bailouts for the weak Eurozone members and would prefer to see countries like Greece be expelled.

My friend Tyler Durden at Zero Hedge picked up on worry stating:

"On the back of our detailed discussion of the inner workings of the German election (here and here), it appears that we are no nearer understanding the two major political narratives that appear dominant currently. As Reuters reports, Angela Merkel's center-right coalition and Germany's combined opposition are running neck and neck, a poll showed on Tuesday, five days before the national election. Crucially, if the figures are repeated in Sunday's election,Merkel will lack the support to renew her coalition with the FDP and Germany will most likely end up with a 'grand coalition' of conservatives and SPD, like the one Merkel led in 2005-2009. Via Reuters, Chancellor Angela Merkel's center-right coalition and Germany's combined opposition are running neck and neck, a poll showed on Tuesday, five days before a national election that will decide who steers Europe's largest economy through the next four years. The Forsa poll for Stern magazine showed Merkel's conservatives still well ahead of other parties on 39 percent, unchanged from the previous survey, and their current coalition partner, the liberal Free Democrats (FDP), were on 5 percent, down one point and only just enough to enter parliament. The main opposition Social Democrats (SPD) and their Green allies were on 25 percent and 9 percent respectively, both unchanged from the previous Forsa poll, and the far-left Left had 10 percent. The SPD has ruled out a coalition with the Left. If the figures are repeated in Sunday's election, Merkel will lack the support to renew her coalition with the FDP and Germany will most likely end up with a 'grand coalition' of conservatives and SPD, like the one Merkel led in 2005-2009."

The worry, as I have stated previously, is that if Angela Merkel loses control of the Chancellorship it could well mean significant turmoil to an already very weak Eurozone situation. Furthermore, since Germany is the primary funding source of the European Central Bank, a lack of financial support could well mean the end of the ECB and its Eurozone lifelines. 2) The Debt Ceiling Debate The Republican's on Friday passed a bill, 230-189, that would keep the government funded past the September 30th deadline but would also strip funding for the Affordable Care Act. If anyone has been paying attention the ACA represents a huge economic problem in 2014-2015 due to massive increases in the cost of healthcare for the middle class which has seen both incomes and net worth decline in recent years. The problem is that the bill will be immediately rejected by the democratically controlled Senate. This will kick the bill back to the House once again which is becoming increasing entangled in its own division within its rank and file. The question then becomes whether, or not, the Republican controlled house will allow for a temporary government shutdown to promote a compromise on budgetary issues. As we approach the deadline the markets could be roiled by the heated debates as the President threatens "default" if Congress doesn't act quickly to increase the debt limit. As I stated in the recent missive "The Real Reason For No Fed Taper:"

"The problem for the Federal Reserve currently is that they are once again facing an issue that nearly cratered the markets, and the economy, back in 2011. As we quickly approach the limit of the government's borrowing capability the threat of a government shut down and "debt ceiling" debate once again looms. Bernanke is currently fearful of such a repeat event given an already weak economy coupled with rising interest rates. Any shutdown of the government, fear of "default" or restrictive fiscal policies could collapse what incremental recovery there has been to date."

However, Ruth Marcussummed up the risks to the economy and the markets eloquently stating: