The Stopgap and Trader In Residence

October 25, 2013

By Kaustubh Raut

US President Barack Obama signed a measure on 19th October 2013 that reopens the federal government after 16 days of a partial shutdown and provides a brief reprieve on the United States economy, preventing a credit default. Here government created nothing but an illusion of cure for long ailing sickness. What this new deal means is funding for the government till January 15, extending treasury’s borrowing ability till 7th February (extraordinary measures could take it to late March), maintaining sequestration. All it did was postpone the inevitable but it did nothing to address the long term fiscal sustainability. All we can hope is, this deal will give lawmaker little breathing space to engage into figuring real ways out of this mess.

This problem is not going to be solved without political unanimity. We have to realize that actual need of these political parties is not to solve impeding debt problem but to save face and to be able to declare victory. Currently republicans do not support Obamacare or the thought of tax increases to cut the deficit. At the same time, democrats continue to support Obamacare and believe deficit reduction is not possible without increasing revues that is by increasing taxes.

According to 2013 Long-Term Budget Outlook report by Congressional Budget office, it is clear that increase in tax revenue and tighter spending constraints have been successful in cutting the deficit as a percentage of GDP. It is mentioned that “The economy’s gradual recovery from the 2007-2009 recession, the waning budgetary effects of polices enacted in response to the weak economy, and other changes to tax and spending policies have caused the deficit to shrink this year to its smallest size since 2008: roughly 4% of GDP, compared with a peak of almost 10% in 2009. If current laws governing taxes and spending were generally unchanged – an assumption that underlies CBO’s 10-year baseline budget projections – the deficit would continue to drop over the next few years, falling to 2% of GDP by 2015. As a result, by 2018, federal debt held by the public would decline to 68% of GDP (from about 73% now).”

It is also true that the budget would increase again due to high interest cost, increasing healthcare program expenditure. The important point here is that if government wants ensure long-term fiscal sustainability, there should be more entitlement reform and tax reform.
But nothing in the debt law that just passed changes the fundamental situation, the government cannot borrow more re-specified limit, chances of default are still alive.

Trader in Residence – TiR

The DeGroote Trading Centers will be hosting Trader in Residence, a speaker series being industry professionals in DeGroote to discuss their success in their field of business. The series takes places every Tuesday at 5:30PM in the Ron Joyce Center, RJC, in room 136 and is also viewable via a 2 way camera in the Gould Trading Floor located at 122A in the DeGroote School of Business, DSB.

Drinks and food will be provided at the DSB location.

For further information regarding the series please visit: https://trading.degroote.mcmaster.ca/trader-in-residence/

The list of upcoming speakers is as follows:

October 15- Torstein Braaten-Chief Executive Officer, Chief Compliance Officer and Managing Director of TriAct Canada Marketplace LP
October 22- Darren Farwell- Senior Wealth Advisor | Director, Wealth Management | ScotiaMcLeod Head Office Branch
November 5- Paul Allison-Chairman, Chief Executive Officer, and President -Raymond James Ltd.
November 12- To Be Announced
November 19- To Be Announced

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