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SOFIA TIMES 13TH NOV 2013

MARKET UPDATE Mutual funds’ cut cash holding in short-term funds Mutual fund houses have reduced their cash holdings in short-term funds as the liquidity in the system has become comfortable. The average cash-holding position in short-term funds was about 20 per cent after the Reserve Bank of India (RBI) tightened liquidity in mid -July to arrest volatility in the rupee. The cash-holding position has now been reduced to 510% and, in some cases, even below 5%. In its second-quarter monetary policy review on October 29, RBI had reduced the marginal standing facility (MSF) rate by 25 basis points (bps) to 8.75%. Besides, RBI also increased the liquidity provided through term repos of 7-14 day tenures to 0.50% of banks’ net demand and time liabilities from 0.25% earlier.

In This Issue SPECIAL ARTICLE:

Analysis of The U.S. Government Shutdown

Market Update

Banking and Financial Services

Economy and Policy

International Outlook

Companies

Special Feature: U.S. Government Shutdown


Goldman Sachs upgrades Indian stocks, raises Nifty target to 6,900 Goldman Sachs has again changed its’ outlook on India's economy twice in three months. After downgrading India in August this year, Goldman Sachs has upgraded India on 5th November, 2013 to market weight. This decision has been taken based on the optimism stemming from a possible political change, easing of external account pressures and a stable earnings outlook. Less than three months ago, like many other brokerages, Goldman Sachs had downgraded Indian stocks to underweight position as it saw downside risks to earnings and economic growth coupled with the possibility of a reversal in global liquidity.

MSCI adds Tech Mahindra, YES Bank, Nestle The MSCI (Morgan Stanley Capital International) India index will see the addition of three companies, including Tech Mahindra, YES Bank and NestleIndia while four entities would be dropped. These include Bank of India, Canara Bank, Wockhardt and Unitech. All the changes would be effective as of the close of trade on November 26, 2013. Reacting to the news of addition, Tech Mahindra shares were trading 5.80% higher, while NestleIndia rose by 0.70% on the BSE. On the other hand, shares of Bank of India were quoting 0.97% lower, while Canara Bank dropped 1.63%, Wockhardt by 1.65% and Unitech by 0.30%. Note: Morgan Stanley Capital International is a leading provider of benchmark indices globally.

Investor focus shifts to mid- and small -caps Shares of mid- and small-cap companies are likely to hog the limelight through the next couple of weeks, with market participants saying the valuations of many blue-chips and largecap companies are stretched. Fund managers said investors were shifting money from largecap companies to small ones, amid uninterrupted inflows by foreign institutions. Market Analysts believe that there is a lot of portfolio rotation happening in reaction to the characteristics of a liquidity-driven market.


BANKING AND FINANCIAL SERVICES Banks borrowed Rs.19400 crore under MSF on Nov 8 Banks borrowed Rs.19400 crore ($3.06 billion) from the Reserve Bank of India's (RBI) marginal standing facility (MSF) window on November 8 for three days, much higher than Rs.7135 crore borrowed for one day on November 7. The Reserve Bank of India cut the MSF rate by 25 basis points (bps) on Oct. 29 to 8.75 per cent. It had raised the rate by 200 bps to 10.25 per cent in mid-July. Banks usually tap the MSF rate during acute cash tightness. http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-borrowed-rs-19400-crore-undermsf-on-nov-8/articleshow/25581573.cms

Bank licences: SEBI scans listed applicants, firms As the Reserve Bank of India (RBI) gears up to issue new bank licences, capital markets regulator Sebi has also a job at hand that is of scrutinising all applicants coming under its jurisdiction directly or through group entities. Sebi's scrutiny follows detailed queries shot off by RBI to various regulators in India and abroad as part of its due-diligence of entities seeking to enter banking arena. The area of prime focus for the Securities and Exchange Board of India (Sebi) is action taken by or underway for violations to various market regulations, he added. The scrutiny is expected to be over this month itself. RBI is granting new bank licences for the first time in about a decade and preliminary screening process is underway for 26 entities that have submitted their applications. http://businesstoday.intoday.in/

Canara Bank hikes fixed deposit rates by 0.50 per cent Taking cue from other lenders, state-run Canara Bank has hiked interest rates on fixed deposits by up to 0.50 per cent. For deposits above one year to less than two years, the interest rates would now be 9.05 per cent, up from 8.75 per cent. For those of five years and above to less than 8 years would now be 9.05 per cent, up from 8.75 per cent. Additional interest rate of 0.50 per cent would be given to senior citizens for domestic term deposits, Canara Bank said. With revision in deposit rate, the peak rate has gone up to 9.05 per cent. Term deposit between one year to up to 10 years would earn interest rate of 9.05 per cent. Besides, state-run Punjab National Bank has also hiked interest rates on select maturities by up to 0.50 per cent effective from November 11. Earlier this week, private sector Axis Bank had revised the interest rates on select maturities for fixed deposits of less than Rs.1 crore. In two buckets there was an upward revision of 0.25 per cent and in 9 buckets a downward revision of 0.25 per cent by the bank. India's largest lender State Bank of India and HDFC Bank too have hiked their base rate, or the minimum lending rate, by 0.20 per cent to 10 per cent. http://businesstoday.intoday.in/


Indian rupee drops 83 paise against US dollar, breaches 63-mark The Indian rupee dropped by 83 paise to 63.30 against the US dollar after a gap of nearly eight weeks on persistent dollar demand from importers and banks on the back of higher dollar overseas. The domestic currency resumed lower at 63.00 per dollar as against the last weekend's level of of 62.47 per dollar at the Interbank Foreign Exchange (Forex) Market and dropped further to 63.32 per dollar before quoting at 63.30 per dollar at 10.40 am. It moved in a range of 62.94 per dollar and 63.32 per dollar during the morning deals. http://businesstoday.intoday.in/

MCX Q2 net profit declines over threefold to Rs 27.04 crore Multi Commodity Exchange (MCX) has reported over three-fold drop in its standalone net profit to Rs 27.04 crore in the second quarter of the current financial year due to lower income and higher expenses. The commodity bourse, promoted by Jignesh Shah-led Financial Technologies India (FTIL), had clocked a net profit of Rs 81.40 crore in the same period last year. According to a filing on the Bombay Stock Exchange, MCX's net income declined by 36 per cent to Rs 88.02 crore in the quarter ended September 30, from Rs 137.60 crore in the same period last year. Expenses increased to Rs 77.19 crore from Rs 57.55 crore for the period under review. The performance of the futures commodity exchange has been affected on imposition of commodity transaction tax (CTT) since July and also due to the recent Rs 5,600-crore payment crisis at FTIL group's another bourse National Spot Exchange Ltd (NSEL). http://businesstoday.intoday.in/story/mcx-q2-net-profitdeclines-over-three-fold-to-rs-27.04-cr/1/200462.html

HSBC tweaks i-banking strategy in India Hong Kong and Shanghai Banking Corporation (HSBC) has tweaked its investment banking strategy in India to advise emerging mid-cap companies and boost its fee-based income, two people with knowledge of the development said. The bank has hired Vikas Khattar , former managing director and head of global markets of rival Morgan Stanley India, to its new 'corporate financing group' in India, the same people told ET. Khattar will be managing director in-charge of the new team, which will look at advising clients beyond the top 100 companies to raise money from private equity funds, through equity offerings and debt financing. A spokesperson for HSBC in India declined comment. Khattar could not be contacted for comment on the development. Several investment banks, under pressure to generate revenues and cut costs in a slowing economy, had put a freeze on hiring. HSBC's rivals like Bank of America Merill Lynch, Citi and Standard Chartered Bank have been able to leverage their large balance sheets by offering largecap companies with both advise for mergers and acquisitions and debt, increasing their fee-based income and long-term relations with these firms. http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/hsbc-tweaks-i-banking-strategy-inindia/articleshow/25580539.cms


Sensex drops nearly 200 points; Nifty hits lowest since October 29 The S&P BSE Sensex extended losses in late afternoon trade on Monday, dropping nearly 200 points as the rupee continued to trade below 63 against the US currency in the afternoon trade. The losses were led by realty, autos, capital goods and banking stocks. Tracking the momentum, the 50-share Nifty index registered its fifth straight fall to hit its lowest level since October 29. The index is now trading below its crucial psychological support of 6100. The rupee dropped by 83 paise to 63.30 against the US dollar after a gap of nearly eight weeks on persistent dollar demand from importers and banks on the back of higher dollar overseas. The rupee resumed lower at 63.00 per dollar as against the last weekend's level of of 62.47 per dollar at the Interbank Foreign Exchange (Forex) Market and dropped further to 63.32 per dollar before quoting at 63.30 per dollar at 1040 hrs. http://economictimes.indiatimes.com/markets/stocks/market-news/sensex-drops-nearly-200-points-nifty-hits-lowest-sinceoctober-29/articleshow/25590670.cms

Asian shares, currencies fall on Fed tapering worries Asian shares fell to a four-week low on Monday as a surprise surge in U.S. jobs growth heightened worries the Federal Reserve will start reducing stimulus as soon as next month -- boosting the dollar against the euro, yen and emerging currencies. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.5 percent, hitting its lowest since October 11 and extending Friday's 1 percent drop. Jakarta shares .JKSE fell 0.8 percent, Thai stocks .SETI lost 1.5 percent and the Manila bourse .PSI dropped 1.7 percent. http://www.reuters.com/article/2013/11/11/us-marketsglobal-idUSBRE96S00E20131111

Euro Zone’s Fizzling Growth Seen to Back Draghi Cut Case Euro-area growth data this week may show the region’s nascent recovery slowing to a crawl, supporting Mario Draghi’s case for an interest-rate cut to help the economy get back to its feet. Gross domestic product in the region rose just 0.1 percent in the third quarter, according to the median forecast of 41 economists in a Bloomberg News survey. In the 3 1/2 hours before that report on Nov. 14, economists predict a series of data releases to show growth slowing in Germany and stalling in France, with Italy remaining mired in an unprecedented slump. http://www.bloomberg.com/news/2013-11-11/euro-zone-s-fizzlinggrowth-seen-to-back-draghi-cut-case.html


ECONOMY AND POLICY General: Article on Government Macroeconomic Policy

Is there a need for macroeconomic policy? A central issue in macroeconomics is whether or not markets, left alone, automatically bring about long run economic equilibrium. If the free operation of market forces eventually resulted in a full employment level of national income with stable prices and economic growth, there would be no need for government intervention in the macro economy - no need for fiscal monetary exchange rate and supply side policies. The reality is that all governments intervene through their macroeconomic policies in a bid to achieve certain policy objectives and improve the overall performance of the economy. Main Objectives of Government Economic Policy  Sustained economic growth  Stable prices (low inflation)  A high level of employment  A rise in average living standards  Sustainable position on the balance of payments  Sound government finances http://www.tutor2u.net/economics/revision-notes/as-macro-macroeconomic-policy.html

Telecom M&A guidelines may be announced this week: Kapil Sibal The telecom commission cleared the first-ever policy on mergers and acquisition for the sector on 6 November, says minister Inter-ministerial panel telecom commission on 6 November approved the guidelines which will allow telecom companies to acquire operators in a manner that market share of the resultant entity does not exceed 50%. The M&A policy is expected to further infuse investment in the sector. http://www.livemint.com/Politics/9Ttd9pL8qDJmohPWj6se MO/Telecom-MA-guidelines-may-be-announced-this-

5 policy missteps that have led India to economic crisis

Yes, we are in an economic crisis, albeit in its early stages. How else would you describe a situation where economic growth has collapsed, industrial output has stagnated for two years, jobs are being shed, consumer inflation is close to 10 per cent, the current account deficit (CAD) in the balance of payments is nearly five per cent of GDP at last count, investment is fleeing abroad, external debt maturing in the current fiscal year exceeds $170 billion and the rupee is touching new lows (or highs against the dollar!) each week? It was all avoidable, if our policy-makers had been more competent and effective (and less venal, some might add). There was plenty of warning commentary by independent analysts (this columnist included) over the past five years as each major policy misstep was taken. For details about five biggest economic policy mistakes, please visit http://www.businessstandard.com/article/opinion/5-policy-missteps-that-have-led-india-to-economic-crisis-113080701462_1.html


Case for food security: Effective PDS implementation by states has helped pull millions out of poverty

The public distribution system (PDS) has for long been seen in policy circles as a kind of budgetary black hole, sucking in enormous resources and giving back very little in return, in terms of poverty reduction or better nutrition.

Has PDS Changed? Underlying these shifts is evidence from other surveys of a sharp shift in the nature and reach of PDS. In the late 1990s, the scope of PDS was narrowed sharply, with the introduction of the so-called targeted PDS, which created two categories of consumers — those below the poverty line who got grain at highly subsidized prices, and those above the poverty line who received grain at far less subsidized prices. This shift, in 1999 under the NDA government, led to a sharp drop in the coverage of PDS and a jump in the 'leakages' — the share of grain that was supposed to reach the intended beneficiaries but didn't — from the system. But it was after 2004-05 that PDS reversed course. For more information, please visit http://economictimes.indiatimes.com/news/economy/policy/case-forfood-security-effective-pds-implementation-by-states-has-helped-pull-millions-out-ofpoverty/articleshow/25517576.cms

India likely to become 3rd largest economy by 2030: Report

India is likely to become the third largest economy by 2030 behind China and the USA, a Standard Chartered report said while projecting that the world is in the midst of an economic "super-cycle". A super-cycle is a period of historically high global growth, lasting a generation or more, driven by opening up of new markets, increasing trade, high rates of investment, urbanisation and technological innovation. http://economictimes.indiatimes.com/articleshow/25387989.cms?adcode=101


INTERNATIONAL OUTLOOK To Taper Or Not To Taper... That Is The Question? Watching Bernanke decide whether to taper or not to taper the $85 billion in monthly bond purchases (quantitative easing) is similar to viewing an emotionally volatile Shakespearean drama. The audience of investors is sitting at the edge of their seats waiting to see if incoming Fed Chief will be plagued with guilt like Lady Macbeth for her complicit money printing ways, or will she score a heroic and triumphant victory for her hawkish stance on quantitative easing (QE). To decide, the federal reserve has many economic indicators to look at. All of a sudden bad news is good news for stocks and good news is bad news. Lets have a look at some of the major news. Good news:  Strong Jobs: The latest monthly employment report showed +204,000 jobs added in October, almost +100,000 more additions than economists expected  GDP Surprise: 3rd quarter GDP registered in at +2.8% vs. expectations of 2%.  ECB Cuts Rates: The European Central Bank (ECB) lowered its key benchmark refinancing rate to a record low 0.25% level. Bad News: 

Jobless # Revised Higher: Last week’s Initial jobless Claims were revised higher by 5,000 to 345,000.

Investors Too Happy: The spread between Bulls & Bears is highest since April 2011 as measured by Investors Intelligence

With the recent surge in the October jobs numbers, the tapering plot has thickened. To taper or not to taper may be the media question du jour, however the Fed’s ultimate decision regarding QE will most likely resemble a heroic Shakespearean finale or Much Ado About Nothing. Panicked portfolios may be in love with cash like Romeo & Juliet were with each other, but overreaction by investors to future tapering and rate hikes may result in poisonous or tragic return http://seekingalpha.com/article/1826792-to-taper-or-not-to-taper-that-is-the-question?source=email_macro_view&ifp=0

ECB Surprise Cut And U.S. Positive GDP Boost Dollar A drop in inflation in the Euro zone forced the European Central Bank to cut its benchmark interest rate by 25 basis points. The benchmark rate is 0.25 percent, the new record low. ECB president Mario Draghi led a bold cut that surprised the markets as they were expecting a tapering move by the Federal Reserve move sooner than an ECB rate cut. Combating economic weakness and low inflation are at the top of European agenda. The United States gross domestic product posted a 2.8 percent gain in the third quarter of 2013. This is the fastest pace since the same quarter in 2012. The positive news boosted the U.S. dollar who recovered from losses earlier in the month. http://seekingalpha.com/article/1822172-ecb-surprise-cut-and-u-spositive-gdp-boost-dollar?source=email_macro_view&ifp=0


Are China’s Banks Next? America’s recent bout of dysfunctional politics and the Eurozone's on-again, off-again crisis should help China. In Long run this is bound to help in attracting investors to China thus helping it further strengthening its economy. But, despite its unique history and current advantages, China harbors a weakness that is quite similar to what has caused so much trouble in the US and Europe: big banks that have an incentive not to be careful. Ironically, the British government, while no doubt just trying to be hospitable to foreign investors by laying out a red carpet, is helping to set a trap for Chinese financial institutions – and the broader Chinese economy. By encouraging China to build global financial institutions with light regulation, the United Kingdom is not just inviting irresponsible behaviour; it could help to pull an entire economy toward ultimately unproductive and even self-destructive activities. Iceland, Switzerland, and the UK have all learned the hard way that allowing banks to become big relative to their economies brings with it great risks. Bailouts become more expensive and – as in the case of Iceland – may actually be unaffordable. China wants to build up its banks’ international operations. And the British are welcoming an expansion of these activities in London – offering to treat Chinese banks operating there as branches (subject to Chinese regulation) rather than as subsidiaries (subject to British regulation). The Chinese authorities should take another look at their policies. China is like Cinderella – finally allowed to attend the ball and given a chance to become a prominent player. But midnight could come very quickly, and financial crises do not have fairy-tale endings. http://www.project-syndicate.org/commentary/simon-johnson-on-the-perils-of-chinese-banks--international-ambitions

Bubbles in the Broth As below-trend GDP growth and high unemployment continue to afflict most advanced economies, their central banks have resorted to increasingly unconventional monetary policy. And yet, through it all, growth rates have remained stubbornly low and unemployment rates unacceptably high, partly because the increase in money supply following QE has not led to credit creation to finance private consumption or investment. Instead, banks have hoarded the increase in the monetary base in the form of idle excess reserves. There is a credit crunch, as banks with insufficient capital do not want to lend to risky borrowers, while slow growth and high levels of household debt have also depressed credit demand. As a result, all of this excess liquidity is flowing to the financial sector rather than the real economy. Nearzero policy rates encourage “carry trades” – debt-financed investment in higher-yielding risky assets such as longer-term government and private bonds, equities, commodities and currencies of countries with high interest rates. The result has been frothy financial markets that could eventually turn bubbly. For now, policymakers in countries with frothy credit, equity, and housing markets have avoided raising policy rates, given slow economic growth. But it is still too early to tell whether the macro-pru policies on which they are relying will ensure financial stability. If not, policymakers will eventually face an ugly trade-off: kill the recovery to avoid risky bubbles, or go for growth at the risk of fuelling the next financial crisis. For now, with asset prices continuing to rise, many economies may have had as much soup as they can stand. http://www.project-syndicate.org/commentary/nouriel-roubini-on-the-ugly-policy-tradeoff-facing-advanced-country-centralbankers#5IAY7vdLiPPoAtLb.99


COMPANIES Blackberry Ltd.

BlackBerry Ltd. executives flew to California to meet with Facebook Inc. last week to gauge its interest in a potential bid for the struggling smartphone-maker, according to people familiar with the matter. It remains unclear whether Facebook is interested in placing a bid. The meeting reignited speculation that Facebook is building its own smartphone. As the social network has increasingly catered to mobile users in recent years, with nearly half of its sales generated from ads shown on wireless devices, it has also grown dependent on hardware makers such as Apple Inc. and Samsung Electronics Co. to distribute its software and collect user data. Buying BlackBerry would let Facebook cut out these partners and sell a line of its own phones directly to its most rabid users. Still, Facebook CEO Mark Zuckerberg has publicly denied wanting to build his own phone, calling this the "wrong strategy." As an alternative, the company has pursued deeper partnerships with manufacturers on mobile software called Facebook Home. Any potential BlackBerry bidder would have a number of assets to look over, though the value of each asset is up for debate .BlackBerry is sitting on about $2.6 billion in cash and has no debt, though that cash pile is starting to erode as the company deals with weak phone sales, inventory pile up and layoffs. The most attractive piece for a company like Facebook will most likely be BlackBerry's patents, which consist of security network technology and smartphone component patents, among others, and which analysts estimate to be worth between $1 and $3 billion. And for a company looking to get a jump-start in the smartphone game, BlackBerry still has around 70 million subscribers around the world (though BlackBerry no longer reports that figure, which is likely smaller now). And BlackBerry is seeing renewed interest in its BlackBerry Messenger tool, which might interest a potential buyer. The company announced Tuesday that there are now 20 million iPhone and Android users using BBM, and more than 80 million total monthly active users. Last month BlackBerry struck a preliminary deal to go private with Canadian insurer Fairfax Financial Holdings Ltd. for $4.7 billion, or $9 a share. The due diligence period for that deal ends next week, but BlackBerry and its advisers remain open to interest from other potential bidders. The deadline for other bids is Monday. BlackBerry does have other players circling. Earlier this month The Wall Street Journal reported that Chinese computer giant Lenovo Group Ltd. was interested in a possible bid. And BlackBerry has signed a nondisclosure agreement with distressed asset specialists Cerberus Captial Management LP, people familiar with the matter have said. BlackBerry's co-founders, Mike Lazaridis and Doug Fregin are also weighing a bid, according to a Securities and Exchange Commission filing earlier this month. After years of seeing its share of the smartphone market erode, BlackBerry in August announced a wide-ranging strategic review that essentially put the company up for sale. The company wrote down nearly $1 billion in unsold smartphone inventory, and is in the process of cutting 40% of its staff.


THE U.S GOVERNMENT SHUTDOWN WHAT HAPPENED? From October 1 through 16, 2013, the United States federal government entered a shutdown and curtailed most routine operations after Congress failed to enact legislation appropriating funds for fiscal year 2014, or a continuing resolution for the interim authorization of appropriations for fiscal year 2014. Regular government operations resumed October 17 after an interim appropriations bill was signed into law. During the shutdown, approximately 800,000 federal employees were indefinitely furloughed, and another 1.3 million were required to report to work without known payment dates. Only those government services deemed "excepted" under the Antideficiency Act were continued; and only those employees deemed "excepted” continued to report to work. The previous U.S. federal government shutdown was in 1995–96. The 16-day-long shutdown of October 2013 was the third-longest government shutdown in U.S. history, after the 18-day shutdown in 1978 and the 21-day 1995–96 shutdown.

WHY IT HAPPENED? A "funding gap" was created when the two chambers of Congress failed to agree to an appropriations continuing resolution. The Republican-led House of Representatives, in part pressured by conservative senators such as Ted Cruz and conservative groups such as Heritage Action, offered several continuing resolutions with language delaying or defunding the Patient Protection and Affordable Care Act (commonly known as "Obamacare"). The Democratic-led Senate passed several amended continuing resolutions for maintaining funding at then-current sequestration levels with no additional conditions. Political fights over this and other issues between the House on one side and President Barack Obama and the Senate on the other led to a budget impasse, which threatened massive disruption. The deadlock centered on the Continuing Appropriations Resolution, 2014, which was passed by the House of Representatives on September 20, 2013.The Senate stripped the bill of the measures related to the Affordable Care Act, and passed it in revised form on September 27, 2013.The House reinstated the Senate-removed measures, and passed it again in the early morning hours on September 29.The Senate declined to pass the bill with measures to delay the Affordable Care Act, and the two legislative houses did not develop a compromise bill by the end of September 30, 2013, causing the federal government to shut down due to a lack of appropriated funds at the start of the new 2014 federal fiscal year. HISTORY AND OTHER SUCH SHUTDOWNS The United States Constitution requires government spending be approved in bills passed by the United States Congress. Some government functions such as the Federal Reserve System are completely selffunded. Others, like Social Security and Medicare are partially self-funded but may be subject to administrative shutdowns and failures if the government fails to meet its financial obligations. Some programs are fully or partially funded for multiple years and some are funded every year. The legislation that sets government spending is called appropriations legislation. Since the 1990s, Congress has often failed to pass the twelve to thirteen appropriation bills that set government-wide spending, often passing "Continuing resolutions (CR)" to extend existing spending law at or near current levels, and "omnibus" bills that combine many appropriations bills into one. Budget negotiations can be difficult when the president is not of the party that controls one or both houses of Congress. The last budget was passed on April 29, 2009. If the Congress fails to pass budgetary approval by the end of the fiscal year, a "funding gap" results. The Antideficiency Act requires government functions not excepted by the Act to begin shutting down immediately so that the Constitutional authority of Congress over spending is not breached. The Office of Management and Budget provides agencies with annual instructions on how to prepare for and operate during a funding gap according to the Antideficiency Act. Technically, seventeen federal government shutdowns precede the October 2013 shutdown. Most were partial or for single days or weekends and involved few if any furloughs. The first was in 1976. Only the shutdowns of 1995–96 involved the whole federal government and were longer than four days.


IMPLICATIONS

The White House released some numbers on the economic impact of the October government shutdown, and they're bleak. While the markets have made gains and the unemployment rate continues to drop, Obama administration officials warned that the economic impact of the government shutdown that lasted for the first two weeks of October would be severe. "The report makes clear that the costs and impacts of the shutdown were significant and widespread, and demonstrates why this type of self-inflicted wound should not occur again," Sylvia Mathews Burwell, the director of the Office of Management and Budget, said in a statement.

Here are some of those numbers: Federal employees were furloughed for 6.6 million combined days—the most of any previous shutdown. At its height, 850,000 people were furloughed per day. The federal government paid $2 billion to employees who were furloughed and not working during that time. The Council of Economic Advisers estimates that the shutdown and debt crisis resulted in the creation of 120,000 fewer private-sector jobs in the first two weeks of October. Almost $4 billion in tax refunds were delayed. The Bureau of Land Management was unable to process about 200 applications for oil-drilling permits. Two million liters of U.S. beer, wine, and distilled spirits were not shipped during that time because the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau could not issue export certificates. $500 million was lost in visitor spending in national parks and monuments. The Small Business Administration couldn't process 700 applications for $140 million of small-business loans. The National Park Service lost $7 million in revenue. The Smithsonian Institution lost $4 million in revenue. The Internal Revenue Service lost an estimated $2 billion in collections. Burwell said in a statement that the shutdown could have long-term effects on the federal government. The Washington Metropolitan Area Transit Authority released some figures on how the shutdown affected the District's transportation system. A $5.5 million loss in passenger fairs and parking revenue. 1.7 million fewer passenger trips during that time.


ACADEMIC EXPERT OPINIONS ON THE SHUTDOWN

Professor David Schultz of Hamline University is a Political Science expert and professor at Minnesota schools of law: "Were the debt limit not raised on time it would force the US to make a choice–pay foreign bondholders or Grandma’s Social Security check. Failing to do either would be financial or political suicide but my guess is that Grandma loses. It will not come to that. Congress and the president will do what they have done so well in the past–kick the political can down the road a few months, extending the debt limit and funding the government until right before the 2014 elections. And then we will again ask how we got where we are." So what if Congress and the president cannot reach an agreement to end the partial government shutdown or worse, extend the debt limit? Is the country hopelessly stuck in the middle of a political dispute? Not necessarily. Ignored in the entire dispute is one obvious resolution – the Supreme Court. While some may argue that budget and finance matters are no place for the courts to venture, the partial governmental shutdown and the pending debt limit extension both represent controversies that have a legal or constitutional basis that can be addressed by the courts.* Professor John C. Edmunds is an expert in International Economics. He is a professor at Babson College: "U.S. Treasury bonds are used to collateralize transactions in some little-known corners of the finance world, for example letters of credit. Those guarantee payment in remote locations. So ships full of cargo can sail. If Treasury bonds are unreliable, the letters of credit might not work properly and goods would not move." Professor Sean Q. Kelly of California State University, also an expert in Political Science states: "No one should underestimate the possibility that the debt ceiling will not be raised, and that the country will default on its debt obligations. The Republican Party is so hopelessly internally fractured at this point that no single policy alternative can gain enough support to produce a partisan majority on the House floor. This crisis may come down to a choice for John Boehner: 1) sacrifice his Speakership—by moving a debt limit increase that fails to attract a majority of Republicans, passing with Democratic support and ending in an anti-Boehner revolt within the GOP—or, 2) sacrifice the country by allowing the debt ceiling to shatter, causing the country to stop paying its bills."


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SOFIA TIMES Issue 5