Financial markets continued to sour on Thursday afternoon as traders tried to take shelter from the political trench warfare that is once again raging in Washington. It is now day three of the partial shutdown of the U.S. government and policymakers appear no closer to reaching an agreement on a stopgap funding measure that would turn the lights on and send 800,000 furloughed federal employees back to work, to say nothing of a plan to deal with the debt ceiling.
While the shutdown is unfortunate, it’s the possibility of default that really has economists and market participants concerned. Many observers feel that any damage done by the shutdown will ultimately be modest, but that a default could cause catastrophic harm. The million (billion? trillion?) dollar question is: are policymakers simply engaging in brinksmanship, or will the nation actually fall into disaster?
Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB), weighed in on Thursday. Speaking to CNBC, Buffett said that “We will go right up to the point of extreme idiocy, but we won’t cross it.”
Buffett’s position seems to be the consensus on both Wall Street and Main Street, but the folks on Capitol Hill are sure not making it easy. House Republicans, ostensibly whipped into action by a small, hyper-conservative faction within the party, continue to refuse to pass a clean continuing resolution, insisting that Democrats cede changes to (read: defund or delay) the Affordable Care Act.
Representative Jeb Hensarling (R-Tex.), Chairman of the House Financial Services Committee, has stated that a delay of the individual mandate requirement of the Affordable Care act is the “bare minimum” that the GOP should accept in turn for a continuing resolution.
Some optimism broke through the veil on Thursday afternoon following news that a bipartisan group of policymakers in the House have proposed a compromise that may gain traction. The deal would pass a continuing resolution as well as repeal a 2.3 percent tax on medical devices, but if hard-liners within the conservative party stand their ground this concession won’t be enough. It’s also unclear that Senate Democrats or President Barack Obama would agree to the measure.