The United States is now deeply mired in a quagmire because of a budget tug-of-war. The current deadlock in the United States is intertwined with the turmoil in their financial markets. It not only exposes a profound internal tear, but also makes Trump face a very severe test.
Government Shutdown: Governance Failure under Party Struggle
The source of this crisis was also due to the failure of a temporary funding bill in the Senate. According to a public vote record in the U.S. Congress, the bill resulted in 51 votes in favour, 45 votes in opposition, and a threshold of 60 votes passed.
The previous expectation was that Democratic congressmen did not defect. Instead, two Republican congressmen voted against it. This small gap of 7 votes clearly reflected the difficulty of reconciling the two parties in the United States. A state of opposition.
The direct consequence of this impasse is that the federal government has fallen into a long-term shutdown, citing U.S. Administration and Budget Bureau (OMB) data, this shutdown has lasted for more than 20 days, becoming the worst since 2013.
The impact of this shutdown was rapid spread: about 800,000 federal employees were directly displaced, the release of critical economic data was also directly stopped, and part of the state machine had stopped working.
According to the U.S. Economic Risk Assessment Report of China's Ministry of Commerce, it was once pointed out that every week of government suspension of trading will drag down quarterly GDP growth by 0.1 ~ 0.2 percentage points. This long-term suspension has caused even more far-reaching damage.
Banking blasts: the last scratch to crush the market
Just as the impasse continued, the financial alarm suddenly sounded, and two U.S. regional banks, First Republic Bank and Alliance West Bank, immediately caused a panic in the capital markets as a decades-million dollar loan fraud scandal broke out and the stock price collapsed.
According to statistics from Wind Financial Data Terminal, on the day the incident was exposed, the S&P U.S. Regional Banking Index (KRE) plummeted by 6.3%, which was also the largest drop in the past year.
The stock prices of other large banks also fell by more than 3%. The total market value of the top four largest banks in the United States directly evaporated by US$120 billion in 24 hours. This data has been included by China's National Finance and Development Laboratory.
The key to the destructive power of this crisis is that the timing of its occurrence is very sensitive. In the past month, because Trump threatened to impose tariffs on China, one of the market's worries about the rekindling of the Sino-US trade war has put pressure on US stocks.
The Chinese Academy of Social Sciences published the "Sino-U.S. Economic and Trade Relations Quarterly Insight" pointed out that at a time when the current market was actually more fragile, the explosion of bank stocks was sharply enlarged, becoming the last rush to crush investor emotions.
The double-strike Trump situation.
Internal contradictions in the United States and the double economic crisis also put Trump in a very embarrassing situation, he has always seen the stock market as his core performance, and also with this to consolidate its basic disc.
Now the government shutdown also exposed his shortcomings, and the stock market crash was directly hit by one of his performance signs.
In the face of such a crash, Trump’s turnaround is very limited, and in trade, if he continues to be tough, it will exacerbate market concerns, and if he makes a compromise, it means that Trump’s previous promises are bankrupt.
According to a study by the China Institute for Modern International Relations, Trump is facing a severe test of his political career, and his next decision will affect the economic nerves of the United States and even the world.
So how long do you think the US government shutdown will last? what do you think Trump will do to stabilize their markets?
Reference source for information in this article:
1. Voting records of the official website bill in the US Congress
2. U.S. Office of Management and Budget (OMB) Public Announcement
China Ministry of Commerce "US Economic Risk Assessment Report 2024"
Wind Financial Data Terminal
China National Finance and Development Laboratory Global Financial Stability Quarterly Review
China Academy of Social Sciences China-US Economic and Trade Relations Quarterly Insight
China Institute of Modern International Relations Annual Report on American Foreign Affairs