Saturday, April 9, 2011

Shutdown Narrowly Averted

With 90 minutes left on the clock, the Obama Administration was finally able to reach an agreement on a budget plan for 2011. This was after two stopgap measures were implemented to buy time. The specter of a government shutdown was looming large with the media talking about the possible implications of a shutdown.

The way I saw it in the days leading to the decisive moment was that a government shutdown would either be narrowly averted or if a shutdown did occur, that it would be short lived. First, it was about the size of the budget cuts, as the GOP wanted larget cuts than the Democrats. When we got to the final days and hours leading to the decisive moment, it was about Planned Parenthood and the EPA, which the GOP wanted to defund both, but the Democrats fought valiantly to defend both.

From a socionomic perspective, this was predictable. Consider that in bear markets, politics gets more polarized with an "us" vs "them" mentality, but in bull markets, politics moves towards the center and there is cooperation and the willingness to compromise. Consider that from 1942 - 1966, which is identified as Cycle wave III, both Democrats and Republicans were helping out in paying off the national debt and consensus was frequent. In contrast, politics has been much more polarized with the GOP going to the extreme right as the bear market continues its course.

We have been in a Primary degree bear market rally for the last 2 years. In politics, this has been reflected by a reluctant willingness to compromise, especially on the Democrat end of the equation. This was why that any government shutdown that happens would have been a short-lived one.

Here's the chart of the DJIA for the last 12 months. I have marked the spot where the shutdown was narrowly averted.

Social mood plays a strong role in politics. One would expect that in a large degree bear market rally, that the willingness to compromise and move to the center to get things done would start to take place by the late stages of the rally.

The bear market rally, Primary wave [2], is very close to completion. Even now, Minor wave 5 is in progress, suggesting that the peak is very close at hand. If social mood plays a strong role in politics, then what happens when Primary wave [3] gets under way?

Around February 2012, the Obama Administration will again have to put together a fiscal budget.

Here's the chart of the DJIA with the time marked for when the federal government would work on the budget for FY 2012 - 2013.

When it comes time for the Obama Administration to put together an annual fiscal budget for FY 2012 - 2013, Primary wave [3] will already be under way. The GOP will still have control over the House. The implication here is that politics will be even more polarized in 2012 than it is now with the resumption of the larger bear market trend in force. I predict a government shutdown next year, lasting several months, with broad implications for the economy.

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