You really don’t think the markets would react negatively, at least in the short-term, to 15 million people either losing their jobs (Fed workers) or not getting paid for an unspecified period of time?
The short-term effects would still be very current in Nov. 2012.
Over time, yeah, you’re right, but short term?? Chaos.
Absolutely not! The markets would make a direct correlation -and correctly so- that the loss of that much of government bureaucracy will reduce government oversight, free up economic activity while also providing additional capital available for investing.
It would be a sharp re-bound because the stock market and bond market would jump immediately. This would make substantial funds available to corporations to take advantage of the now freed-up marketplace to expand production and take market share.
It’s how free markets operate. When we return to one the economy will recover very rapidly.