While we will shortly present some practical perspectives on what the debt ceiling fiasco due in just about a month, means practically for the economy (think sequester, and another 1% cut to US GDP, which when added to the payroll tax cut expiration’s negative 1.5%-2% impact on 2013 GDP, and one wonders just how the US will avoid recession in 2013#, here is a must read perspective from Citigroup on how the markets may and likely will react to what is shaping up to be another “12:30th hour” #the New Normal version of the eleventh hour) debt ceiling resolution, which is now under a month away.

From Citi’s Steven Englander:

Debt ceiling — first complacency, then horror

Asset market markets are likely to ignore the debt ceiling till the last minute, or even later, and then react on panic if it gets breached. For FX this means that the risk on trade for EM and G10 risk-correlated currencies may have a month or six weeks to go before there is any indication that FX investors are even aware of what is going on in Washington.

The reason is that the past three fiscal driven sell-offs have had increasingly little market impact. The July 2011 debt ceiling crises + downgrade led to more than 15% drop in US equities (Figure 1, note that EUR was well north of 1.40 till late in August,

Continued:

via Citi On The Debt Ceiling: “First Complacency, Then Horror” | Zero Hedge.