Look Out Below, Debt Ceiling Version
By Barry Ritholtz - July 25th, 2011, 7:25AM
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Stocks down, gold up, as the world’s largest economy — home to the world’s most dysfunctional legislative body – begins an eight day countdown to technically running out of money. European stocks fell 0.5%, after no debt limit deal was reached over the weekend.
The brinksmanship leaves markets waiting until the 11th or even 12th hour for a resolution
The question I have is not whether a technical default will damage the reputation and creditworthiness of the United States; Rather, its whether the political theater of the absurd we have all been suffering through has already damaged America’s reputation?
Alas, I fear it has.
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July 25th, 2011 at 7:47 am
Embarrassing!
July 25th, 2011 at 7:53 am
Hyperbolic. Surely, ours is not worse than Iraq’s
July 25th, 2011 at 7:56 am
It’s truly a commentary on how out of touch the political class has become. Playing chicken with the stability of the world’s financial system in order to jockey for position in the 2012 election is just pathetic. Obama’s call for a debt ceiling “cover” that will expire after the next election is the reason he will hopefully become the Jimmy Carter of the 21st century.
Unless there is some bipartisan breakthrough that makes substantive changes to the structure of our fiscal policy, I’m afraid we are doomed to continue to put wallpaper over crumbling plaster and try to convince the world we’re not going to be in the same shoes as the PIIGs in 3-5 years.
July 25th, 2011 at 8:03 am
I wonder if a meaningful deal that would actually cut spending and raise revenues would be good for the stock market. Wouldn’t a genuine effort by the U.S. government to lower is debt burden be supportive of the dollar?
July 25th, 2011 at 8:04 am
I’ve been cautious believing default to be a possibility. I guess “they” will probably do something, as you say at the 11th or 12th hour, but it still ‘feels’ like there is a possibility that they won’t. And if they don’t, then I guess it’s rationing on who gets paid?
July 25th, 2011 at 8:11 am
Certainly it has. Our political “leadership” has failed us — a pox on both sides of the aisle! The question is — as the election gets closer, will we look for viable alternatives, or revert to our political instincts? (assuming there’s no systemic failure before Nov ’12)
July 25th, 2011 at 8:12 am
Bolivian parliament, representin’:
http://www.youtube.com/watch?v=LjMeQoIq36c&feature=related
July 25th, 2011 at 8:12 am
Anyone still drinking America’s reputation Kool-Aid isn’t going to let this relatively minor bump dissuade them from their delusions.
July 25th, 2011 at 8:23 am
Transor Z …. the Koreans are way better than the Bolivianos. Lotsa women in the Korean Parliament …. CAT FIGHT!!!! http://tinyurl.com/njskt2
July 25th, 2011 at 8:23 am
What I fear is that the last minute deal will be one of austerity, that’s what the Republicans are aiming for.
What a clusterfuck
July 25th, 2011 at 8:24 am
BR opined:
The brinksmanship leaves markets waiting until the 11th or even 12th hour for a resolution … Rather, its whether the political theater of the absurd we have all been suffering through has already damaged America’s reputation?
reply:
———-
While, on one hand, I have an excellent record about being 100% wrong about some things involving instant analysis (either I’m too trusting or not clued in enough to understand the fix was in), in this case I truly believe that the Republicans will not give into anything at the 11th hour. Obama might pussy out to extortion just to avoid default. The Republicans really don’t care about default. They want to remake the US into their playground and total anarchy will be a tool of choice. Their need to be reelected might be the only thing that puts a limit on their gall and ambition.
I think default is part of the plan and has been from the start. While the Democrats never saw a social need they didn’t want to spend too much money on, The Republicans just want power and default is an intentional tool to achieve that end. What is really happening is a coup motivated by fear. Default is certain and the only solution permitted.
July 25th, 2011 at 8:27 am
The news reports I’ve read say both sides are pressured from their power base supporters (read big donors) to hold the line in negotiations. The politicians in turn, are all concerned about angling to benefit from this so their reelection chances ( in their minds) won’t be hurt. The politicians are more concerned with protecting their big donors and trying to make the other side look bad, for the voters who are on the fence, than actually governing. More and more, the only solution long term is going to have to be radical campaign reform, so governing is the primary objective again.
July 25th, 2011 at 8:37 am
derekce Says: “More and more, the only solution long term is going to have to be radical campaign reform, so governing is the primary objective again.”
Again?
July 25th, 2011 at 8:37 am
When the likes of Bachmann and Palin are treated even semi-seriously that ship sailed a long time ago ;)
July 25th, 2011 at 8:39 am
What I fear is the “emergency” will provide cover for a very, very bad deal for the American people with minimal public disclosure and debate prior to passage – similar to TARP and Paulson’s Sunday Night specials.
Act in haste, regret at your leisure.
Wonder what specials Ben Shalom is cooking up under this cover.
PS I think the decline in European stocks is due mostly to their local problems
July 25th, 2011 at 8:40 am
After being told the sky was falling if the banks didn’t get bailed out – and then seeing how that played out to the advantage of Wall Street bankers – it isn’t surprising that the American people could not care less.
Default / no default, the rich will be that much richer and the rest of us are still screwed.
July 25th, 2011 at 8:48 am
Too many “LOB” posts lately, Barry.
With the prevalence of “Breaking News Alerts” on cable TV, I’d prefer to reserve the Code Reds for true white knuckle openings.
July 25th, 2011 at 8:50 am
America has damaged it’s reputation repeatedly over the past 50 years, or so. That’s what happens when might = right. Fear of our government’s power and reach (even felt by the citizenry), should never be mistaken as respect for its principles.
We have a reputation for thuggery. We’re already whupping-up on some of the less able to defend themselves (not that they weren’t stupid enough to taunt us, but I suspect we all question the justification for these wars), now, we’re openly acting crazy wit’ da money.
Bad PR. Bad business.
July 25th, 2011 at 8:52 am
“What I fear is the “emergency” will provide cover for a very, very bad deal for the American people with minimal public disclosure and debate prior to passage – similar to TARP and Paulson’s Sunday Night specials.”
QFT – this is ripe for another “we have to pass the bill before you can read it” type of moment. Theres a cluster F waiting to drive in off the 495 loop and head straight for the Capitol building.
July 25th, 2011 at 8:59 am
While I would love to see some punches thrown on the floor of the House (better yet, the Senate), I don’t think the feelings are as genuine as they are in Bolivia and Korea (thanks Transor Z and Jimin Panama), so we probably won’t see anything that entertaining. The parties are on the same side. It’s them vs. us.
The stock market doesn’t look worried, so the Wall Street gang has already approved the final “agreement.”
July 25th, 2011 at 9:00 am
Totally agree with @Potomac.
LOB should be reserved only for 3% or greater declines.
July 25th, 2011 at 9:02 am
So I was wondering to what extent members of congress could feel comfortable taking an extreme position without reelection consequences and came across this very interesting little paper out of Mayor Bloomberg’s office:
Competitiveness of Legislative Elections in the United States: Impact of Redistricting Reform and Nonpartisan Elections
http://www.nyc.gov/html/om/pdf/2010/pr507-10_report.pdf
Apparently the average margin of victory in U.S. House elections in 2010 was 27%. About half, 49%, of congressional elections were either uncontested or won by >30%.
The paper suggests that the consequences of state voting district gerrymandering is extreme and highly detrimental to democratic institutions. I’m wondering how this combines with campaign finance issues to create a polarized mentality.
July 25th, 2011 at 9:02 am
I think our reputation has been suspect for a long time. Wasn’t it Churchill who said that America always does the right thing, but only after we have exhausted every other option? Perhaps the burden of absurdity comes with the prize of innovation. Even so, its hard to fathom that we’ve elected such moronic simpletons to national public office and they are playing Russian Roulette with the economy AND those who elected them are cheering them on. Interesting times indeed.
July 25th, 2011 at 9:09 am
The reputation of America’s politics started down the tubes years ago… when big money found that it could make political promises (never acted on or delivered) to move toward a religious-fundamentalist based ideology and thereby get ignorant people to vote against their own interests. That was a stealth offensive that put the ‘nutters’ in Congress who see economics as some kind of holy war based on moral principles.
GWB is the textbook example of a man getting in to office on the strength of that religious vote and then giving away the country to wealthy interests.
And here we are today.
July 25th, 2011 at 9:09 am
A dysfuntional legislature, no question, but Dear Leader has a share of the blamer in all of this, too. More, really, since he’s never even submitted a budget for consideration.
Maybe if he actually had had some executive experience before being elected to run one of the most complex organizations on the planet, we might be seeing some leadership here. Oh wait, sorry, I guess we’re not supposed to point out such inconvenient facts. Well then, sure Barry, righto, it’s entirely the legislature’s fault. Probably in particular those evil Republicans, huh?
July 25th, 2011 at 9:12 am
For every buyer there is a seller I guess. I’ll play the buyer and look at the bright side of this:
It is actually good news that the brinkmanship is getting tougher every time the US tries to up its credit card limit. This is showing me that someone’s feet are to the fire and people are becoming more concerned. I hope the brinkmanship keeps getting cranked every time the debt ceiling is debated until one day the ceiling holds and they actually pull their spending back from the brink and down to reality where the rest of us live. It may take a few million more troches and pitchforks but let us hope the voters are actually hiring and inspiring enough of their public servants to actually do the job they were sent to Washington to do.
I’d rather have them all out brawling than sitting quietly and agreeing to this treasonous act. It shows there is some fear and care still left in lady liberty. If the founders were in office they’d probably be arrested for fighting this mess with fists, bloodshed and duelling pistols, so brinkmanship is at least an effort from this generation of unreasonable facsimilies
July 25th, 2011 at 9:20 am
I do not think voters are “cheering them (budgetary extremists in Congress) on” (@ t1dude) since polls are showing scant support for the Tea Party / ‘starve the beast’ agenda.
It is time for Boehner to show leadership by giving straight talk to the Tea Partiers. The political reality is that the great majority of voters support a sensible compromise.
July 25th, 2011 at 9:26 am
” Supposed you were and idiot, Suppose you are a member of Congress, But I repeat myself.”
A great quote for our present situation!!!!!!
July 25th, 2011 at 9:31 am
Agree on the wall street response to this whole ordeal: Seems to me that they already know that this will get done, in some form that favors big Finance/Corporation. Otherwise, we’d be 10% or more down over the past 6 weeks. Plus, a post that I read a couple weeks ago about “Crisis Fatigue”, which might actually be in place.
Rest assured if this thing gets dragged out longer, and all the big boys get back from the Hamptons in late August, we will see more market capitulation, I believe.
These summer traders don’t have the authority to pull too hard on the lever.
July 25th, 2011 at 9:36 am
The US has been picking up the tab for Viet, Serbia,Iraq I, Afgan, Iraq II, and misc dustups in forgettable 3rd world shitholes with funds that were supposed to be dedicated to SocSec and medicare. Now the repubs are referring to these prepaids as “entitlements” that should be cut to continue paying for “the long war”.
The seeds of this crisis were sown when Bush started two off budget wars while cutting taxes for the rich and famous. O’bama is continuing Bush term III by slowly winding down the Bush wars, continuing the Bush tax cuts (!!!!) and reappointing Bernanke and appointing Paulson lite (Turbo Tim). Maybe O’B is a stealth R like Joe LIEberman.
July 25th, 2011 at 9:36 am
The USD and industrial metals suggest this gap down open is nothing but noise and should be filled, likely sooner rather than later.
July 25th, 2011 at 9:58 am
Oh, I wouldn’t worry too much.
Our reputation is already pretty bad.
July 25th, 2011 at 10:00 am
Maybe I’m too much of an idealist but I just emailed my cong and sens (NJ) simply telling them I’ll never vote for them again if they vote for “entitlement” cuts (which are actually dedicated taxes, prepaid insurance that was diverted to fund undeclared, unconstitutional wars). My Cong Chris Smith is a pretty far right Repub but his district includes a lot of middle class, blue collarish retirees in Ocean county. I’m interested to see his response. There was a message sent to R pols when that conservative district outside Buffalo went blue.
July 25th, 2011 at 10:05 am
Niskyboy:
This isn’t about the budget. it’s about the debt ceiling.
Executive Experience? I remember when the reason given for electing Bush (and Bushco, more to the point, as Bush was clearly a failure as an executive), was that they had corporate management experience. They were “the businessmen.” They knew how to manage a country. Turns out, they did exactly what other executives do: Looted the enterprise, and left the shareholders (us), holding the bag of debt.
Obama is far to the right of center, and he’s made matters worse by doubling down on Bush’s policies, but it’s not his job to run the purse strings. This is theater.
Both sides are clearly corporatist whores, but the Republicans — who have surrounded themselves by, and become beholden to, the far right lunatic fringe — are bringing the full crazy out on the world stage.
“Do what I say, or I’ll shoot our collective nuts off!”
Nice.
July 25th, 2011 at 10:28 am
Off topic here, but there is a bright side to this brinksmanship. With the drop-off that followed the market’s opening, I was able to buy some calls at a cheaper price than I’d been planning. Gotta love that volatility!
We all know there’ll be an agreement eventually. Meanwhile enjoy the show. Who’s more reputable than we are, anyway, besides countries too small too matter, like Luxembourg? Maybe England or France? That’s a rib-tickler, for sure. How about Germany? Nah, they’re afraid of looking too strong anymore. China? Do you really believe their numbers? OK then, Brazil. Wait, don’t they still condone slavery there? No? Aren’t the residents of their shantytowns economic vassals? How is that reputable? What about any state in the Middle East? Only if we put aside the quaint notions of stability, justice and rules which are meant to apply to everyone equally.
So it’s us and nobody else, baby, no matter the sturm und drang over negotiations. Again, enjoy the show. Maybe you can make some money along the way, too, as I hope to do.
July 25th, 2011 at 10:33 am
The market has been remarkably certain in its belief that this debt selling thing will go to the brink, but not over the edge. Do they understand that the tea partiers are about as rational as Anders Breivik? Same underlying insanity of “in order to save, we must massacre and destroy”. Same idea that “society will be totally destroyed if I don’t do this destructive thing”, so they think about the destruction they impose as a “hail Mary pass”. Everybody seems to be betting that there will be enough non-insane republicans and not-pissed off democrats to pass a plan – and they are more likely to be right than wrong. But remember the bail-out of banks was rejected before it was passed. Even worse is that the Armageddon in this case is not a quick and visible one, so the idiots will end up concluding that “see it wasn’t so bad after all”.
July 25th, 2011 at 11:16 am
from one Greg to another (vigilant and watchful – huh – for who)
Barack already made history .. go ahead and seal the worlds faith in ourUSApopulation .. be the country that reinstalled GWB and not BHO .. who in their right mind would want the job anyway (really) .. an upside – secret service jobs – another POTUS to watchover – GOP can’t wait to grab the gold-ring – there’s no time to complete the heist of capital from labor
July 25th, 2011 at 1:56 pm
Ok, Washington is doing a horrific job:
1. the well-described “theater of the absurd” budget “negotiations”
2. the 14B debt overhang
3. “regulatory agencies” packed with industry insiders
4. high, sustained unemployment and stalled/non-existent job creation
What are we supposed to do? Both parties are co-conspirators in this mess. 3rd parties aren’t viable. I for one don’t want to move to another country.
I guess we just have to buck up.
July 25th, 2011 at 2:18 pm
@Pointfinder;
Vote for a liberal democrat. The only people in Congress who have put together a plan that would help regular people are those in the progressive caucus.
http://grijalva.house.gov/uploads/CPC.Budget.112th.Memo.pdf
July 25th, 2011 at 3:12 pm
Jim Rogers: The U.S. Already Has Lost AAA Rating
Has the U.S. already lost its AAA credit rating?
With debt ceiling talks ground to a halt, Kelly Evans put that question to famed investor Jim Rogers. His answer? An emphatic yes.
“Everyone already knows that the U.S. has lost its AAA status,” Rogers said. “Anyone who knows what is going on, already knows that the U.S. is now the biggest debtor nation in the history of the world. It’s only S&P and Moody’s that haven’t figured out what is going on. The investment world knows that the U.S. is not AAA.”
Rogers also called the current debt negotiations in Washington a political “charade.”
“I don’t expect them to have real spending cuts. They have been talking about this for 40 years, talking about how they are going to solve the problem of the deficit. Remember the Grace Commission? Remember the Gramm-Rudman act? The Gramm-Rudman act said we couldn’t have deficit spending 25 years ago. They forgot about that.”
July 25th, 2011 at 4:23 pm
My wife and I both wrote, Todd Young, from the 8th district in Indiana and a new Tea Party congressman urging him to support a “balanced deal” that would both cut spending and raise some revenues as well. I thought I’d share this particular sentence which kind of sums up what we (and Boehner) are facing in an attempt to avoid default:
Yes, < regulation, because we all know that's really the primary source of our financial crisis. He needs to read Barry's book or have it read to him, depending on his level of literacy.
July 25th, 2011 at 4:40 pm
Yes, our national reputation has already been damaged. The “children” have now morphed into “emotionally confused suburban, middle-class teenagers.”
“The thugs challenge Jim to a “Chickie Run” with Buzz, racing stolen cars towards an abyss. The one who first jumps out of the car loses and is deemed a “chicken” (coward). The “game” ends in tragedy for Buzz when a strap on the sleeve of his leather jacket becomes looped over a handle on the car door, preventing him from jumping out before the car goes over the cliff.”
http://en.wikipedia.org/wiki/Rebel_Without_a_Cause
This morning, Senator Bob Corker stated: “I would sort of chill out and not worry so much anymore about the debt ceiling issue.”
chill out?
Obviously, in speaking the “language of democracy,” Corker is a juvenile. The Americans of yesteryear were far more eloquent:
“So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.”
Franklin D. Roosevelt, (the proverbial adult in the room) – First Inaugural Address (1933)
July 25th, 2011 at 6:19 pm
@diogeron;
I guess that Todd Young is a moron, because we all know that only a moron would suggest that regulation was the primary source of our financial crisis. If he had said “lack of financial regulation” he would have gotten a low B, for at least picking a contributing factor.
July 25th, 2011 at 10:09 pm
I want to see Boehner’s household budget, minus his income from sucking on the government teat. Very soon now.