US Debt Ceiling Talks Update: Brace For The Inevitable Evitable25 July, 2011, 10:50. Posted by Zarathustra
With a little more than one week, the calendar will turn to 2 August, when the United States will have exhausted all its authority to borrow should the debt ceiling not raised by then. Then the US government would be in a default (selective default? restrictive default? whatever).
This is silly, because the US government are more than able to honour all its obligation. What these politicians show is a potential unwillingness to honour the obligations, and it looks as if politicians would not understand the gravity of the situation until the financial market punished them. It was like the TARP, when Republicans reject the bill which triggered a massive sell-off in equities. Not until then the politicians got their acts together. It seems as though we may see this all over again, as Yves Smith puts it, get ready for TARP 2.0.
Yesterday, those politicians in Washington thought that they would have to come up with some deal before Asian markets open today. Now the Asian markets are opened, and they still have got no deal (because of a few rightwing nutters), and instead set a new deadline (i.e. one day after) for putting forward some proposals. These bunch of clowns are now holding the world economy hostage and playing with fire. The two parties, failed to reach any compromise, are now ridiculously coming up with plans on their own according to Reuters instead of sitting down and close the divide between them.
A deal looks increasingly unlikely, though Asian markets are not bothered much now. US Treasury yields are up a bit, and US dollar is down a bit, but not quite so dramatic as of yet, as though the markets are still betting on a last minute deal of some sort. Remember though, as the Congress needs time to draft the bill and to pass it, time is indeed running short. If they don’t come up with some concrete proposal within a day (or two at most) which has any reasonable probability of passing both the House and Senate and that the President will sign that, the United States may well get to 2 Aug without the debt ceiling raised.
What will happen? Some might be tempted to call that an Armageddon, though no one seriously know what exactly will happen.