i thought we might want to start discussing the debt ceiling issue, and what might happen in the absence of an agreement.
fwiw:
i think what's going on in minnesota is instructive. the state gov't is shut down for the most part, except for emergency services, and looks to stay that way for some time. do you think this bothers the republican legislators? or do they think, perhaps, that this is what they'd like to make permanent.
i think there's a good chance that there will not be an agreement in washington and that there will be a government shut-down. eric cantor walked out on biden because, as the tea party darling, and as only the 2nd in command of the republican caucus, he could not and would not agree to any revenue increases. by doing so, he also set up boehner to be the one to "give in" on revenues, thus enhancing his own chances of displacing boehner as leader/speaker. also, we can see cantor and biden bowing out to let the principles - obama and boehner- cut the deal.
obama has been very weak in all his prior negotiations with the republicans, and it is possible that he will just give in to them. otoh, he knows that clinton "won" in public opinion when gingrich shut down the government. also, with 2012 coming into view, he may feel that he has to re-establish his bona fides with the democratic activist base. so it is possible he'll hold out tor a revenue increase.
boehner, otoh, may feel that he can't cross the line in the sand for fear of alienating the tea-party/right-wing base - this both protects his personal position as house republican leader and re-inforces the ideological theme for next year's election.
how do you think the markets would react to a shut-down and default? one of the ratings services [moody's?] said they'd immediately downgrade u.s. debt to d. there are a lot of funds with mandates requiring that they sell their holdings on such a downgrade. so that would push rates up sharply. otoh, there are pension funds with required duration matching which would probably be happy to buy treasuries at higher rates of return. also, there will be a shortage of treasury paper in such a scenario. those factors would tend to support bonds and keep rates low. i think the selling would outweigh the buying overall, and rates go up. otoh [are we up to 3 hands?], the fed might feel compelled to enter the market and keep rates contained. qe3 might be launched on a default.
i think gold would benefit as more governmental dysfunction points to systemic instability. i think equities would sell-off, especially if medium to long-term rates jump. what happens to the dollar and bonds longer-term might be interesting as e.g. the chinese and the saudis and other big holders of dollars and bonds think through what's happening in the american political system.
fwiw:
i think what's going on in minnesota is instructive. the state gov't is shut down for the most part, except for emergency services, and looks to stay that way for some time. do you think this bothers the republican legislators? or do they think, perhaps, that this is what they'd like to make permanent.
i think there's a good chance that there will not be an agreement in washington and that there will be a government shut-down. eric cantor walked out on biden because, as the tea party darling, and as only the 2nd in command of the republican caucus, he could not and would not agree to any revenue increases. by doing so, he also set up boehner to be the one to "give in" on revenues, thus enhancing his own chances of displacing boehner as leader/speaker. also, we can see cantor and biden bowing out to let the principles - obama and boehner- cut the deal.
obama has been very weak in all his prior negotiations with the republicans, and it is possible that he will just give in to them. otoh, he knows that clinton "won" in public opinion when gingrich shut down the government. also, with 2012 coming into view, he may feel that he has to re-establish his bona fides with the democratic activist base. so it is possible he'll hold out tor a revenue increase.
boehner, otoh, may feel that he can't cross the line in the sand for fear of alienating the tea-party/right-wing base - this both protects his personal position as house republican leader and re-inforces the ideological theme for next year's election.
how do you think the markets would react to a shut-down and default? one of the ratings services [moody's?] said they'd immediately downgrade u.s. debt to d. there are a lot of funds with mandates requiring that they sell their holdings on such a downgrade. so that would push rates up sharply. otoh, there are pension funds with required duration matching which would probably be happy to buy treasuries at higher rates of return. also, there will be a shortage of treasury paper in such a scenario. those factors would tend to support bonds and keep rates low. i think the selling would outweigh the buying overall, and rates go up. otoh [are we up to 3 hands?], the fed might feel compelled to enter the market and keep rates contained. qe3 might be launched on a default.
i think gold would benefit as more governmental dysfunction points to systemic instability. i think equities would sell-off, especially if medium to long-term rates jump. what happens to the dollar and bonds longer-term might be interesting as e.g. the chinese and the saudis and other big holders of dollars and bonds think through what's happening in the american political system.
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