The D.C. debt debacle has the markets poised to plunge today. Zachary Karabell on how it might require a Wall Street mini-crash to prompt action—and why the U.S. would lose anyway.
For the past few weeks as the debt-ceiling crisis has intensified in Washington, financial markets have been acting on the assumption that a deal will be done. This weekend, that changed.
House Majority Leader John Boehner’s decision Friday evening to walk away from the table (surely not coincidentally after the U.S. markets closed for the weekend) acted as the proverbial smelling salts that snapped global markets out of what had been a pleasant dream that all will be well before it’s too late. As the folly continued, slow-motion, across the weekend, governments and market makers throughout the world seemed finally to realize what some had long suspected: saner heads do not control Congress—and may not prevail.
Accordingly, financial markets are finally acting as if a U.S. default is a genuine possibility. Asian markets dropped 1 percent last night, and overnight futures markets indicate a similar hit in the U.S. today—on what should be a positive day, given the good news coming out of Greece. Gold has started to spike, a sure sign of a “fear trade.” And while bond markets have stayed contained, Mohamed El-Erian of the world’s largest bond manager PIMCO warned late Sunday that it’s only been by a thread.
Read more at http://www.thedailybeast.com/articles/2011/07/25/debt-limit-debate-wall-street-might-freak-out-today.html
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