….financial markets are finally acting as if a U.S. default is a genuine possibility. Asian markets dropped 1 percent Sunday night, and the Dow struggled to catch up to a similar drop at the opening on Monday—on what should be a positive day, given the good news coming out of Greece, the Daily Beast writes. 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 been only by a thread.
Yes, a small window of time remains. Aug. 2 is not—as is widely being reported—the day of default. In that respect, the Republicans are correct. To maintain the full faith and credit of the United States, the White House will surely prioritize interest payments once the debt ceiling is reached. There are more than sufficient tax revenues to make those payments (which amount to about $25 billion a month), but not to keep the rest of the government functional and also pay everything from military salaries to Social Security.
But Republicans also grievously underestimate what will unfold, both short and long term, in financial land if they push this anywhere close to Aug. 2. We’re already seeing, as of this weekend, cracks in the global consensus that even a troubled U.S. can ultimately be counted on to “do what is right.” The U.K. business secretary referred to the Tea Party radicals advocating no increase in new debt as “nutters” who threaten the global economy. The Chinese have been notably quiet in public, but are apparently quite concerned behind the scenes that their trillion dollars (give or take) in U.S. Treasuries might lose value should the U.S face a debt downgrade from the ratings agencies….
Don't stop now. Find out more at http://www.thedailybeast.com/articles/2011/07/25/debt-limit-debate-wall-street-might-freak-out-today.html
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