but debt ceiling much scarier, really? really?

Discussion in 'Economics' started by S2007S, Dec 29, 2012.

  1. S2007S


    Come on this is a fucking joke, the debt ceiling being much scarier....

    Everyone knows they are going to raise it so the US doesnt risk going into default, what else better to do than keep raising it, its the same fucking nonsense every time we near the debt ceiling, there is ZERO talk on how to control the debt limit and how to control spending....why should there be if every time the nation comes close to the debt limit they just raise it a few trillion more!

    Wall Street Week Ahead: Cliff may be a fear, but debt ceiling much scarier
    ReutersReuters – 9 hours ago

    By Ryan Vlastelica, Edward Krudy and Doris Frankel

    (Reuters) - Investors fearing a stock market plunge - if the United States tumbles off the "fiscal cliff" next week - may want to relax.

    But they should be scared if a few weeks later, Washington fails to reach a deal to increase the nation's debt ceiling because that raises the threat of a default, another credit downgrade and a panic in the financial markets.

    Market strategists say that while falling off the cliff for any lengthy period - which would lead to automatic tax hikes and stiff cuts in government spending - would badly hurt both consumer and business confidence, it would take some time for the U.S. economy to slide into recession. In the meantime, there would be plenty of chances for lawmakers to make amends by reversing some of the effects.

    That has been reflected in a U.S. stock market that has still not shown signs of melting down. Instead, it has drifted lower and become more volatile.

    In some ways, that has let Washington off the hook. In the past, a plunge in stock prices forced the hand of Congress, such as in the middle of the financial crisis in 2008.

    "If this thing continues for a bit longer and the result is you get a U.S. debt downgrade ... the risk is not that you lose two-and-a-half percent, the risk is that you lose ten and a half," said Jonathan Golub, chief U.S. equity strategist at UBS Equity Research, in New York.

    U.S. Treasury Secretary Tim Geithner said this week that the United States will technically reach its debt limit at the end of the year.


    The White House has said it will not negotiate the debt ceiling as in 2011, when the fight over what was once a procedural matter preceded the first-ever downgrade of the U.S. credit rating. But it may be forced into such a battle again. A repeat of that war is most worrisome for markets.

    Markets posted several days of sharp losses in the period surrounding the debt ceiling fight in 2011. Even after a bill to increase the ceiling passed, stocks plunged in what was seen as a vote of "no confidence" in Washington's ability to function, considering how close lawmakers came to a default.

    Credit ratings agency Standard & Poor's lowered the U.S. sovereign rating to double-A-plus, citing Washington's legislative problems as one reason for the downgrade from triple-A status. The benchmark S&P 500 dropped 16 percent in a four-week period ending August 21, 2011.

    "I think there will be a tremendous fight between Democrats and Republicans about the debt ceiling," said Jon Najarian, a co-founder of online brokerage TradeMonster.com, in Chicago.

    "I think that is the biggest risk to the downside in January for the market and the U.S. economy."

    There are some signs in the options market that investors are starting to eye the January period with more wariness. The CBOE Volatility Index, or the VIX, the market's preferred indicator of anxiety, has remained at relatively low levels throughout this process, though on Thursday it edged above 20 for the first time since July.

    More notable is the action in VIX futures markets, which shows a sharper increase in expected volatility in January than in later-dated contracts. January VIX futures are up nearly 23 percent in the last seven trading days, compared with a 13 percent increase in March futures and an 8 percent increase in May futures. That's a sign of increasing near-term worry among market participants.

    The CBOE Volatility Index closed on Friday at 22.72, gaining nearly 17 percent to end at its highest level since June as details emerged of a meeting on Friday afternoon of President Barack Obama with Senate and House leaders from both parties where the president offered proposals similar to those already rejected by Republicans. Stocks slid in late trading and equity futures continued that slide after cash markets closed.

    "I was stunned Obama didn't have another plan, and that's absolutely why we sold off," said Mike Shea, a managing partner and trader at Direct Access Partners LLC, in New York.

    Obama offered hope for a last-minute agreement to avoid the fiscal cliff after a meeting with congressional leaders, although he scolded Congress for leaving the problem unresolved until the 11th hour.

    "The hour for immediate action is here," he told reporters at a White House briefing. "I'm modestly optimistic that an agreement can be achieved."

    The U.S. House of Representatives is set to convene on Sunday and continue working through the New Year's Day holiday. Obama has proposed maintaining current tax rates for all but the highest earners.

    Consumers don't appear at all traumatized by the fiscal cliff talks, as yet. Helping to bolster consumer confidence has been a continued recovery in the housing market and growth in the labor market, albeit slow.

    The latest take on employment will be out next Friday, when the U.S. Labor Department's non-farm payrolls report is expected to show jobs growth of 145,000 for December, in line with recent growth.

    Consumers will see their paychecks affected if lawmakers cannot broker a deal and tax rates rise, but the effect on spending is likely to be gradual.


    Options strategists have noted an increase in positions to guard against weakness in defense stocks such as General Dynamics because those stocks would be affected by spending cuts set for that sector. Notably, though, the PHLX Defense Index is less than 1 percent away from an all-time high reached on December 20.

    This underscores the view taken by most investors and strategists: One way or another, Washington will come to an agreement to offset some effects of the cliff. The result will not be entirely satisfying, but it will be enough to satisfy investors.

    "Expectations are pretty low at this point, and yet the equity market hasn't reacted," said Carmine Grigoli, chief U.S. investment strategist at Mizuho Securities USA, in New York. "You're not going to see the markets react to anything with more than a 5 (percent) to 7 percent correction."

    Save for a brief 3.6 percent drop in equity futures late on Thursday evening last week after House Speaker John Boehner had to cancel a scheduled vote on a tax-hike bill due to lack of Republican support, markets have not shown the same kind of volatility as in 2008 or 2011.

    A gradual decline remains possible, Golub said, if business and consumer confidence continues to take a hit on the back of fiscal cliff worries. The Conference Board's measure of consumer confidence fell sharply in December, a drop blamed in part on the fiscal issues.

    "If Congress came out and said that everything is off the table, yeah, that would be a short-term shock to the market, but that's not likely," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

    "Things will be resolved, just maybe not on a good time table. All else being equal, we see any further decline as a buying opportunity."

    (Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: david.gaffen(at)thomsonreuters.com)

    (Reporting by Edward Krudy and Ryan Vlastelica in New York and Doris Frankel in Chicago; Writing by David Gaffen; Editing by Martin Howell, Steve Orlofsky and Jan Paschal)
  2. piezoe


    Some U.S. Constitution experts have argued that the 14th amendment makes statutory law establishing a debt limit moot. The United States must pay its debts, and their validity can not be questioned.
  3. jem


    yeah and there is no reason the U.S. has to issue debt.
    just have the fed pay the bills and print the dollars..(federal reserve notes)

    the debt ceiling is a farce.
    sadly most of our politicians are such idiots, some of them seem to really believe they have to worry about it.
  4. NOT a farce. We're getting away with the money-printing because (a) $USD is world reserve currency, and (b) the world hasn't cried "No Mas" on our currency yet.

    Yes, "no worries" until things go critical... THEN there will be no recourse. (Not critical at this time because nobody holding our feet to the fire.... yet. America is like "Thelma and Louise"... no problem so long as there is still road under the tires...)

    Of course.... if you believe we can go on printing money forever, never pay off our national debt and there never be any consequences.... then the debt ceiling is a farce... but world financial history poops on that notion.
  5. jem


    you read a shit load into my comment.
    My point is the republicans do not have to cave on spending cuts because the debt ceiling is a farce.

    spending trillions more than we take in is what has debased the dollar and destroyed the standard of living of the middle class.

    food and energy costs go up and the value of their savings gets destroyed.
  6. Bob111


  7. timcar


    Obama warned Republicans late Tuesday that "if Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff."

    There goes that Obama making dumb comments again.