FRONT PAGE CONTRIBUTOR
Awaiting the Market Open in Asia…
Currency markets are open in the Far East as I write this, and the dollar is a little weaker. No interest rates or commodity prices yet, but I’ll update you if anything exciting materializes.
I must say that I found it weird to hear John Boehner and others talking about making a deal before the trading week starts. (And if you’re a long-time RedState reader, you know I’m the guy who was watching the market opens every Sunday evening with my heart in my mouth during the 2008 crisis.)
There’s nothing to suggest that a legislative failure today or over the next week would significantly disrupt markets. I think there’s considerably more risk in the other direction. Markets have sold off risk-bearing assets and lowered interest rates in response to the uncertainty, but as soon as there is a deal, I expect markets to recover robustly.
When I say “as soon as there is a deal,” I mean that the monkeys in Washington will stop howling and throwing feces at each other long enough to ink a three-month debt-ceiling extension with no other commitments beyond a promise to keep howling and throwing feces at each other.
I will say that I admire how Boehner has handled the situation over the last few days. I’m confident (for more than one reason) that he fully understands the need to keep financial markets from becoming disrupted. But at the same time, he’s doing his job, which is to lead a fractious Congress. He’s not going to hand the president a cheap victory. Meeting both objectives at the same time is a big lift, and he’s doing it.
It’s going to take a very great deal of work in Washington to arrive at a fiscal-stability framework. If the last few days have proven anything, it’s that this work will need to be done in Congress. Of course this flies in the face of much conventional wisdom, but then conventional wisdom isn’t used to dealing with an indecisive, disingenuous and hyper-partisan US president.
Given all that, the best outcome for markets is a short-term debt-ceiling increase, covenant-lite. Give it three months, and keep the discussion going. The markets will hang in there. (Unless the Greece thing blows apart.)
What markets will NOT react well to is very well known, and has been known all along: a decision by the US to execute a sustained default on outstanding debt. It’s the height of irresponsibility for certain individuals in the Administration to have been floating this as a possibility in order to gain some kind of negotiating edge.
Secretary Geithner, I’m looking at you. Your boss doesn’t know any better, but you do. You sign the dollar bills. America’s creditors are YOUR creditors as long as you’re the Secretary of the Treasury. Shame on you for some of the things you’ve been saying.
Update, about 7pm EDT: energy prices down; precious metals up; dollar is off its lows; stock prices indicating about 1% lower. Still no interest rates. Looking like a weak open but not nasty.