Debt Ceiling, Budget Showdown Won’t Derail Bull Market
President Obama’s standing may have taken a few dings over the last weeks after the aborted nomination of Larry Summers as Fed Chairman, and missteps in Syria, but he’s holding the line on the coming debt ceiling debate. As a refresher from the events of 2011, the U.S. debt ceiling must be raised periodically in order for the country to pay its bills.
In theory if the ceiling isn’t raised, the US will be forced to default on its debt. As was the case in 2011, the Republicans are threatening to withhold approval of a hike in the debt ceiling unless the hike is accompanied by offsetting cuts in spending. As was also the case in 2011, the President is vowing to refuse to marry spending cuts to spending reductions, observing not without some justification that the notion of the U.S. defaulting its financial obligations is anathema.
The U.S. Treasury department estimates we’ll hit the debt ceiling in the middle of October.
Hugh Johnson of Hugh Johnson Advisors says the economic situation is different now than was the case back in 2011. While on the surface neither side should have any interest in creating headwinds in an economy with almost imperceptible growth, rational behavior is a lot to ask from Washington, D.C. Ideally cooler heads will prevail – more “sober” thinking as Johnson refers to it hopefully.
Naturally there will be drama. The Democrats need to reestablish their position as top dogs, and the Republicans smell blood. It’s ugly theater but does it matter to your wallet?
You can see the full “Breakout” segment below: