Why is the market so calm? One possibility is great confidence that the debt ceiling will be raised. Another possibility is great confidence that it doesn't matter. Another is that the credit rating is more important anyway and is going to be reduced under any circumstance, given our inability to govern sensibly.
While I agree that the last possibility is the most likely, it is hard for me to believe increased borrowing costs do not mattter. As mentioned earlier, if interest rates rise only one-tenth of one percent, the increased borrowing cost for bonds maturing in August ALONE will add $500 million to our annual borrowing expense. Then, we have to factor in the increase for September bonds, October bonds, etc. Maybe, an additional six billion dollars is not a big deal in the Federal budget, at least to the bond market. But, who believes the increase in rates will only be one-tenth of one percent? What an insane waste of money!
There are three ratings agencies, i.e., S&P, Moody's and Fitch. It is very likely S&P will reduce the United States of America from AAA to AA. Ouch, that's expensive . . .
And, it is probably too late, as the partisan brinkmanship has demonstrated it is more powerful than prudent debt management.
My suspicion is that that, since the Speaker slammed the President so hard personally, by excluding him from direct negotiations, that the President will accept defeat and then hang the economy around the Republican's neck. They will then own it, good or bad. If the President does not accept defeat and prevents the debt ceiling from being raised on purely Republican terms, he will cause entirely unnecessary damage to the country. Even if Obama can hang it around the Republican's neck, it will be morally unacceptable for him to ignore his defeat, just to increase the economic pain.
