Farrell: Debt Talks — I Shudda Stayed with Dora
I don't get to babysit my Granddaughter, Lola Jane, by myself very often.
I can't blame her parents. I don't trust myself with myself completely.
But last night was a special situation where all adults were occupied and Lola Jane and I went out to Portofino's for pizza (she is the third generation to eat there) and then next door to Baskin Robbins for ice cream. She was honest and said she had lost her ice cream privilege for not brushing her teeth. I said grandpas have extra privileges saved up and we could use that.
So, happy as could be, we went home to watch Dora the Explorer.
Feeling obligated to watch the President I tuned in for a classic "not my fault but his fault" game of dodge-responsibility. Speaker Boehner wasn't any better.
I got mad watching the politicians be politicians and I got Lola Jane mad by turning off Dora. It was just when Swiper was getting ready to swipe some stuff too.
When will I ever learn.
And I could have learned if I paid more attention in History class. George Washington warned of nonsense like we are getting from both sides of the aisle in his farewell address (and thanks to Tad La Fountain for the insight). "...Combinations or associations....may now and then answer popular ends, they are likely, in the course of time and things, to become engines, by which cunning, ambitious and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government..."
Put another way, celebrating the Wizard of Oz which is now 70 years old, if you had no heart, no brain, and no courage, you wouldn't be in the movie, you would be in Congress.
Figure a downgrade is a sure thing as S&P has made it known it would take about $4 trillion in cuts for them to keep a AAA on US paper. Neither side is anywhere near that number. But they are not that far apart since both call for cuts, no new taxes, and a special commission to be established so they don't have to accept responsibility.
If there were to be a default on some government obligations, it would probably cause the Treasury paper to be labeled "SD" or selected default. Since Treasuries are used as collateral for any number of things would margin calls go out ? I don't know, but I'm pretty sure the interest and principal would be paid (certainly interest) as there is a recent precedent. In late 1995 and early 1996 when the Newtster and Billy the Clintonian clashed, government shut down, essential services were maintained, but government workers were furloughed. Interest was paid, however.
One surprise was the Conference Board's measure of consumer confidence which went upto 59.5 in July from 57.6 in June. It was widely expected to be down month to month. It is off, though, from 72 this last February and is consistent with only modest consumption growth. The American spirit is remarkable. Think of the beleaguered soldiers in the classic 1957 movie, "Paths of Glory", starring Kirk Douglas. Even after watching some of their own French colleagues be executed for "cowardice" in a suicidal attack against entrenched German positions, they rebound at movies end and sing along with a terrified country girl. Despite Washington's best efforts, people rally and muddle through.
And, yes, there were two other Ivy League players that won the Heisman. Larry Kelley was an end at Yale who won in 1936. Clint Frank, a Yale running back, won in 1937. Larry Kelley fell on harder times and auctioned his Heisman in 1999 for $328,110. The owners of The Stadium Museum, Restaurant, and Bar in Garrison, NY bought it and you can see it there today. Tragically, he committed suicide a year later.
Vincent Farrell, Jr. is chief investment officer at Ticonderoga Securities and a regular contributor to CNBC.