As we head into the weekend, a debt ceiling deal remains elusive. The debates and negotiations are over. The politicians have taken to the airwaves and are pointing fingers and laying blame. It is unfortunate because the current situation could have been avoided; yet, due to political tactics, the economy and our markets hang in the balance. While we watch and wait, here are five questions that need to be answered.
1 - Will the Debt Ceiling Be Raised? It may not. Currently, there are no bills on the table. We have lots of "quote, end quote" plans. The "Boehner" plan, the "Reid" plan and the "McConnell" plan, but there is no real, bi-partisan plan to pass the House and Senate. If there is no plan by Tuesday, the debt ceiling will not be raised. Will any of the "plans" turn into agreements? If recent history is any indication, I a not sure we should count on it.
2 - Is the 10 Year Treasury Yield Making a Deal More Difficult? For weeks, if not months, we have been hearing that the failure to raise the debt ceiling will lead to financial Armageddon and market chaos. However, as we get dangerously close to August 2nd and the downgrading of the United States appears certain, the 10 year treasury yield is going down, not up.
On July 1st, the 10 year treasury rate was 3.22 percent. Yesterday, it was 2.98 percent. This may embolden those members of Congress who argue that predictions of economic disaster are severely over-stated and may convince them that sticking to their principles of cutting, capping and constitutionally balancing are worth the economic risk.
3 - Does a U.S. Downgrade Matter? Yes. Of course a U.S. downgrade matters. Some argue that it doesn't. Specifically, if the U.S. drops from AAA to AA, but there are no AAA rated countries, then we are still on top. Right now, we don't deserve the top rating.