What finally moved congressional leaders to inch toward a debt-limit deal?
Many will tell you that an electorate disgusted with needless infighting, summoned by President Obama to call Washington and voice its displeasure, forced Republican House Speaker John Boehner and Democratic Senate Majority Leader Harry Reid to finally cut a deal and save us from the catastrophe of default.
Don’t buy it.
It wasn’t the will of the people; it was the “will of the markets” that did the trick.
It certainly wasn’t Obama. Few major players either on Wall Street or in Washington take seriously anything the president says in this dispute, because he has said so little of substance since the drama began. And default wasn’t a possible outcome — the administration privately has been telling banks it won’t default.
The big change was the drop in the Dow — down more than 500 points last week, as the congressional haggling reached its most dysfunctional. Plus, the prices of gold — the ultimate safe haven — rose, while traders feared an imminent downgrade of Uncle Sam’s Triple-A bond rating. Making matters worse were awful new economic-growth numbers — including a huge downward revision in first-quarter growth.
Obama’s policies have us stuck at 9.2 percent unemployment, with no activity to hold out hope of many new jobs — meaning we won’t be able to grow our way out of our huge $14 trillion debt anytime soon. But traders and investors will tell you that they’ve been slowly pricing in the failure of Obamanomics for some time.
Rather, the primary cause of the stock market’s sharp drop was the lack of a debt-limit/deficit-cutting deal as the Aug. 2 “default” deadline moved closer.
According to one senior Republican congressional staffer, leaders are “terrified” of an even larger stock-market drop today — one reminiscent of the Dow’s 700-plus-point implosion after Congress couldn’t agree on a bank-bailout plan during the fall 2008 financial collapse.
“I just can’t think of what might happen on Monday if we don’t get anything done,” the staffer said.
And it’s not just Republicans who are scared. When Wall Street bankers met with officials at the Obama Treasury Department late Friday, the conversations centered on what options the government would have to raise money if the debt ceiling isn’t raised (few other than issuing very short-term IOUs) and how long the commercial-paper market (in which companies sell short-term debt to finance salaries and other payments) would keep working if the impasse continues, Uncle Sam’s credit gets downgraded and the markets begin to crater.
Of course, it’s never a good idea to craft policy based on what you think the markets are saying. After that 778-point drop in 2008, lawmakers did indeed OK hundreds of billions in bailout funds for the likes of Goldman Sachs and Citigroup. The banking system survived, and the stock market recovered somewhat — but the banks sure didn’t resume the lending to smaller businesses (which could then expand and hire) that was supposedly the real point of all the hand-outs.
That said, the banking-system crash and its remaking might have been worse — that’s what congressional leaders surmised back then, and that’s what’s in the mind of Republicans and Democrats now. Even if a bond default isn’t in the cards, the results of failure to reach some deal won’t be pretty.
Ultimately, many bills won’t get paid, and who gets paid is totally up to the president. Who really knows if the least business-savvy president in decades might not at some point chose to stiff bondholders to keep checks going elsewhere, even if it would spark financial Armageddon?
Now you know why the markets are nervous and the politicians are talking.
Charles Gasparino is a Fox Business Network senior correspondent.