Wall Street Blase About Debt Ceiling Quagmire

Tuesday, 26 Jul 2011 01:00 PM

By Caroline Rawls

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Throughout the ongoing deficit talks, the Obama administration has warned the American public that economic doomsday will occur if the country defaults on its debt. But the markets don’t seem to be reflecting this same sense of urgency, according to The New York Times.

Last weekend, both President Barack Obama and House Speaker John Boehner insisted that a deal had to be passed before Asian and U.S. markets reopened to catastrophic results this week. But neither market tanked. In fact, stocks have remained calm, experiencing only the slight dip in performance often associated with soft corporate earnings, the Times reported.

Absence of a market reaction to the Obama administration’s apocalyptic cries has weakened the administration’s negotiating position. Their predictions have proved false.

“They have lost all credibility,” Neil M. Barofsky, former special inspector general for the Troubled Asset Relief Program, told the Times. “It’s so typical of the way Treasury and the Fed treat everything — it is always to warn that Armageddon is coming.”

The White House has declared Aug. 2 the critical date when Social Security and Medicare checks will bounce. But Wall Street doesn’t seem to be buying this artificial deadline, the Times notes. Wall Street knows that the government will have wiggle room to prioritize payments in early August. The most important bills will still get paid, and an agreement will be reached eventually.

“The August 2 deadline is not as hard as indicated by Secretary Geithner,” said Mohamed El-Erian, chief executive of Pimco, a large bond management firm.

A July 18-24 Gallup Poll had Obama’s job approval rating at 43 percent, the lowest weekly average of his entire administration. So, critics are questioning whether Obama is forcing negotiations merely as a political ploy to reverse the downward trajectory of his approval ratings.

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