Why is the Obama administration publicly warning about a U.S. default, while at the same time privately reassuring U.S. banks that a default won’t occur?
Fox Business Network senior correspondent Charlie Gasparino, who broke the story that the White House has been privately reassuring the banks, thinks he knows the answer.
“I think the administration is being really duplicitous in this,” Gasparino told Fox News host Martha MacCallum Tuesday afternoon. “Listen, we know that we don’t have to default. I’m not saying the other scenario is pretty, but we know they don’t have to default.
“Why are they saying it?” he asked. “I believe they’re saying it to get the markets insane, to basically cause a massive sell off … that’s the only thing you can surmise from this. Why do you keep bringing up default when they don’t have to default?”
For months the administration has been warning that equity markets would nosedive if Aug. 2 approaches without an increase in the debt ceiling. The goal apparently was to increase the sense of urgency in order to motivate Congress to act.
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Lately, however, there have been indications that strategy is backfiring for the president even among supporters.
“The administration may have made a strategic mistake in warning too soon that the market would react negatively,” financial columnist Andrew Ross Sorkin wrote in Tuesday’s New York Times. “It ultimately undercuts the government’s negotiating position because the doomsday scenario has not played out, even though the deadline is fast approaching.”
With the administration’s self-imposed Aug. 2 deadline now looming just six days away, Wall Street appears unconcerned.
There has been increased volatility in international markets. If the drumbeat of pessimistic public warnings caused a massive stock selloff, it would give the administration much more leverage in its negotiations with grass-roots conservatives in Congress. And that, Gasparino appeared to be suggesting, is precisely the administration’s objective.
Gasparino also told MacCallum that Treasury Secretary Timothy Geithner is talking out of both sides of his mouth, privately telling banks not to worry about default in private while invoking sturm and drang in public.
“That’s exactly what’s going on,” he said.
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