We will reach the debt ceiling tomorrow

The debt ceiling on US debt is currently at 14.281 trillion dollars.  That’s 14,281,000,000,000 dollars, an unfathomable number is any real sense.  http://www.usdebtclock.org/ provides a very clear picture of how this debt is broken down.

The current US “debt ceiling” is set at 14.292 trillion dollars, this level should be reached tomorrow.  This means that legally the US government cannot spend another dime without a vote to raise the limit for the 75th time since 1962.  The confluence of a weak economy and the Republicans newfound love for fiscal responsibility makes this vital vote a very difficult task indeed.  Once the limit is reached the US treasury will be able to take extraordinary action and support the government with what is effectively the change they scrounge up from the couch (you know, a couple of billions).  The next step would be the first US default on debt which would be tantamount to the fall of the Soviet Union.  Expect a world economic collapse, bloodshed, and a new Mad Max like reality.

This wont happen though.  Our politicians can’t possibly be this stupid so I will not even count this as a possible outcome.

What will happen is a big circus of joshing back and forth between all the various interest groups possibly resulting in big, unpleasant actions by the government.  This despicable toying with our lives will surely spook the market; I know that personally I am staying mostly on the sidelines (I have a small position GNTX).  I think that the market will drop as an initial reaction to the threat of default.  At this point it will depend on what the result of the debt negotiations.  The bulls could take this as an opportunity for good entries while the bears will promote fear and despair.  The ratings agencies might take this as an opportunity to downgrade the US debt from its AAA rating which would plunge the markets even deeper.  It will take extraordinary cooperation and sober thinking on the part of our leaders to get us out of this mess.  Anyone that has taken a good look at our congress and senate lately will see that this most likely won’t happen.


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