Use access key #2 to skip to page content.

Debt Ceiling, The Good, the Bad and the Ugly....



August 01, 2011 – Comments (11)

I know most of us are tired of this entire debt issue affair, but I had a few musing about it and am looking for some opinions.  I lured you in by suggesting there was something good about the Debt Ceiling issue, but I do have ONE.

UGLY:  I blogged last Wednesday that Obama and Boehner were sending a "DIVE, DIVE, DIVE" signal to the market by their bickering on national television.  The markets proved to be a little more mature and we have only drifted down about 4%.  There were mixed opinions on whether the event would be "actionable".  I believe it was, but that depends on your risk/reward and trading patterns.

Tonight the House of Representatives finally passed the "Kick the Can" version.  The comment was made that no one appeared happy.  I would be confused if anyone was happy about the bill itself, but they might be happy about getting their evenings and golf game back.  Compromise, when both sides are so far apart, requires that both sides "give" guessed it, unhappiness.

Ugly: One thing that I'm still a little upset about is that 161 members of the House of Representatives voted against the bill.  By waiting until the last minute (ugly) they left theirselves no option other than the Bill at hand, or the default on the debt. How 161 members would rather have default is a bit of a mystery to me, but I do understand that a few fell into an extreme range on the dial that:

  1.  Felt even if we didn't raise the debt ceiling, we had other alternatives such as pacing the bills through the system for a short time longer,  invoking the 14th amendment, or borrowing short term from Apple.

  2.  Felt that default was needed to send a message, understood the consequences and was willing to live with it.

  3.  Just plain dumber than dirt.

The majority who voted against it, however, would probably say that they knew there were enough votes to pass it, which means no risk of default, which means they could cast a protest vote.

I really don't have a lot of respect for protest votes. I've seen a few that ended up back firing years later by being used as snippets in anti-political ads.  If I wasn't so lazy, I'd start a website with the names of all of the Representatives and how they voted.  I really think only a small percent of voters really care about issues enough to show their distain by how they vote, but enough do that it might be interesting in some voting areas.

I'm probably a lot more understanding about the conflict between political party than most people. We pick our candidates by choosing those who most reflect our values.  Some voters are strict Republicans and some are strict Democrats, but it seems more are claiming to be "unenrolled" and can thus swing from party to party.   I think my understanding comes from my personal background. My parents were Democrats, with hourly jobs, barely making it on minimum wage, depending on the union to help with discerned "fairness", and at some periods paid piecemeal rates, ($0.09 to peel a pan of tomatoes).   At this point in my life, I lean Republican, based on my own job, finances, and personal outlook.    So I do try to see both angles, even though I have my own opinions. 

I'm not sure how the bi-partisan Commission will work out in doing phase II of this ordeal.  The Commissions in past are sometimes success, but usually not. They seem to be necessary sometimes when hard decisions have to be made.  Cutting the budget and/or tinkering with taxes and/or social programs are areas where the politicians, just by virtue of the job, (being accountable to their constituency), just can't do it.   Bi-Partisan Commissions have been used somewhat succeessfully when nothing else worked, such as chosing which military bases get closed or when making some Social Security changes in the 80's.  One issue (the bad) is that this drags things out further and it's hard to say if the credit rating agencies will stay away.  Overall, I don't think anyone puts much stock in what the credit agencies do.

My confusion:   I've never been able to make up my mind if our forefathers thought the party system would last this long and have such diversity/extremes.  It's interesting to see how that despite our historical changes, (slavery, race, manufacturing, outsourcing, etc), that we have this much to disagree on and how it still has some geograpical context  Then we confuse things further by having tea parties after we threw the tea overboard.

I'm not sure which way I would rather see the mix between the House, Senate, and President align. If all three had the same party in strong majority (well the President would be a majority of one, but I think you get my point), then they could easily pass whatever they wanted.  With a mix between the three you risk gridlock.   So Gridlock.....or one party in full, complete control without a balance for accountability??

I think I'd lean toward a mixed bunch of fruits and occasional gridlock, but in times like this, with the rest of the world watching and the long term damage that did/could occur, I'm not sure.

The Good:  I did promise when I lured into my musings that something good occured during the debt crisis....I did mislead, as I didn't mean something good came of the childish display and our leaders waiting until the last possible moment.  Rep. Gabrielle Giffords voted today after her long recovery.  I'm glad the vote wasn't decided by only one vote or some disgruntled Congress Person would probably claim her vote shouldn't count due to her condition. I'd have to say, based on her vote, that from a mental perspective, she demonstrated far more sense than 161 of her colleagues. Welcome back Congress Woman Giffords! 

TSIF,  The Sky isn't falling today, but I don't discount that it's possible some day.


11 Comments – Post Your Own

#1) On August 01, 2011 at 9:11 PM, truthisntstupid (87.27) wrote:

This is part of the ugly, if you ask me...

During the entire time it was unresolved, among other possibilities mentioned one was particularly shocking:  the possibility of not paying our military members.  

Sure, one could argue that the chances of that actually happening were remote.

Sorry, that, to me, does nothing to diminish the unmitigated gall of politicians even considering it.

Not while they make $160K or more a year.  Their pay should be the FIRST to go.

Any politicians who were even remotely considering being the cause behind such an egregious possibility should be voted OUT!

Report this comment
#2) On August 01, 2011 at 9:23 PM, Bays (29.01) wrote:

or borrowing short term from Apple


Report this comment
#3) On August 01, 2011 at 11:12 PM, VickieGoGood (< 20) wrote:

Our elected officials acted as children of 4 years. The 14th amendment says we are to have a structure to pay our debts and I expect, yes insist, those we send to Washington DO their JOB! I will vote against the sitting politicians due to the poor representation they provided me.

Report this comment
#4) On August 01, 2011 at 11:45 PM, shamapant (< 20) wrote:

Yay for Gabrielle Giffords! What I think happened is that while all the reps(i hope they're all intelligent) knew that default would be the worst option, they assumed that the rest of the pack would have come to the same conclusion, and thought if they voted against it, there would only be positive ramifications for their political careers. Frankly, if it doesn't work they can say they voted against, if it works its always easy to point out flaws int he system, no system is perfect and politicians love to use that, and the only thing that could come out of them saying no is that they preferred default, in which case they would say 'no i hate default!'and start attacking the other party as they would have anyways for 'forcing it to come to the 11th hour' seems as if that would be the smart 'political' move rather than economic move..which disgusts me

Report this comment
#5) On August 01, 2011 at 11:56 PM, dragonLZ (89.74) wrote:

The Ugly: Politics.

The Bad: The market will continue to slowly go down even after the debt ceiling deal.

The Good: This bull market is still in its initial phase.

Report this comment
#6) On August 02, 2011 at 8:19 AM, TSIF (99.97) wrote:

I agree  shamapant, they were mostly protest votes, but that's definitely putting the politic game too far ahead.

 truthisntstupid:  Threatening what people care about most is the biggest scare tactic used pretty much anywhere in life. In politics it's so overdone it's really tiring.  In my area, it's the schools. The other pet peeve I have is everyone comparing what you're giving up to your daily cup of coffee...can't you give that up for XYZ......first their assuming that I spend my $2 a day on coffee and then presume to guilt me with it.   They should know that my $2 for coffee is to support Starbucks and now Dunkin stock.  Really, I can't spread myself too thin!!!

You know  VickieGoGood, I hesitate at times comparing the politicians to small kids.....4 year olds can work their problems out often on their own, if not they look for help from an authority figure. I think we should send the politicians to 40 hours of playground duty so they can see that sometimes compromise means working things out.

dragonLZ  Apparently we are down after the debt ceiling vote.  We may be in a bull market, but we're going to hit some nasty speed bumps.  Better make sure the muffler is firmly attached and your tires are inflated.

I really did expect 2-3% upside over the next few weeks after this was resolved, but it's looking doubtful now. The GDP, Manufacturing data, etc, seem to be feeding the bears. The bull sentiment is still in a daze from the last week. It usually does take some time for the bulls to shake things off, but earnings looked somewhat promising this quarter.  Of course even before the debt ceiling vote the Medicare reimbursement changes stabbed the health care sector.  The reduced federal spending will result in other wounded sectors as well.  Buckle up.

Report this comment
#7) On August 02, 2011 at 9:28 AM, FreeMarkets (39.27) wrote:

This whole thing was "gotcha politics".  Obama & the Democrats could have increased the debt ceiling in December, but they wanted to push the issue onto the laps of the new freshman Republicans, who would do something stupid, like cut Medicaid/SS.  Then the Ryan plan did just that and I'm certain the White House was grinning.  Then the shock came, a 318-97 vote in the house (very bi-partisan), voting DOWN increasing the debt ceiling with no changes.

The White House / Senate now could no longer lay this issue solely on the doorstep of Republicans without their own plan.  But what plan? 

Raise taxes, when only 7 months earlier Obama cut a deal to EXTEND the Bush tax cuts.

Cut defense?  Are you mad, terrorists would be flocking to our shores and vacationing in Florida.

Cut SS/Medicare? And cast themselves as Paul Ryan co-conspirators.

They played "gotcha politics" and everyone got caught.

Report this comment
#8) On August 02, 2011 at 11:30 AM, leohaas (29.47) wrote:

It is all politics. Comment #7, the most political of all, makes that clear. And that will not change.

I agree that the whole thing wasn't really actionable. I went leveraged short big time, but got in a few days early and got out about an hour early. The result is a small negative. Had my timing be better it would have been a positive, but nothing really big. I am sincerely happy that this did not yield me a large positive, since that would have meant a market collapse caused by a failure to raise the debt limit.

Report this comment
#9) On August 02, 2011 at 6:22 PM, JakilaTheHun (99.91) wrote:

Great blog, TSIF.

For me, I view the debt deal as a short-sighted and likely to push the economy back into recession. It did not appear to deal with any of the actual issues driving our debt, which is mostly entitlement spending that is out of control.  At this point, I'm starting to dive head-first into mortgage REITs, utilities, and income-producing investments.

As far as political parties go, I think they were an accidental development in our system.  I don't have a problem with them, per se, so much as I have a problem with the system itself.  It essentially allows two political parties to entrench themselves and allow no viable alternatives.

I'd like to see us shift to a system with Instant Runoff Voting, so that the "wasted vote" argument would be removed once and for all.  We need new ideas in the political system more than anything and the current system tries hard to keep "new ideas" out.  

Report this comment
#10) On August 02, 2011 at 8:33 PM, TSIF (99.97) wrote:

Thanks Jakilathehun, I really didn't expect the debt deal to satisfy any of the proponents who were concerned about our debt, but right now the concern compared to the economy seems low.  I was caught by watching the debt issue and not paying attention to the lowered GDP and consumer spending.  When the markets are looking for an excuse it doesn't take much. I've been looking at REIT's as well and I have a few comments I'll put on your blog.

I'm not sure how/if we can get new ideas in the political system. We seem to mirror other countries with older systems and little change.  If we're not careful we can have other fringe groups getting voted in and I'm not sure what that would do to deadlock.  Thanks for the comments!

Report this comment
#11) On August 04, 2011 at 8:10 PM, GundersonGroup (28.18) wrote:

Jakila and TSIF,

A couple points.

1) Globalization is what is pushing all the world economies into recession as globalization accelerated the depletion of profit centers.

2) Entitlements have not contibuted to the current debt levels, however they are a very large future obligation which was left completely unaddressed.

3) Markets have taken such a dive as with the kick the can approach taken in Washington investors have realized that no on has a clue how to get out of the current worldwide governmental/corporate/personal debt burden in an era of declining returns available to service said debt levels.

4) I would be very wary about investing in supposed safe income producing assets such as REITS and utilities until the dust settles. Even gold is not the safe haven everyone thinks it is in a market crash as it takes $$ to bid up the price of the commodity and $$ has a tendancy to disappear when markets tank.

As for the current two party political system, one wonders what kind of impact coalition government would have in the US rather than our current win it all or nothing method. Could it get any worse than it already is?

Report this comment