No Dealing On The Debt Ceiling, Part 4

I can't help but believe that this is motivated partly by vengeance upon the Obama administration for daring to impose new regulations on the financial ratings agencies.

Standard & Poor's on Monday downgraded its credit outlook for the United States, citing a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit.

While the credit rating agency maintained the country's top AAA credit rating, it said authorities have not made clear how they will tackle long-term fiscal pressures.

S&P said the move signals at least a one-in-three chance that it could cut its long-term rating on the United States within two years.

"Because the U.S. has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness, and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said in a release.

Asariel has the Treasury response here.  Dow was off 200 points as a result of that little torpedo and gold is knocking at the door of $1,500 an ounce now.  Ahh, but note I said "partly" above.  The other half of the equation involves the debt ceiling:

Industry officials said they have been warning lawmakers that a failure to act would reverberate not only through the bond markets, but across America. The government would no longer be able to pay for its commitments, such as Medicare and Social Security.

The officials said they try to make clear to lawmakers that raising the debt limit does not spur new spending. Instead, it enables the government to pay off maturing debt, or spending obligations already made.

And, they point out, if the nation goes into default, its borrowing costs would spike.

“We say: ‘Guys, if we breach it, if we default on our debt, it would make it even harder to pay it back because of the interest costs. And we know that’s not your goal, so just FYI,’ ” said one financial industry executive who, like some others interviewed, spoke on the condition of anonymity to recall private conversations with lawmakers.

Members of the Financial Services Forum — which represents the chief executives of 20 of the nation’s largest financial institutions — the U.S. Chamber of Commerce and other industry groups have fanned out across Capitol Hill to press lawmakers.

In some cases, lawmakers have been visited by community bankers and local business leaders from their districts — to put a friendly face on the lobbying effort and to underscore the point that it’s not just Wall Street, but also Main Street that would take the hit.

And when they see lawmakers at trade gatherings or dinner parties, Wall Street chief executives seek them out: “Hey, Congressman, I know you have to do what you need to do, but this debt ceiling vote is coming up, and I just want to take 10 seconds and talk about the economic consequences,” one executive said, describing conversations he and others have had.

This is the corporate arm of Washington DC making it abundantly clear that refusal to raise the debt ceiling will not be tolerated by the Powers That Be.  I've been saying this would happen the moment the GOP took control of the House.

Here's the problem with this particular game of chicken:  The people that stand to lose the most here, especially from the threat of a sovereign debt default, are the investor class.  They are the ones who spent billions to get the GOP into power, and the threat of default will annihilate the bond market.  The big players, especially the hedge fund giants, stand to lose hundreds of billions from a treasury meltdown as interest rates on long bonds skyrocket and yields drop like lead elephants on gravity steroids.

They will not allow the Republicans to toss satchel charges into their cathedral of cash. 

Behold now Washington being told to find an agreement on the debt ceiling or else.  It will be raised.  It will be raised with another face-saving deal like the FY 2010 budget mess.  But it will be raised.  The corporate interests in the US will not allow the Tea Party to blow a hole in the bottom of the economy.  They will be split.  The howls will cause the Tea Party arm of the GOP to go into full revolt.

But the debt ceiling will be raised.

That is as certain as things get.