Analyst: Washington Needs An Ugly Selloff

No matter how long or
painstakingthis government shutdown may be, the conventional wisdom is that lawmakers aren’t dense enough to allow the U.S. government to default when our current debate fully transitions into one over the debt ceiling.

Nobody is quite sure when the government will run out of money. Treasury set the original deadline at October 17, though “September was a huge surplus month — raising the issue of whether the Treasury Department could juggle the books for a couple extra weeks before facing a default,” writes Potomac Research Group’s Greg Valliere.

Either way, markets seem generally calm. But Valliere says it may take a strong market reaction to cajole House Republicans.

WHY THE MARKETS SHOULD CARE: The financial markets aren’t worried about a default crisis and we agree that a default is extremely unlikely (but not totally out of the question). The bigger concern is the corrosive impact of the shut-down on the economy, which will intensify in the coming days. How pathetic: like a child looking for parental discipline, Washington needs an ugly market sell-off to jump-start talks.

“The GOP is still playing with fire on the debt ceiling,” Valliere concludes.

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