Default is Un-American

George Brooks  |

Knowing the extensive damage to the economy, financial markets and American lives that would occur from not raising the debt ceiling forcing the U.S. government into a default is in my opinion un-American.

No terrorist could inflict the amount of damage that will ensue if Congress opts to put extremist political ideology ahead of the best interests of America by not raising the debt ceiling.

Never has the country been held hostage by Congress to force an ideological agenda on its government.

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Thursday, July 14, 2011 8:24 am EDT

DJIA: 12,491.11
S&P 500: 1317.72
Nasdaq Comp.: 2796.91
Russell 2000: 836.98

Normally, raising the debt ceiling is accompanied by a lot of political posturing designed to place the blame for spending on the other party. But it has been raised 74 times since 1962, 7 times during the Bush administration.

What’s more, this isn’t about paying for new legislation, it’s about obligations already agreed upon.

The most respected and savvy financial/business minds in the country have warned of the consequences of default, but an stubborn Congress won’t budge.

With the entire world on wobbly legs trying to recover from the Great Recession/Bear Market of 2007 - 2009, default by its strongest country could trigger a worldwide depression – total collapse.

Good bye 401k, home value, nest egg, children’s education, retirement, business investment.

Immediately, Moody’s and S&P would downgrade U.S. securities triggering a rise in interest rates and a plunge in bond prices.

The DJIA could drop 1,400 – 1,900 points within days, not because it should but because we have never been here before and the Street doesn’t know how to assess it.

With a spike in interest rates, bond prices would tumble, the leverage is brutal.

Deprived of adequate sources of income to pay bills already appropriated by Congress, our government would have to prioritize the bills it pays, which means others won’t get paid on time, if at all.

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Common Sense

Common sense says the debt ceiling will be raised to avert default, but Congress may take the Street’s angst to new highs before a decision is reached.

Having experienced every bear market since 1962, I have learned that the best buys and sells exist at emotional extremes of fear and greed. For weeks, I have expressed confidence Congress would put ideology aside and the country’s interests first.

But, I have to acknowledge the possibility this Congress will blow it! From what I read and see on television, I think too many of these Congressmen are clueless. That’s scary.

Fears of a government default are mounting, with a little help from the TV, print and Internet news.

The Good News

I suspect that with the exception of a few neoconservative heavyweights, the phones are ringing off the hook. On one end are the biggest financial/business mega-weights in the world reading the riot act to clueless elected officials who think default is not something to be concerned with.

The whole situation is bizarre, so bizarre that a reasonable person must conclude a deal of some kind will be struck to avert default.

Will reason rule ?

We witnessed the “unthinkable” in 2007 and 2008, there is no reason the unthinkable can’t happen again.

I am beginning to think this kind of Congressional brinkmanship will continue until the 2012 Presidential Election, as Congress appears to be dead set on dislodging President Obama, not doing the job they were sent to Washington to do.

Hopefully in 2012 the voter will insist on representatives on both sides of the aisle who are flexible enough to work things out, i.e. send the extremists packing !

Why are they doing this ? I can’t put my finger on it.

They are destroying the Republican Party, and stand to do great harm to America.

It can’t really be about the national debt, because 75% of the increase in the national debt between President Ford and President Obama occurred with a Republican in the White House.

It’s not racist, or religious prejudice, as a nation we have risen above that.

Maybe it’s just an old fashioned power grab.

Today: Yesterday started off strong but gave most of its gain back by the close. This kind of action is technically a negative, but let’s cut some slack for the uncertainty surrounding the concern for a debt ceiling list.

In my heart I think this will be resolved without more than some sleepless nights, indigestion and anxiety.

An agreement to raise the debt ceiling and pay our bills would be worth a sharp rally. More important, it would prevent an across-the-board meltdown.

We would then be able to deal with such goodies as the European sovereign debt issues, the economy and Q2 corporate earnings.

Recent Headlines :
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“Again: Debt Ceiling Approval and Q2 Earnings Catalysts” (June 30 DJIA: 12,261)
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“Did Someone Blink ?” (July 5 DJIA 12,582)
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DJIA 12,569
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“Watch This One Closely – Very Closely” (July 12, 2011 – DJIA: 12,505)
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George Brooks
NOTE: I usually release this blog 10 minutes before the open to catch the latest news and U.S. stock-index futures’ action. Today, I must post it early to attend a meeting, ergo the risk of not catching breaking news between 8:25 and 9:30.

The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk

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