Yesterday, I offered up a few ways to prepare yourself in case debt ceiling talks manage to fall apart completely and the U.S. ends up defaulting. While I was half joking (I do worry about zombie invasions), our lawmakers are giving me serious heartburn by dragging this whole thing out to the bitter end.
Meanwhile, my fellow Fool and Washington expert Ilan Moscovitz offered a meatier view of what the heck is going on, and whether we're getting any closer to a solution.
In the midst of all of this, I found myself laughing along with Jon Stewart on The Daily Show as he flashed a clip of Senate Minority Leader Mitch McConnell saying, "Nobody's talking about not raising the debt ceiling." Stewart's point: The Republicans have essentially shown their hand and admitted that they are bluffing when it comes to the threat of letting the country default.
Could this really be true? Of course!
As Deep Throat sagely advised in All the President's Men, we need to follow the money. And when it comes to political contributions, that pretty quickly brings us to finance, real estate, and insurance. In the 2010 election cycle, these were three of the top five contributors to the Republicans, offering up a combined $38 million to the GOP.
Picture companies like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Aflac (NYSE: AFL), and MetLife (NYSE: MET), along with industry groups like the National Association of Realtors, the Mortgage Bankers Association, and the National Venture Capital Association. Any guesses what happens to these industries and companies if a U.S. default throws the global financial markets back into turmoil?
It would seem that a pretty quick route to political suicide would be setting fire to your primary sources of funding.
Bill Gross, who runs the massive PIMCO, appears to think this is all just sound and fury, signifying nothing. Though he's vocally been avoiding Treasuries because of the low rates, he boosted Treasuries as a percentage of the Total Return Fund's portfolio in June, from 5% of assets to 8%.
Maybe more interesting was Gross' op-ed earlier this week in The Washington Post, where he laid out some of the major consequences of not raising the ceiling. Among his points, he argued that interest expense would rise significantly if the nation's credit rating fell, which would effectively work against the Republican goal of cutting budget outlays.
So with all of this in mind, am I now more comfortable that the debt ceiling won't be allowed to cave in on us? I'd say I'm hopeful that clear thinking -- and the financial bottom line for Congressional campaigns -- will win out. But whether it's pictures on Twitter or letting pride win out over logic, it'd be tough for me to be surprised by anything coming out of Congress.
What do you think Congress will end up doing? Head down to the comments section and weigh in.
