The Big Day

Okay, this is it... the proverbial "Eleventh Hour" is here. Most sane observers know and expect that a deal will get done. And as I like to always put it, "The fix is in", meaning that the key players already know the parameters for the deal and it's merely a matter of letting all of the political theater play out so that the "far" wings of both parties can justifiably feel that their party "fought" to the bitter end, and then some.

 

That was the "lesson" of the previous budget negotiations, that the far wings of both parties felt betrayed by their own parties and felt that they caved without fighting hard enough. For better or worse, the leadership of both parties took that "lesson" to heart and played it to the hilt.

 

In all likelihood, the deal will come together later today.

 

Sure, there is a faint possibility that a small number of Senators or Congressmen could gum up the works and leave Treasury in a bad position for a day or two, but that's still the unlikely scenario. For example, it may take the House two or three votes over a couple of days to finally get a majority on board (which lets Republicans say that "I voted No before I voted Yes at the end when it was too late and the cause was lost.) And besides, Wall Street is already well prepared to handle any modest, short-term disruption in the Treasury market. A delay in payment of Treasury interest and matured principal would be a mere speed bump, not a "major economic catastrophe". It would be an embarrassment for President Obama more than a problem for Wall Street.

 

If nothing else, I'm sure that the Fed with its ongoing quantitative easing would be more than happy to buy up any Treasuries that people want to dump. After all, the Fed simply hands over the interest on its Treasury holdings back to Treasury. If anything, the whole process saves the federal government money. And the additional quantitative easing is an additional boost to the economy.

 

In short, today is very likely the end of the process (other than that any agreement will likely simply kick the can down the road for another confrontation in a few weeks or months), but Wall Street (and the Fed) are ready to deal with the situation if it does take a little bit longer.

-- Jack Krupansky