To all who miss the highly volatile days of August 2011, when as a result of the congressional deadlock on the debt ceiling, and the S&P downgrade of the US, the DJIA swung by 400 points every day for 4 days in a row just to get Congress to come to the "compromise" exposed in painful detail by Bob Woodward a few days ago, fear not: they are coming back, and with a vengeance. Because while last year only the debt ceiling was under discussion, now we get the double whammy of the debt ceiling and the Fiscal cliff. And just so the suspense meter is pushed off the charts early, and the performance gets maximum billing for theatrics if not execution, House Speaker John Boehner has just said he's not confident Congress can reach a budget deal and avoid a downgrading of the U.S. debt rating. Let us paraphrase: there will be no deal until the 11th hour, 59th minute, 59th second, and 999th millisecond, at which point the market will plunge and get Congress to do what it always does: Wall Street's bidding, which now and always, is a smooth and seamless continuation of the status quo.
Moody's Investors Service said Tuesday that it would likely cut its "Aaa" rating on U.S. government debt, probably by one notch, if budget negotiations fail.
Boehner was asked at a Capitol Hill news conference how confident he was that such a step could be avoided. He said he wasn't confident at all.
The Ohio Republican stressed that the House has passed legislation to avoid the automatic, across-the-board cuts of $1.2 trillion from defense and domestic programs that kick in Jan. 2. He said the Senate needs to act and President Barack Obama needs to show some leadership.
Any real negotiations are not expected until after the November elections.
Of course, this time around there is a very high possibility that Congress may actually disappoint, as it knows very well that should no compromise be reached, it can just punt to Bernanke, who as of tomorrow will be in charge of fiscal policy as well should he enact more monetary easing, in effect taking away the burden of keeping the S&P high, unemployment be damned, entirely from the hands of lawmakers.
Finally, since the GOP already conceded in the last debt ceiling fiasco, this time around, especially in the aftermath of a presidential election that will likely see the GOP candidate lose, the probability of a repeat of last summer is low to quite low.