US Debt ceiling - still no decision.

Still deadlocked in Congress as the "widely assumed" 2nd August deadline fast approaches.

Seems like temporary insanity amongst the elected officials despite my appreciating the drivers to manage budgets and manage debt.
However, they long since opted in to "spending their way out of the credit crunch" so it seems woefully late and inadequate to now play with the livelihoods of the voters and global markets.

Sometimes seems that they must feel so left out of all the excitement and focus on the Euro's problems with sovereign debt that they have gone out of their way to create their own drama.

It still seems unimaginable particularly when it seems to be in their control.
The knock-on to that being that it is unimaginable what the impact might be.

Picked an interesting point out of the following article: www.citywire.co.uk: US Debt: why the deadlock may not turn to disaster which hints at a potentially moderate response to a US default/downgrade as fund managers sell out of US bonds in order to maintain a AAA criteria to their portfolios. I seem to recall similar fears of a sell-off by Japanese investors in US bonds (possibly 90's) but can't recall the exact reasoning other than to raise and repatriate funds as the heavily inflated property market in Japan imploded.

As it stands today, China then Japan are the 2 largest holders of US Dollar reserves with both countries holding almost $600bn each. I guess this is due to the dollars position as the "world's second currency" and the size of the US as a consumer market.
Any significant sell-off would obviously add to and accelerate any devaluation of the dollar (could this be something that a section of Congress want?).

I sort of expect markets to jump (with relief), if it is resolved and obviously fall if the unimaginable occurs. But, the scale of fall is hard to fathom. Its not like Greece, or any other previous default where bankruptcy more or less occurred but might just change perceptions of the dollar forever.
Either way it will help to resolve the uncertainty that markets dislike.

- www.citywire.co.uk: US Debt: why the deadlock may not turn to disaster

Earlier posts:

- Public reaction to Congress debt ceiling impasse.