Winston Churchill famously noted the U.S. eventually does the right thing but only after it's tried all the other alternatives. This chestnut of wisdom has been more or less the guiding idea behind the public's general sense that the debate on the debt ceiling is more theater than reality. Surely our elected officials would stop trying other alternatives prior to defaulting on our obligations and losing our AAA debt rating. Right? Right??!!
Daily Ticker's Aaron Task joined me for a special Yahoo! Finance Summit to explore the growing school of thought that politicians are going to cut off our financial nose to spite our face, resulting in a default. It's an idea also explored today in a compelling NY Times column discussing contingency plans being created.
Task offers that investors are right to at least be considering the previously unthinkable. A default "is not outside the realm of possibility," says Task. Instead of nearing a resolution the sides are seemingly entrenching themselves as the August 2nd deadline approaches. As a result "the possibility is higher today than it was yesterday that the U.S. could have some kind of technical default," says Task. This is precisely the opposite of what should be happening.
Before going further I have to acknowledge that this default talk can be wonky stuff for non-Wall Street types, so lets put it in perspective: To financial professionals, the U.S. defaulting on its debt is akin to the sun rising in the west. It's gravity starting to work only intermittently. Like it or not, and as crazy as it may seem given recent events, U.S. debt is the bedrock of much of the world's economic system. Other countries have an endless appetite for our debt precisely because we pay our bills. We may pay them with a devalued currency, but we don't renege. Ever. Our money says "in God We Trust." Everyone else trusts us.Read More »from Wall Street Braces for U.S. Default