President Obama's standing may have taken a few dings over the last weeks after the aborted nomination of Larry Summers as Fed Chairman, and missteps in Syria, but he's holding the line on the coming debt ceiling debate. As a refresher from the events of 2011, the U.S. debt ceiling must be raised periodically in order for the country to pay its bills.
In theory if the ceiling isn't raised, the US will be forced to default on its debt. As was the case in 2011, the Republicans are threatening to withhold approval of a hike in the debt ceiling unless the hike is accompanied by offsetting cuts in spending. As was also the case in 2011, the President is vowing to refuse to marry spending cuts to spending reductions, observing not without some justification that the notion of the U.S. defaulting its financial obligations is anathema.
The U.S. Treasury department estimates we'll hit the debt ceiling in the middle of October.
Hugh Johnson of Hugh Johnson Advisors says the economic situation is different now than was the case back in 2011. While on the surface neither side should have any interest in creating headwinds in an economy with almost imperceptible growth, rational behavior is a lot to ask from Washington, D.C. Ideally cooler heads will prevail - more "sober" thinking as Johnson refers to it hopefully.
Naturally there will be drama. The Democrats need to reestablish their position as top dogs, and the Republicans smell blood. It's ugly theater but does it matter to your wallet?
An avowed member of the fastest growing political party in America, disgruntled independents, Johnson is reasonably optimistic that the lunacy in DC will not derail what he feels is still a bull market. "Remember this is still a bull market. Don't get caught up in the day to day, week to week, month to month issues, particularly an issue like the debt ceiling."
The debate will sell papers and most likely not shut down the government. Johnson still likes the consumer and industrial sectors, steering away from international names in favor of domestic companies.
***Don't miss our live blogging coverage of the FOMC announcement and Bernanke news conference starting at 2:00p EST today! Breakout will take you into the market close and continue coverage with a live streaming show on Thursday morning at 9:25a EST covering the market open***