Breakout

Default Talk Is Just a “Scare Tactic” Says Wesbury

Breakout

Financial markets around the world were selling off Monday morning as investors came to the realization that the government shut down won't end without a debt ceiling agreement. The question investors are asking themselves is whether or not this is buying opportunity or a last chance to get out of stocks alive.

President Obama himself is cautioning against buying the dip. "This time is different," the president told CNBC last week adding, "It is important for [Wall Street] to recognize that this is going to have an impact on the economy and their bottom lines, their employees and their shareholders."

Treasury Secretary Jack Lew issued a press release laying out the worst case scenario last week. "In the catastrophic event that a debt limit impasse were to lead to a default on Treasury securities, financial markets could be shaken to their core as was seen in late 2008, which resulted in a recession worse than any seen since the Great Depression." Lew stopped short of predicting Armageddon but not by much.

First Trust Chief Economist Brian Wesbury says the president and treasury secretary are playing politics. "In October we will take in more than $200 billion in tax receipts and we only owe $25 billion in interest payments," Wesbury explains. "We will never default on a bond the U.S. has outstanding... this idea of default is a scare tactic."

The market may be throwing a tantrum this morning but stocks are still up big for 2013. Missing the debt ceiling cut off would be Armageddon for politicians and those who count on the government on a monthly basis. That's exactly why Wesbury thinks President Obama will ultimately have to come to the table and negotiate a solution to the debt ceiling debate.

It's a high stakes game of chicken in DC. The President insists he won't bargain and the Republicans don't win unless the president comes to the negotiating table. As happened in 2011 and into the much-hyped "Fiscal Cliff," this one is going to come down to the wire. For those who share Wesbury's view that the world won't end on October 18th, now seems like a good time to start looking for bargains in the stock market.

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