Breakout

Shots Fired in Debt Ceiling Debate: Here We Go Again!

Jeff Macke
Breakout

For a group that continually says they want to reach across the aisle, the White House certainly picks a lot of fights. Fresh on the heels of President Obama's curiously contentious speech in Galesburg, Ill., (Applause), Treasury Secretary Jack Lew made the media rounds over the weekend blaming Congress for a coming redux of the 2011 debt ceiling debate.

Appearing on Meet the Press, Lew preemptively chastened Congress for holding up a debt limit agreement, reminding viewers that the 2011 debate resulted in a brief drop in economic confidence. "The fight over the debt limit in 2011 hurt the economy, even though in the end we saw an extension of the debt limit."

Actually, the fight didn't affect the economy directly, but it briefly kicked the snot out of the consumer confidence and the stock market. In 2011, from July 22 to August 8 the S&P 500 fell a stunning 16.8%. The drop initiated an extremely choppy two months for stocks, which didn't find a firm bottom until early October.

The lesson was more that the debt ceiling debates of 2011 created a buying opportunity. As Breakout co-host Matt Nesto points out in the attached video, the bond market all but openly mocked both the debate and the resulting downgrade from Standard & Poor's. "The real story was that the bond market didn't crash, it actually rallied and burned everybody. The bond market is much more newsworthy today with the whole tapering [discussion] and the Fed transition."

If you're looking for a reason to take profits on your portfolio, Lew may have given it to you — but you're probably better off ignoring the conversation entirely. At least so far, that's all you need to know about this round of the debate.

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