Debt Chaos Essay

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Well, Congress did it again. It managed to create a sense that the United States might actually default on its debt before delivering yet another eleventh-hour deal to make sure that wouldn't happen. The stock market never really bought into the bad act - or perhaps we should say sold into it. Sure, there were a few bumps along the way, but with all of the dire warnings about what would happen if Congress didn't strike a deal, the S&P 500 was down just 1.8% from its all-time high when it became apparent a deal would get done before the nation's borrowing capacity ran dry on October 17. It was some deal, too, because it managed to accomplish everything and nothing all at once. At the same time, it left ample reason for the stock market to think the FOMC won't be making a tapering announcement until sometime in 2014 at the earliest. The Deal One source after another, including us, will refer to the deal Congress struck as kicking the can down the road. It is easy to understand why. The agreement that was struck calls for: • Providing funding for the government through January 15 • Raising the debt limit to meet the nation's borrowing needs through February 7 (extraordinary measures could take it to late March) • Maintaining sequestration In other words, the deal is just a short-term fix that moved the needle on the deadlines but did nothing to address matters of long-term fiscal sustainability. The thinking is that the agreement will provide some breathing room for Congress and President Obama to engage in some serious budget negotiations that result in a grand bargain both sides can be happy about (apparently, the 25 months they had since the last debt ceiling debacle just weren't enough). Well, let the negotiations begin. We'll believe in the grand bargain when we see it, but it's not as if anything has changed with the latest agreement. The Republican

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