What I’m Watching This Week – 14 January 2013

To broke to pay attention

For the week, the U.S. equity indexes were all up marginally as the market continued along with the now waning New Year rally and its focusing look ahead to earnings season.  Expectations remain mixed for growth in corporate earnings.  Are the analysts too bullish on outlooks or has the data led them to leave expectations so low, that topping them is a dubious achievement?  The market appears to be again motivated on how low the bar has been set and the most expected result is that the “beat rate” as earnings trackers call it, will probably be higher than normal.  I agree that the markets are healthier and getting stronger, the strength within certain economically sensitive sectors will become more apparent and will be presented regarding the health of the continuing recovery.  Now, what could possibly throw a wrench into the spokes of the turning economic wheel?

Queue… Washington.

The penalties of not raising the debt limit in a judicious manner would have severe repercussions for not only the U.S. but the global economy.  Let’s get something’s clear right from the beginning; the debt limit does not prevent the Federal Government from spending more.  By the time we get to the point that we are now, Congress has long ago spent that money on things like military and health care outflows.  An argument against raising the debt limit becomes invalid if you fail to recognize this.

The federal debt limit was created during the First World War to give voters the credence that Congress is maturely managing the nations borrowing and spending.  Its reason for existence is so that Congress can retroactively approve the spending it has already passed.  To decline to pay for the things we have already purchased, the country would consequently default on its debt obligations, unless Congress raises more revenue by increasing taxes across the board.  We already know how that fight would play out, don’t we?

I remain optimistic.  Who’s seriously going to be irresponsible and use the debt limit as leverage?  And leverage for what?  The reality of a federal debt limit has never barred Congress from making ruinous budgetary decisions before and the new 113th Congress doesn’t appear to readily want to break that winning streak.  The actual argument on tackling the federal debt needs to be made much earlier in the budget process, when Congress originally approves the spending it eventually will have to pay for.  Unfortunately, the inmates have taken over the asylum and the debt ceiling conversation is being wielded like a baton to damage to the country’s financial security in this ridiculous era of ultra hyper partisanship.  Even within this turmoil, I remain objective and cautiously optimistic.