Debt Ceiling Storm

“We’ve been checking the weather constantly,” reported the groom, “but we’re getting conflicting reports. The BBC says it should be fine [on the wedding day], but the Irish press is forecasting rain. I don’t know if that’s BBC optimism or Irish pessimism.”

“Could be Irish realism,” your editor offered. More on that below, but first, a look at the world of finance…

Markets in the US barely managed to come up for air yesterday after spending eight straight days underwater. The major indexes posted a rounding error-sized gain before collapsing again in early trading today. The Dow plunged over 1% out of the gate this morning, before continued its southward trajectory. Last we checked it was off more than 2.2%, taking losses over the past month to 7.5%. The S&P 500 and the Nasdaq have trended similarly, the former now down over 2% for the year, the latter off 1.3% over the same period.

What’s going on? What does Mr. Market know today that he was not aware of a week ago, or a month ago? Ahh…if only we knew! Mr. Market works in funny ways…though not always the “ha-ha” funny investors enjoy. Something we’re relatively sure of is that these things don’t usually move in smooth, predictable paths. Straight lines are for geometry classes, not stock markets. That in mind, Mr. Market might feel a short term, counter-trend advance is in order, something to sort out the shorts. We could be wrong, of course…and the whole thing could go to Hell tomorrow.

The papers tell us that this morning’s fall is in response to another poor showing in the US jobs market. But this is hardly news. The US hasn’t posted a weekly jobless claims number below 400,000 since early April. The current four-week rolling average stands at 407,000…give or take. And now we see that US GDP growth has “stalled out” for the year. Various estimates – including from the government’s own figure-fudging factory – indicate the economy slipped behind the 2% annual growth rate during the first two quarters of this year. Two per cent is about the rate many economists agree is required to keep pace with population growth. Some recovery, eh?

Within moments of agreeing to raise the much-ballyhooed debt ceiling – a self-congratulatory, Congressional back-slapping moment covered in these pages yesterday – borrowing by the United States officially topped 100% of GDP. Gross debt shot up $238 billion on Tuesday, Treasury figures showed, as the politicos scrambled to fill the hole left by some of Secretary Timothy Geithner’s “extraordinary measures” to keep the lights on while the two parties were jockeying for position in that all-unimportant debt ceiling debate.

The Associated Press provides some details:

“[The] new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, putting the United States in a league with highly indebted countries like Italy and Belgium.

“Public debt subject to the official debt limit — a slightly tighter definition — was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.

“The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.”

The fed’s latest borrowing places the United States alongside a dubious cast of spendthrift ne’erdowells who’s debt to GDP ratio now exceeds 100%. The list includes, according to figures provided by the International Monetary Fund, Japan (229 percent), Greece (152 percent), Jamaica (137 percent), Lebanon (134 percent), Italy (120 percent), Ireland (114 percent) and Iceland (103 percent).

The latest batch of non-recovery figures were probably not what Mr. Geithner had in mind when he penned his “Welcome to the Recovery” article in the New York Times exactly one year and two days ago.

“The economic rescue package that President Obama put in place was essential to turning the economy around,” Geithner gushed in that unfortunate piece. “The combined effect of government actions taken over the past two years — the stimulus package, the stress tests and recapitalization of the banks, the restructuring of the American car industry and the many steps taken by the Federal Reserve — were extremely effective in stopping the freefall and restarting the economy.”

We invite the reader to take a look around and to judge for himself or herself just how effective the administration’s oft-lauded measures have proved…or not proved.

Such is the tattered state of the United States balance sheet that it has managed even to draw the scrutiny of the ratings agencies, typically the very last observers to any financial crime scene. On Tuesday, Moody’s warned the US government that it needed to stabilize its debt to GDP ratio at 73% by 2015 “to ensure that the long-run fiscal trajectory remains compatible with a AAA rating.”

What do you think the chance of that is, Fellow Reckoner? The odds of a sunny wedding day in Ireland? Maybe less.

We arrived at the Church of St. Creabhnaith Annakissa, here in Limerick, about an hour before the bride. The old stone building appeared grey against the brilliant, green rolling hills to its sides and off in the distance. A cemetery out back stood well tended with flowers on the graves of O’Boyles, O’Sheas Moyles and the like. The sky overhead appeared ominous; the color of the old church stones.

After a quiet, contemplative walk around the grounds, we were ushered inside for the ceremony. Catholics don’t like to rush their services. Your editor spent twelve years in a Catholic school as a child, so he was well prepared. Others had no idea what they were in for. A group of Americans to our right – at least one of them a Southern Baptist, another indifferent altogether – had never sat through a ceremony so long.

The grooms party looked suitably dapper in their kilts (the groom being Scottish) and the bridesmaids, in matching satin dresses and holding roses which filled the space with the aroma of spring, were outshone only by the glowing bride herself.

First came the Liturgy of the Word, then a reading from the Book of Tobit: “Now you will feel no rain, for each of you will be shelter to the other…”

Next the Responsorial Psalm and a reading from the first letter of St. Paul to the Corinthians:

“If I speak in the tongues of men and of angels, but have not love, I am only a resounding gong or a clanging cymbal…”

Then came the Gospel Acclamation…the lightings of candles…marriage rites…Prayers of the Faithful…Liturgy of the Eucharist…and plenty more we can’t now recall.

Outside, the guests gathered in groups and remarked on what a touching ceremony it had been. The organist’s voice was angelic, all agreed, and the bride and groom made a fantastic couple. The whole scene was so peaceful. We could have spent the whole afternoon outside in the lush countryside, drifting from group to group. Then, before long, a member of the groom’s party tapped us on the elbow and whispered, “Better be getting back to the reception, aye, looks like itsa gonna rain any moment now…”

Two minutes later, the new husband and wife safely in their car and on the road back to town, a light mist began to fall gently on the crowd…


Joel Bowman,
for The Daily Reckoning