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On the Ceiling

By Bob Landaas

We’ve all read umpteen times that the U.S. is going to run out of borrowing capacity by Aug. 2.

I’ve been through this time and time and time again only to find that at the last minute, Congress raises the debt ceiling and nobody brings it up anymore.  The financial markets are telling you that they think this is a non-event. But we know that it’s on everybody’s mind.

Politics is unfortunately spilling over into the economics arena.

In a recent Money Talk podcast, Landaas & Company advisors addressed rising concern about the need by Congress to raise the U.S. borrowing limit by August 2 or risk potential default. Here are edited excerpts from that discussion. (To listen to the podcast, please click here.)

I would encourage everyone to look at the 10-year Treasury yield as the canary in the coal mine.

The long-term average for the 10-year Treasury is more than 6%. Today, it’s about half that. That tells you that the big money around the world that lends us money to finance our deficits is convinced that we’re going to raise the debt ceiling once more.

We voted more than 70 times since the 1960s to increase the debt limit. My guess is that we’re going to do it once again. We’re seeing a lot of political posturing – pushing and shoving on both sides of the aisle – in attempt to gain advantage over the other party. My guess is that the noise will get even louder as we get down to the 11th hour before the deadline.

We’re really money people. We’re not politicians. My respect for politicians continues to sink by the day. They’re recklessly endangering the financial stability of our country by continuing to insist on ideology at the expense of practicality, and I resent that as a voter. As a money manager, I hope they get their act together, quit bickering and get to the task of running the country.

If you follow the big money, the big money’s not worried. If you follow the trend in the street, money’s going into stocks, not going out of stocks. You look at the 10-year Treasury – your canary in the coal mine – it tells you this is a non-event. But if you listen to the talking heads at night, that’s an entirely different story. We want everybody to put this in perspective.

Bob Landaas is president of Landaas & Company.

initially posted July 18, 2011

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