This isn’t the first time this has become an issue over the years and it certainly won’t be the last. Time and time again, we have reached this point but each and every time before, this gets resolved one way or another.
Yes, we may have run close to the deadline and it looks that way once again. But is this time really that different?
After talks have been pushed back last week, the latest headlines suggest that we are no closer to an accord with reports over the weekend suggesting that things are going backwards. Meanwhile, Yellen reaffirmed that 1 June will be the “hard deadline” but I would wager it being somewhere around the first week of June or so.
But whatever the case is, I’m inclined to think that this will once again get resolved come what may – as it has been the case in every other instance in the last three to four decades. It’s economic suicide to let debt ceiling talks lapse and politicians really should know better, despite how foolhardy they may be.
It’s a game of chicken where both parties want to win and neither wants to accept a loss so to speak. But in a case where nobody loses means that everyone loses, then it will be in the best interest to find a solution instead.
The typical playbook each and every single time when it comes to debt ceiling concerns is to buy value, sell hysteria – just like any other risk/fear event. And if we do see more fear show up in risk trades in the week ahead, I would argue that should be the play once again this time around.