The Rest Of The World Still Claims Faith In America (Even If Wall Street Doesn't)

In this July 25, 2011 photo,trader Gregory M. Rowe (left) works on the floor at the New York Stock Exchange in New York.  The
In this July 25, 2011 photo,trader Gregory M. Rowe (left) works on the floor at the New York Stock Exchange in New York. The deadlock over raising the U.S. debt ceiling continued to weigh on stocks and the dollar Tuesday, July 26, after President Barack Obama warned that his country was dangerously close to a default. (AP Photo/Seth Wenig) )

Wall Street may be starting to freak out a bit about the risk of a U.S. government default, but the rest of the world is playing it cool, or pretending to at least.

In recent days, banks have been dumping one-month Treasury bills that come due shortly after Thursday, Oct. 17, the day the Treasury Department says it will run out of cash to pay its bills, the Wall Street Journal reports. (This news is in line with earlier reports of such sales by Fidelity and J.P. Morgan Asset Management.)

After Thursday, Treasury may not be able to cover its daily obligations, including debt payments to those with Treasury bills, and there is a chance the government could even default on its debt. Such an event could possibly trigger a financial crisis that makes the Lehman Brothers bankruptcy look like a trip to Six Flags.

Despite this impending doom, at least some of Uncle Sam's foreign creditors are taking things pretty calmly, according to Bloomberg, which quotes government officials and investors from around the world saying they're holding on to their Treasury bonds.

“There’s no other way than for the U.S. government itself and the U.S. Congress to sort it out,” Japanese Finance Minister Taro Aso optimistically told Bloomberg Television. This is an important endorsement, as Japan happens to be the world's second-biggest holder of Treasury debt, after China, with $1.1 trillion.

Not everybody in the world is so sanguine. International Monetary Fund chief Christine Lagarde warned Congress it could push the world into another recession if it allowed a debt default.

And Bloomberg did not get a quote from anybody in China, the biggest holder of Treasury debt. And it seems unlikely, doesn't it, that a foreign government would really want to go on the record saying, "Hells yeah, we just dumped a whole bunch of this debt that we own." Which seems like a good way to start an international incident while also putting a dent in your bond portfolio.

Then again, President Obama probably wouldn't mind if the market started panicking a good bit more. That's what it might take to get Congress to finally stop futzing around and raise the government's borrowing limit and stave off disaster.

Markets so far have been in orderly retreat, with stocks down just a bit since mid-September. The interest rate on Treasury debt maturing right after the debt-ceiling breach jumped at the end of last week, but steadied as investors started hoping for a short-term solution from Congress. Stocks were only barely lower by midday on Monday.

The calm of the markets, and the rest of the world, will be more likely to fall apart the closer we get to Thursday without a deal.



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