If nobody's too worried about a default, there's less urgency to avoid it. So if everyone could be more worried, then we could be less worried.
American president Franklin Delano Roosevelt on board an American warship, circa 1935. (Photo by Keystone/Getty Images)
Franklin Roosevelt, in his first inaugural address, said, “The only thing we have to fear is fear itself.” Today, according to two articles posted Oct. 7 on The New York Times’s “Dealbook” Web site, America has the opposite problem. The only thing we have to fear (about the looming threat of U.S. government default) is the absence of fear.
“Little Fear on Wall St. Of Default, At Moment” is the headline on one of these stories, by the Times’s Nathaniel Popper. Such news would appear, at least superficially, to be reassuring. If there’s little fear of default, one might logically conclude either that default is unlikely to occur or that default would be nothing to fear. But Popper’s actual point is the opposite: Wall Street is too complacent, and that makes default more likely. Yes, the market has gotten more volatile, but nothing like during past crises. “The relative calm on Wall Street,” Popper writes, “is worrying some investors, who fear the markets will not signal to politicians the true danger of hitting the debt ceiling until it is too late.”
Andrew Ross Sorkin makes precisely the same point in a Dealbook column headlined, “No Way U.S. Would Allow Debt Default? Don’t Bet On It.” (Among those things that the Times business desk does not fear, apparently, is redundancy.) Like Popper, Sorkin reports that nobody on Wall Street seems to take the prospect of default seriously. And like Popper, Sorkin finds that disquieting. “Nobody believes the country will actually exceed the debt limit,” he writes, “which is exactly why it might.” Sorkin elaborates: “The more Wall Street is convinced that Washington will act rationally and raise the debt ceiling … the less pressure there will be on lawmakers to reach an agreement. That will make it more likely a deal isn’t reached.”
Be afraid that you aren’t more afraid. Because if you were more afraid there would be less reason to be afraid.
Also, be afraid of making errors that suggest Wall Street is less afraid than it really is. Popper observed that the price of short-term Treasury bills was, perversely, going up even as the Oct. 17 debt-limit deadline approached. We aren’t worrying enough! But Popper’s reporting (or perhaps his editing) turned out to be incorrect, and the Times posted a correction; the price of Treasury bills coming due in the next two weeks was actually going down, much as you would expect it would when there’s a heightened risk of default. On Oct. 8, the Wall Street Journalreports, you practically couldn’t give away four-week Treasury bills due to mature on Nov. 7; to find buyers, Treasury had to increase yield to a level not seen since the 2008 financial crisis. “It was an awful auction,” Priya Misra, head of U.S. rates strategy research at Bank of America Merrill Lynch, told the Journal.
Wall Street is starting to worry. That means you can worry a little bit less. On the other hand, ordinary investors “still believe T-bills as a safe-haven asset,” Jake Lowery, portfolio manager with ING U.S. Investment Management, told the Journal. They aren’t worried. That means you should worry a little bit more.
President Obama is very worried that GOP intransigence will cause a default. House Speaker John Boehner seemed less worried, at least partly because many hard-line congressional Republicans weren’t worried at all. Then, five days ago, The New York Timesreported that John Boehner said privately that he was in fact quite worried about a default, and therefore wouldn’t allow it to happen. That provided, briefly, some respite from worry.
But the worry came roaring back after Boehner went on ABC’s This Week and said, “We’re not going to pass a clean debt limit increase… My goal here is not to have the United States default on their debt. My goal here is to have a serious conversation about those things that are driving the deficit and driving the debt up.”Boehner’s suggestion that the creditworthiness of the United States might end up being collateral damage prompted ABC’s George Stephanopoulos to ask whether, if Boehner didn’t succeed in extorting some yet-to-be-determined concession from Obama, the country would end up in default. “That’s the path we’re on,” Boehner said. Which was worrisome.
Tuesday President Obama said that he, too, worries the GOP isn’t worried enough. “I do worry that Republicans but also some Democrats may think that we’ve got a bunch of other rabbits in our hat,” he said. “There comes a point in which if the Treasury cannot hold auctions to sell Treasury bills, we do not have enough money coming in to pay all our bills on time.” He added: “There is no magic wand that allows us to wish away the chaos that could result if, for the first time in our history, we don’t pay our bills on time.”
President Obama is clearly worried. That should make you worry a bit less. Which, in turn, would oblige you to worry more. It’s going to be like that until Oct. 17.
After that, we can all go back to being courageous, or at least to fearing things that matter a lot less.