Another day, another impasse on Capitol Hill. Talks broke down acrimoniously after Republicans in the House of Representatives tabled their alternative to a compromise brokered in the Democrat-dominated Senate. With the hours ticking away to Thursday's deadline for raising the US debt ceiling, this was the cue for Wall Street to take a bath. It did not.
There are reasons why the response of the financial markets has been so sanguine. Despite the rhetoric, the substance of the Democrat and Republican proposals was not that different, suggesting that the sound and fury on Capitol Hill signifies little. Two days remain before the US Treasury says it will run out of money – plenty of time for a last-minute compromise.
And nobody really thinks that the deadline actually marks the moment when Uncle Sam stops paying his bills. In the past the US Treasury has been remarkably good at finding a few billion dollars down the back of the sofa in moments of need.
In truth, the lack of a market crash has not helped matters. A big sell-off on Wall Street, of the sort seen when Congress refused to pass the Troubled Asset Relief Programme (Tarp) in 2008, would bring lawmakers to their senses. That might still happen, but only when Wall Street thinks this is more than a phoney war. If the two sides are still at loggerheads, Thursday could get interesting. But the real action would be on Friday if the deadline is missed.
