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Confidence Builds on No Worries Over Debt Crisis

“Until recently, bankers were seriously concerned about the possibility that the United States would break its $14.3 trillion debt ceiling and default. Now they’re OK with it.

Analysts such as Chris Whalen argued against raising the debt ceiling, which is under discussion among lawmakers at present.

Bank of America’s Jeffrey Rosenberg has become less concerned as has hedge funder Stan Druckenmiller, bond guru Jeff Gundlach and Rep. Paul Ryan, R-Wis.

Now, Citi analyst Steven Englander is joining the chorus.

In the short-term, markets would react to a default.

“Two months ago there was a virtual consensus that a debt ceiling breach would be an unmitigated disaster for U.S. asset markets,” Englander says, according to Business Insider.

“Confidence in Treasurys as the ultimate safe haven would be destroyed and there would very likely be spillovers into other asset markets.”

Yet the fallout would clear.

“A breach of the debt ceiling would magnificently concentrate the minds of Congress and the administration to reach a speedy deal on longer-term fiscal consolidation. In this view, if brinksmanship or even a few days delay in receiving a payment were the cost of long-term reform, it would be worth it. Longer-term attractiveness of Treasurys might even be enhanced if the deficit were put on a sustainable course.”

Treasury Secretary Tim Geithner, however, says default is unthinkable and adds that Congress must raise the debt ceiling to avoid a default.”

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