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A U.S. Default Is Unlikely, But So Is An Oil Rally

United States

This week, as the deadline for reaching an agreement on raising the US debt limit approached, the ratings agency Fitch announced that they were placing the AAA debt rating of the United States government on “negative watch”. If you are new to trading and investing, and particularly if you live outside of the US, that news might surprise you. I mean why would any country, least of all the one whose currency and debt form the basis of the global financial system, put its credit rating at risk periodically by squabbling about partisan politics?

The ostensible treason makes perfect sense. Someone, at some point, has to be held accountable for government spending, and forcing Congress and the President to speak about it occasionally doesn’t seem like a bad thing. However, having a debt limit that must be renewed hasn’t exactly limited spending since it was introduced in 1917, and the US now owes a mind-boggling $31.8 trillion. The problem is that the debt ceiling negotiations have evolved into a kind of theater of the absurd with everyone playing roles, a lot of melodramatic posturing, and a tortured path to an inevitable conclusion.

We know all this because we have been here before, and more than once. In fact, it is a regular occurrence. So, why does it continue?

The answer is because, as crazy as it may seem, history indicates that the arguing and posturing will benefit both sides politically, and that is seen by them as more important than any risk to financial…

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