AT News editor Ed Lasky points us to this very good summary at Politico of what the two sides - and the markets - are thinking this Monday as the deadline to raise the debt ceiling approaches.
WHAT TOP DEMS ARE THINKING, per an official familiar with the negotiations: "1. A short-term extension would create tremendous uncertainty in the economy and risk a downgrade. No short-term extension can pass the Senate, so any proposal like that is dead on Day 1. Both Cantor and Boehner opposed short term extensions last week. 2. Senate Dems and the White House have bent over backwards to give the Speaker a way out of the mess he created on Friday by blowing up what would have been a good deal, but he can't bring himself to say 'yes' to anything. 3. The GOP doesn't only oppose all Dem plans -- they oppose their own plans.
WHAT TOP REPUBLICANS ARE THINKING, per a House leadership aide: "President Obama blew up any chance of a bigger agreement with his insistence on tax hikes and by backing away from some of the serious structural entitlement reforms he agreed to rhetorically. He has only himself to blame. The President desperately wants a large debt limit increase that will take him past the next presidential election. Republicans will not give him a $2.4 trillion blank check he can use throughout his re-election campaign to continue the spending binge that has driven our nation to the brink of a job-destroying downgrade and default.
Meanwhile, the markets are reacting the way that markets always react; planning as best they can to insulate themselves from any trouble coming their way. But, as investment counselor James Rickards points out:
"There is no state of the world where the U.S. will default on its debt. If the debt ceiling is not raised, the U.S. will still pay principal and interest, even if other expenditures are cut. If the Treasury has trouble selling bonds, the Fed will buy them. If the Fed needs money, they will print it. That much of the system is intact. Any stresses will play out in: inflation, interest rates and the exchange value of the dollar. But the international monetary system is a bit of a closed circuit and Geithner must feel that with Chinese, G-7 and Brazilian cooperation, things will hang together. Definitely a high-wire act. The joker in the deck is gold. Watch gold for a daily 'vote on how Geithner, Obama and Bernanke are doing."
Keep this in mind as Obama ratchets up the rhetoric and scare mongering to put pressure on the GOP.