As the country moves closer and closer to default on Aug.2, Wall Street and other large investors are beginning to get nervous. Just one week ago, the notion that congress would default on its debts was unthinkable. Most investors didn't believe default by the U.S. government was even a remote possibility.
Now, as the prospect of defaulting on its obligations becomes more and more of a possibility, the stock market investors are beginning to react. In the last four days, the stock market has declined 3.3%. That is a pretty significant decline considering that the U.S. Stock market has only gone up about 7.5% for the whole year.
Keep in mind that Wall Street investors are a jittery, cautious bunch. In general, most investors will sell their investment if there is significant reason to believe that their investment is in trouble. And trouble is what we have in Washington right now with the Tea Party making any compromise impossible. That is why the stock market has declined in the last few days. I think we will see an even greater flight away from U.S backed securities as investors turn toward gold as the week goes on.
I hope I am over-analyzing the data and overreacting to the new reality that the U.S. Gov. may actually default. I hope the stock market doesn't continue its plunge and that congress reaches a deal in the next few days. And most of all, I certainly hope that many of the dire predictions regarding the consequence of a U.S. default from economists all across the spectrum are overly catastrophic and that the U.S. will not go into another recession.
John McCain said it right when he said that we as a country can bicker and argue about the role and size of government, but we shouldn't put at risk the credibility of the United States. There are more responsible ways of reducing government spending. This sort of political gridlock needs to stop for the good of this country's citizens and the good of the U.S. reputation abroad.