Wall Street’s counter intuitive reaction to the debt talks
Share Now on:
JEREMY HOBSON: Now let’s get to the debt ceiling debate in Washington. There’s still no deal with just two and a half weeks to go before the nation starts defaulting on its debt. President Obama will hold a news conference this morning. And leaders in Congress are asking their members what specifically they would support in a deal.
Chris Low is chief economist with FTN Financial. He joins us live from New York as he is every Friday. Good morning.
CHRIS LOW: Good morning.
HOBSON: Well, Chris as we get closer to this deadline, are you and your fellow economists on Wall Street starting to get kind of stressed out?
LOW: It’s been probably one of the most stressful weeks since the financial crisis for us because the politics here is just so darn ugly. But, you look at the financial markets and treasury yields are trading at extremely low levels. It’s as if people almost aren’t worried.
HOBSON: Treasury yields, you mean that people are actually willing to take less of a payment on their ownership of government bonds. Why would they be doing that?
LOW: Well, I think the answer is that when you look at the balance of risks, the economy after all is barely growing right now. And if there is a default, I think investors figure it does more damage to the economy than the risks to treasuries from a potential downgrade in the credit rating.
HOBSON: So investors would actually rather have their money in bonds and risk not getting paid back by the government than have it in stocks and risk some kind of a double dip recession?
LOW: Well, that’s right. And mostly because after all, you would get paid back, it’s just not necessarily getting paid back on time.
HOBSON: Chris Low, Chief Economist with FTN Financial, thanks as always.
LOW: Thank you.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.