What have you always wondered about the economy? Tell us
Raising the Debt Ceiling

Bond markets remain calm amid debt ceiling debate

Marketplace Staff Jul 25, 2011
HTML EMBED:
COPY
Raising the Debt Ceiling

Bond markets remain calm amid debt ceiling debate

Marketplace Staff Jul 25, 2011
HTML EMBED:
COPY

Stacey Vanek-Smith The debt ceiling debate rages on as the August 2nd deadline creeps ever closer. After that, the government officially runs out of cash and could have to default on some debts — possibly including U.S. government bonds. Marilyn Cohen with Envision Capital Management joins us live now to talk bonds. Good morning, Marilyn.

Marilyn Cohen:Good morning.

Vanek-Smith: So a lot of foreign governments own U.S. bonds — and markets around the world are down. But they definitely aren’t panicking — why not?

Cohen: I think that they have a lot of confidence that even at the 12th hour, Congress will get it together and there will be no default and it will just be another one of our, kind of like family feuds that the market will be over very quickly.

Vanek-Smith: Assuming this does get worked out, is there long-term damage to the U.S. Treasury bond? You think we’ve permanently affected the way people see U.S. bonds?

Cohen: I don’t think it will be long-term damage. You don’t hear anybody saying we don’t deserve a downgrade. I think that the market will be very forgiving. And once we get it back together again, I do believe that it will be business as usual. I remember when Japan went from AAA to AA, it was going to be armageddon and it didn’t happen.

Vanek-Smith: What are you going to be watching for this week as the debt ceiling clock winds down?

Cohen: I’ll be watching very closely the new deals that come out, whether it’s Harry Reid or anybody else. The size of the spending cuts, I think that is really the key that people need to watch.

Vanek-Smith: What are you going to be watching for specifically?

Cohen: To see whether that number ends up being ratcheted up or ratcheted down. I think the market is anticipating a really large number, not a smaller number. If it’s a smaller number, then I think there will be some minor, short-term disappointment. But anything under $2 trillion, I think, will be pretty bad news.

Vanek-Smith: A number to watch for. Marilyn Cohen with Envision Capital Management. Thank you, Marilyn.

Cohen: Thank you.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.