Over the legal limit

Yesterday was the official OTNDC (over-the-national-debt-ceiling) Day, and a bleak moment as the United States' debt surpassed its legal borrowing limit of $14.294 trillion.  TRILLION.  Try saying out loud or even typing it-- the absurdity is sobering.

What are the business implications of reaching this milestone and existing in the limbo that we are currently in until August 2, 2011, when the US will begin defaulting on debt if the limit isn't raised?  Will the markets respond negatively to the lack of security with regard to US debt or are the markets immune to the DC political theory and grid lock after the threats earlier this year to shut down the Government over budget disputes?  It seems to be unclear at the moment, although all three major indices were down yesterday and again today.  Given the 11 weeks of lead time between now and August 2nd, the threat of default may seem as absurd as the number.  If the uncertainty stretches to the end of the summer, expect to see stronger and stronger reactions in the market, especially if the price of oil continues on its upward trend and there is concern over the end of stimulus money. 

An immediate consequence will also be a decrease in the strength of the doller, both in the short-term conversation rate (good for exporters) and potantially in the long-term as the world's reserve currency. 

What consequences, if any, do you predict will stem from the debt dilemma this summer, or are you too immune from the antics of political theater?

Anne Tucker