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July 18, 2011
Edited: July 20, 2011
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The debt ceiling will be raised.
However, before that happens, both political partys will continue to play an extremely complex and very risky game of Brinkmanship.1
You are probably more familiar with the popular version of Brinkmanship called “the game of Chicken”.
Brinkmanship has been compared to a game of Chicken, because the principle is the same, to create immense pressure until one party backs down, but the consequences are much more severe.
Pre-commitment
One tactic is for one party to signal their intentions convincingly before the game begins. For example in the traditional game of chicken where two cars are driving toward each other, if you allow your opponnent to see you throw your steering wheel out the window, you probably have convinced him of your intention to not swerve.
This is what Republicans have done, by signing the “Taxpayer Protection Pledge”. 235 Representatives and 41 Senators have reportedly signed this pledge. If they go back on their pledge, it could be career suicide as they could expect a Tea Party primary challenge in the next election.
What's more, now the Republicans are signaling that they don't believe 2 August is a legitimate deadline.
Expect an exceptionally bumpy ride between now and whenever the Republicans decide what the true deadline is, as each side blames the other for driving the economy over the cliff and into default.
Whatever your political affiliation, be afraid, be very, very, afraid.
Recommendation:
-Buy:
VXX, SDS, FAZ, TBT (ie Bear Market ETFs)
Caveat:
Congress may do the right thing. (Ha Ha)
Invest wisely,
MAGE
1. Brinkmanship is the practice of pushing dangerous events to the verge of disaster in order to achieve the most advantageous outcome.
