Wall Street ‘Vastly Underestimating’ Risk of Debt Default?

“Meet the Press” climaxed Sunday  with a startling market prognostication from David Brooks, conservative columnist for theNY Times.

The risk of a debt default over the combustible issue of the Medicare deficit hangs over the course of the stock market. Buyers Beware!

“I was up in Wall Street  this week,” Brooks said. “They’re vastly underestimating the source of piolitical risk here. We could have a major problem, I think, either this summer or the next couple years. And I’d be worried about investing too much in the market. That’s my financial advice.”

I have to admit Brooks woke me up. I had blithely been assuming a deal to raise the debt limit would get resolved at the last minute–the classic American way. But, the showdown between Republican cutters and Democrat defenders of Medicare may a lot more treacherous a path than I anticipated.

 And the potential deep cuts underscore what I mentioined in my“Market’s Wall of Worry” post yesterday about the prospects of the  Income line of the GDP  being reduced by necessity. Cut Medicare and lerss money will be spent on health care, less money on medical instruments, less money on drugs, on pills, on doctotrs visits.

Less money on healthcare means less money circulating and so less tax  revenue. It’s a future scenario few of us want to contemplate. A runup to possible default will not be positive for the stock market. Even if dfefault is avoided then,  the notion that Wall Street doesn’t get the crisis measns there’s too much denial of reality in stock prices. I’m with David Brooks.

source; FORBES.COM
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Posted in: Wall Street