There's been no deal on the US debt ceiling yet.
Markets don't seem that bothered.
Sure, there was a 100-odd point drop in the Dow Jones yesterday. But it had been rising for four days in a row before that. So it hardly classifies as an existential panic.
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The apparent absence of fear seems sensible. After all, a deal will get done.
Won't it?
What's behind the debt ceiling battle?
The US debt ceiling is an artificial legal limit on America's national debt. It's currently at around $16.7 trillion. If the US is to continue increasing its borrowing, its politicians have to agree to raise this ceiling.
To be clear markets are still perfectly happy to lend to the US. This is a self-imposed limit. The trouble is, the parties can't agree to raise it.
You'll have your own views on the politics I'm sure. But the short version is that the Republicans (or a significant enough chunk of the party) would like to stop Barack Obama's healthcare reforms in their tracks.
The Democrats don't want that. Apart from anything else, it's about the only policy Obama can point to as his legacy'.
Yesterday, talks on another potential deal fell through. And there's only one day left before deadline. Come Thursday, says the US Treasury, its credit card hits the limit. At that point, payments need to be met from tax revenues.
That would mean the government would have to choose who got paid, and who didn't. That would give us the "politically agonising spectacle" of Chinese bondholders being paid while disabled war veterans lose out, as the FT puts it.
Or as Martin Wolf suggests in the FT, Obama would have to ignore Congress and just go ahead and keep borrowing. That might make the most sense, but it's a risky and troubling step in political terms. Do you really want to be the person holding a US Treasury of dubious legality, given that this is what it could boil down to?
Now, there's probably more slack in the system than the Treasury is letting on Capital Economics reckons the point at which the money actually runs out is probably November 1st.
Even so, ratings agency Fitch has moved the US to negative rating watch. In other words, it may cut America's credit rating from AAA. S&P did the same thing last time this debt ceiling panic erupted, back in August 2011. The other big agency, Moody's, still has the US on AAA.
Fitch said: "The US risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens, all of which would damage the perception of US sovereign creditworthiness and the economy."
Markets might need to panic before a deal is reached
Markets haven't collapsed because investors don't want to miss the relief rally when a deal is done. Given that most believe the Federal Reserve is set to keep printing money under new boss Janet Yellen, why sell? Since 2009, the Fed has taught even the most bearish investors a hard lesson buy the dips'.
Trouble is, the relative calm in markets takes pressure off politicians to come to a deal. The Democrats won't back down, because polls suggest the Republicans are taking the lion's share of the blame for this. But on the Republican side, there's a sizeable contingent that doesn't care.
There's a chance that this might turn into one of those tedious situations where the market has to have a proper panic not unlike the taper tantrums' to persuade politicians to come to a deal.
What can you do? In practical terms nothing. If a deal gets done imminently, there will probably be a rally. The longer it takes to do, the more chance of a big plunge, which would then light a bit of a fire under the backsides of politicians. Either way, unless you're an avid day-trader, there's not a lot to be done in the short-term.
In the longer run though, it seems likely that any deal done will be unsatisfactory. It'll just put this question off until next time. That can't be good for America's credit rating not just with the essentially irrelevant ratings agencies, but with real' investors.
Treasuries won't lose their least risky asset in the world' tag any time soon. And no one is going to ditch their Treasury holdings overnight despite calls in the FT this morning from one columnist for China to stop lending so much to the US.
But we wouldn't be keen to own ordinary US Treasuries. All things being equal, this political mess increases the chances that investors start demanding a higher return to hang on to them.
It also means that the Federal Reserve may keep printing money for even longer than anyone had expected earlier this year. That in turn, means a higher risk of inflation making a more vigorous come back.
For now, that suggests favouring stocks over bonds (they do better when we're in the foothills of inflation). The US looks expensive, but we've already written plenty about the markets we like use any dips to top up.
And in the next issue of MoneyWeek magazine, David C Stevenson looks at one particularly interesting group of markets that could present great buying opportunities if there's a wave of panic-selling triggered by the debt debate. If you're not already a subscriber, subscribe to MoneyWeek magazine.
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