Turns out the stock market rises when catastrophic debt default is off the table

October 10, 2013

Word began trickling out this morning of the House Republicans' latest strategy for dealing with the government shutdown and debt ceiling standoff. It is to increase the debt ceiling enough to buy another six weeks of time to work out a longer-term deal, while leaving the government closed. In other words, it is taking the threat of immediate catastrophe off the table for a while, while keeping the slower, grinding disruptions of a closed government in place to try to extract leverage for a deal.

But that was enough to make markets happy. A government shutdown isn't great, but isn't horribly disruptive for the economy overall. A debt default would be, and even inching close to one would surely cause convulsions in markets. So taking that possibility off the table for now sparked a furious rally in the stock market Thursday morning, retracing losses from the previous two trading sessions. This is the Standard & Poor's 500 index for the last three days:


It turns out, taking the threat of exploding the entire economy off the table is really good for the stock market. Who knew?

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