This weekend was filled with economic events that impacted money flow in the markets. The head of the International Monetary Fund was arrested in New York. The arrest complicates attempts by the IMF to work out a deal to provide aid to Greece and refocused investors on European and U.S. sovereign debt concerns once again, sending most global commodity and equity markets lower overnight as money flowed to the safety of the U.S. dollar. As a result, the dollar index pushed to new five-week highs in global currency trade.
Amid those happenings, the United States government reached its self-imposed debt ceiling, which prompted U.S. Treasury Secretary Timothy Giethner to begin raiding the government pension fund so that he could continue to borrow money for the government without exceeding the debt ceiling. He called this "extraordinary measures" while officially informing Congress that the $14.3 trillion debt ceiling had been reached.
According to the letter that Geithner sent to Congressional leaders, on Aug. 2 the United States will have exhausted its borrowing authority and threaten a government default unless a budget deal is brokered to raise the debt limit.
Farm Futures Market Analyst Arlan Suderman says that real battle is over who will decide what is going to be cut. If Congress can come to an agreement that either raises the debt ceiling or a holding that has budget cuts attached, they get to dictate what is cut from the budget. If they are unsuccessful, then the Administration dictates the cuts, which Suderman says is what the budget battle is really all about.
"Neither side wants to see us default on debt," Suderman said. "I believe that therefore the Treasury Secretary will do whatever is necessary to avoid defaulting. He just may cut what Congress doesn't want cut as their part of the bargaining in the process."
Suderman says that in regard to the markets the biggest worry is fear about the debt ceiling taking over and causing investors to pull their money out of the markets. To listen to him explain the impact reaching the debt ceiling will have on agriculture use the audio player on this page.