The stock market has been moving up and down since last week, as Congress moves closer to and then further away from a debt limit deal. On Friday, the markets rebounded from near one-month lows; on Monday, the Dow Jones fell back down again. But the global financial system is not in crisis — yet. Probably because Wall Street doesn't actually think Congress will allow default. Only Tea Partiers think default wouldn't rock the economy, however. Lawmakers looking for signs from financial markets to illustrate how bad default would be might not see them until it's too late.
Currently, financial markets aren't panicking, but Wall Street types say panic will happen eventually. Guggenheim Partners analyst Chris Krueger tells Politico on Monday, "It is unclear whether we are about to see the dawn or pitch black." Jamie Dimon, the CEO at JP Morgan, said on Sunday, "As you get closer to [the deadline to raise the debt ceiling], the panic will set in and something will happen. I don’t personally know when that problem starts." Market panic would surely push Congress to reach a deal, but unfortunately for lawmakers, that probably won't happen until we miss the deadline. Washington Post economics writer Zachary Goldfarb tweeted Monday, "When lawmakers ask financial markets to freak out so they can do their jobs, it's almost always the case they won't freak out."
Still, world leaders are begging Congress to reach a deal for the sake of the global economy. The EU Economic Affairs Commissioner Olli Rehn warned on Monday that U.S. debt default would have "dramatic consequences" for the global economy: "It is very important that the US overcomes its fiscal gridlock. Otherwise it could have potentially dramatic consequences on the world economy and on the still nascent recovery in Europe." IMF chair Christina Lagarde issued a similar warning on Sunday, insisting that U.S. lawmakers are risking "massive disruption the world over."
Meanwhile, Republicans are using relative market calm to argue that default wouldn't be such a big deal. Rep. Trent Franks claimed last week that warnings like Lagarde's are just "hyperbole." Most agree that they aren't. Lawmakers will have to reach a deal before the U.S. defaults to avoid catastrophe. If they wait until the market fully panics, the damage will already be done.