The response on Wall Street: So what?
In Washington, the fight over whether to raise the federal debt limit has grown uglier by the day. The White House says the limit must be raised by Aug. 2 or the government won't be able to pay its bills, possibly including U.S. bonds held around the world.
But as the deadline nears, stocks and bonds have barely flinched. The Dow Jones industrial average fell just 54 points Thursday and stands about where it did at the start of the month. The yield on the 10-year Treasury bond, which usually rises when investors see it as a riskier bet, is considerably lower than earlier this year.
It might seem an odd, even reckless, reaction by investors. But it isn't completely crazy.
Take the ho-hum reaction from the bond market. In theory, investors in U.S. Treasury bonds should demand higher interest payments when there's a greater risk they won't get their money back -- in this case, in the event of a default next month.
Instead, the yield on the 10-year Treasury note rose only slightly Thursday, to 2.95 percent.
In February, when the U.S. economic recovery seemed stronger and the debt limit was a distant threat, it was 3.74 percent.
But in this market, as in the schoolyard, size wins. The U.S. has $14 trillion in outstanding Treasury bonds. That dwarfs government bonds of any other nation. U.S. debt is held more widely and traded more often than any other government's IOU.
That matters because pensions, private investment funds and central banks the world over want to know that they can buy and sell these holdings fast -- what investors call liquidity.
As for stocks, there's plenty of news to distract investors from Washington's problems. U.S. companies are issuing financial results for the latest quarter, and they're expected to post profits -- up 15 percent, according to a survey by data provider FactSet.
The U.S. hit its current $14.3 trillion debt ceiling in May. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.
A default would drive up the cost of government borrowing for years to come. That would translate into higher interest rates for everybody else, making it more expensive for corporations to finance projects and for Americans to take out mortgages.
The prospect of terrible consequences might be exactly the reason investors aren't all that worried.
"There's just too much at stake politically and economically for a deal not to get done," says John Briggs, Treasury strategist at the Royal Bank of Scotland. "It seems hard to believe that any politician would want their name attached to a default of U.S. debt."