Now that the Federal Debt limit has been reached, turbo Tim's plan is to raid the Federal workers pension plans. So what investments do the pension plans hold? Treasuries probably. Since they say this measure will fund us until August 1, we are probably talking about $300 billion in this cookie jar raid. Then what happens on August 2 when Congress approves a $2 trillion increase in the debt limit? The treasury will then buy back the $300 billion in treasuries. But where will they get the money to buy back the treasuries. Well, they will issue more treasuries of course. If Abbott and Costello were still around they could run the world bank system.

Seriously though, how will the above government actions effect the markets? I do not think it will effect the bond market because net supply will remain constant. If the pension plans hold 10 or 20% in blue chip stocks, they may be selling 30 to 60 billion dollars worth of stocks in the next 2 months. This could turn the dow down, and this may have already begun. The flip side is that when the debt limit is raised, the stock markets will get a big boost.