IF I HAD TO VENTURE A GUESS….
There’s really only one scenario that is likely to play out over the coming 6 days:
We’re running right up against the debt ceiling deadline and the two sides don’t look like they’re ready to agree on anything. The Boehner plan is going to go up for vote on Thursday according to the latest reports, but Obama has already said he’ll veto it. So, there’s some potential that we get a “mini TARP” in the next few days where markets continue to tumble as the politicians prove they are serious about deciding to let America go bankrupt.
Then, when push comes to shove, they’ll “work all weekend” (those hard workers in Congress!) and we’ll get some sort of incredible rescue announcement at the last hour on Sunday evening. Futures soar 200 points and everyone breathes a big sigh of relief as our politicians ride off into the sunset on their white horses….
That’s just a guess though. There is some chance we get no vote over until next week and the Treasury will scrounge up the funds to operate as the sense of urgency builds and the politicians vote on a new plan early next week. Either way, I don’t see how something doesn’t get resolved. The politicians are not intelligent, but even they know they won’t keep their jobs if they let us default and spiral back into recession just because they couldn’t agree on something. And at the end of the day, we have to remember that it’s their jobs that are important – not necessarily the American people.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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46 Comments
Option A sounds very plausible. I think an multi month extension is agreed upon on Sun and we play the same game again in a few months. In the mean time they still need to work out that pesky light bulb issue that keeps most of this country awake at night!
Wonder what the constituents of the tea party Republicans are telling their congressmen…..
” All cuts deal only or allow US to default”
Hopefully, they have thought about the consequences…
> Wonder what the constituents of the tea party Republicans are telling their congressmen…..
> ” All cuts deal only or allow US to default”
> Hopefully, they have thought about the consequences…
Actually, there’s plenty of those tp’ing the GOP who actually think it will be a good thing if the whole system has to reset; that’s thinking just like that guy in Norway, except our simpletons want to tp the whole economy financially (I hope not pysically) in order to “make everything better”
both parties are very much like dysfunctional parents blatantly using the kids; we should take custody of the country away from these people; the sooner the better
How about an “emergency” measure to increase the debt ceiling just enough to provide for the deficit for another week or month – to prove that both parties are really, really serious about addressing the deficit?
Jackpot, I see an election year dedicated to that, eternal discussion about the ceiling… people tired about it. Gov supply companies’ budget sorted by incertitude… cost inflation (cash-adverse attitude –Marc Feber) , internal recession.. But I believe I don’t see that just for winning an election, don’t care who win!!
Forget about politician, this is over them… imo of course.
Obama should fight instead of being a doormat again.
Use the 14th Amendment, and challenge the debt ceiling law as being absurd. Congress has authorized both the spending and the taxation levels, and thus, implicitly, they have authorized the borrowing to make up for any difference. The debt ceiling law is like trying to say 2+2=3.
There are nine intellligent people on the Supreme Court. Use them.
you assume obama has all the best intentions of bringing truth to the situation.. he is just as much of a politician as the rest of his republicrat friends – he’s using the situation to raise taxes, while the other side is trying for cuts; both attempting to do their version of the worst to everyone who lives in this country. in the end, we’ll get a mix of higher taxes AND big spending cuts, because there is simply no alternative.
There will be no deal, and then Obama will shut down Social Security and Medicare to keep the government operating. White seniors didn’t vote for him anyway, so what does he care about stiffing them? Bond payments will be made on time. Soldiers will be pais, especially because Obama will need them if he declares Martial Law. After a few weeks of this, a short term deal is made, which may or may not restore lost SS payments. However, any missed Medicare payments will definately NOT be made up later, since any medical care given to seniors outside of the Medicare system is presumptively illegal and cannot be compensated.
Maybe. just maybe it’s different this time….
Famous.
Last.
Words.
Aug. 2nd is a completely arbitrary deadline. They can go at least another month, minimum, before any issues arise.
Let’s see the panic this weekend when they’re all afraid about Asian markets crashing….We’ve seen this movie before…..
It will be about as exciting as Y2K. So they furlough some government workers, continue paying on treasuries and social security, issue IOUs to vendors, and in a few weeks they have a deal worked out. Big deal.
All government payments, including cash, are IOUs.
Cullen – I sure hope you”re right. I become more pessimistic and afraid by the hour. I have heard Tea Party believers say that we will have a possibly intense but short-lived problem if we default in some way. After taking the strong medicine we need, things will turn around and everyone will be better off, and we will be forced into a smaller, budget-balanced government, which is exactly what they want. They don’t care about the disadvantaged, the unemployed, or anyone other than themselves.
exactly; read the accounts of infighting in the GOP;
neither party wants to cave to the other;
both can see the other is weak, spineless & dimwitted;
they could just go for it;
sorry, here are example links
TP revolts in GOP
http://www.politico.com/news/stories/0711/60035.html
Boehner to GOP on debt ceiling plan: ‘Get your ass in line’
http://www.politico.com/news/stories/0711/60022.html
Dem House to Obama: invoke the 14th; Truman did
http://www.politico.com/news/stories/0711/60038.html
Obama’s response: I’ve “talked to my lawyers” and “they are not persuaded that that is a winning argument.”
maybe he just mistook “winning” for “whining” ?
I’m completely with your scenario on a last minute rescue and a relief rally. I just happen to believe though that the real selling pressure will begin after the short-lived rally as all the “buy the fear dip” buyers over the last weeks realize that the real risk was not in fact the political brinksmanship and gaming of an artificial drop-dead date, but rather is the very real possibility of an imminent downgrade of US debt due to the lack of a credible and sufficient long-term plan to address our real issues (medicare & s.s)
There is also a high likelihood that the focus shifts back to the EU, China and the global slowdown (as earnings season winds down) and investors take notice that all else is not well.
I cannot believe that I volunteered to join our armed forces in the late 1960s to defend this nation and returned a disabled Viet Nam veteran.
I would NEVER have done that if I had even an inkling of how worthless our nation’s leadership would become.
Not a one of them worthy.
Not a single one.
Thanks for your service, Mark. The present socialist and fascist morons in the Federal government are not worthy of anything but a straightjacket. However, the country is worthy
Unfortunately fighting in Vietnam still has / had nothing to do with the country and everything to do with the fascist morons…
During WW II it was easy to find volunteers to fight. It takes a war like Viet Nam, with all its controversy, to bring out the truly patriotic volunteers. Five, sitting president’s lied to the American people about Viet Nam. When else, in the history of this country, has it ever been an American value or a winning strategy to kill as many as possible and to keep score by counting the dead?
what is CNBC gonna do if they have to give up their little count down clock??? Oh I know, do another story on the unemployment problem sandwiched between deficit fear-mongering stories….
What is the bond market telling us, so far? A big yawn, so far.
Default will occur only if Obama wants to bring down the entire system, and even then he might encounter active resistance from Treasury and the Fed if he tries to do it. Does anyone think that the derivatives market and the world’s financial system could withstand even a technical default on Treasury debt? No one on Wall Street believes it will ever happen.
If Obama actually wants to bring down the system and tries to, then he’s a Weatherman clone; a radical socialist wolf in a left-center sheep’s clothing. Many on the right firmly believe this to be true, although most will not say so in polite company. The Wall Streeters and the hedge funders were big backers of Obama and the Democrats; Jon Corzine and Goldman in general are the classic example. Wall Street is Democratic and so none of them sees a risk of default even if the Republicans do not give in. Obama is not seen by them as a threat; in fact he’s seen as their staunch ally.
OTOH, the right wingers in Congress like their bet: either Obama backs down, there is no default and they eventually force cutbacks in government spending back to, say, 2007 levels, or he tries to bring down the system by elective default and they say: we told you so. Boehner is going to need quite a few Democratic votes to increase the debt ceiling. There is a good chance he won’t get them because the left and right are growing in power in Congress as the center shrinks. Mitch McConnell is seen as a buffoon by Rand Paul and his allies.
Right wing Republicans hate Wall Street, even though popular lore has it that all Republicans love Wall Street. A market dive on Friday, if it happens, is going to get a big yawn this time from a solid core of Republicans; they won’t be TARPED twice.
This whole thing is going to be very interesting to watch. When true believers get involved on the left and the right, anything can happen. When huge macro trends like globalization are involved, imbalances can slowly grow over many years until they hit critical mass and blow sky high. Kind of like the US mortgage market in 2008 and sovereign debt in 2011.
Huh? How exactly is this the case of Obama bringing the system down. He is asking Congress to pay for what it has put into law. The Republicans just can’t make a deal that can pass through both houses of Congress, and a presidential signature that keeps the lights on.
Sorry but that’s how the system works. Republicans want it their way or no way, and are using an artificial debt ceiling to blackmail and bypass the way the Constitution requires laws be passed. Sounds like Boehner and his caucus are the radical, fascists interested in bringing down the government.
Karl
Cullen, a bit off topic, but an important question I think. Much has been made of the fact the the US is equipped with a printing press and can engineer inflation at will, but I’m starting to think that being the reserve currency of the world might work against that assumption. For example, let’s say the “money printing” continues until oil is $150. What happens then? Obviously, the economy can’t absorb $150 oil. What happens then? I think oil comes back down because economies simply can’t absorb the cost. All these hyper inflationists argue that inflation is coming and can’t be stopped but I just don’t see it. It seems the me that inherent in being the worlds reserve currency is an implicit assumption of price stability. In other worlds, the Fed CAN’T print at will because to the consequences on the price of commodities.
My guess is that there’s no deal on the weekend. Democrats and Republicans continue to play the tough guy until they see the market dropping some silly number like 5 or 10% in one day, then they make a deal to buy a few more months.
After the raise, we get a relief rally then the rating agencies drop the US’s AAA rating and we get some sell off in the equities markets(I presume the bond market will hardly budge).
For the whole acting like kids act the tea parties pulled in the debt ceiling fight, Republicans manage to snatch defeat from the arms of victory and we get 4 more years of Obama.
“And at the end of the day, we have to remember that it’s their jobs that are important – not necessarily the American people.”
Cullen,
I couldn’t agree more with this. Most people seem to be convinced that the government is anything but a building full of career politicians thinking about their next election and how much they can make by taking the generous offer that the latest lobbyist just made them. The long term success of their country is the last thing on their mind. Don’t get me wrong, I am not for anarchy, but if more people truely admitted to themselves the reality of the above, then government would be a lot smaller and be held far more accountable.
I don’t think the treasury has a plan to deal with default, and I don’t know if anyone has a plan for it. It has never happen before. So really nobody knows what will happen. It’s always the unknown that scares.
I don’t know how crazy it could get but it could get real crazy. My gut tells me it probably won’t be too bad. But with all that is on the line… I’m buying gold and hedging with puts. Cash from chaos.
MMTers know better than anyone that this is a completely manufactured crisis. I’m looking for buying opportunities.
@Geoff
The question is: we need it or not, I mean we need to plan this “manufactured crisis” or it is just few having more easy money (thinking that they have already a lot..) So, why they planned this crisis?
I honestly don’t think its manufactured 100% intentionally, I think its manufactured in that both sides are using the debt ceiling vote as a bargaining chip with the other side which stalls the process and creates the ‘crisis’.
However, I don’t think they understand (or care about) the mechanics- I don’t think they understand its a pointless rule but will use it as a bargaining chip regardless of whether its pointless or not.
There is also a third possibility, in which no settlement is reached and Obama acts unilaterally to temporarily increase the debt limit, appearing to save the day by decisive action and making Congress appear more impotent than it already does.
There is always more to the picture than meets the eye. The power struggle in Washington is very real and very serious.
As the man said, Things would be a lot easier if I were dictator.
With this administration, everything advances their own political goals at the expense of our country. Our people, the economy, the basics of the free enterprise system, are all being manipulated and downgraded before our very eyes- and we look for ways to profit off of market reactions to them. They laugh at us; they play us; because we don’t realize, or don’t want to accept, that the overwhelming number of destructive laws and regulations forced on our nation by these people over the past two and a half years are intentional! Things are different this time as this administration does not care what the consequences of their actions do to the USA. The Tea Party is reacting to these anticipated consequences, perhaps not having all the facts, but at least with the intention of our country continuing on. This administration does not share this intention; when a person’s actions do not match their words, believe their actions. Their destructive actions only make sense when you view them through their stated dogma about America being evil and needing to be brought down. (See Saul Alinsky, Bill Ayers and Rev Wright for details) This is not politics as usual.
This is also what I feel will happen. How I position my portfolio is a slightly short position: a long with covered call, and some bearish option position on the DOW index. Not overwhelmingly short even though I feel that’s a good trade right now as I learned my lesson when The Bernanke burned me last fall with QE2.
“avoid a small chance of devastating loss”
Not sure why a deal with a bunch of spending cuts would be good for the market. As ridiculous as this excess spending is it is preventing deflation which will be the killer for all levered institutions.
I hate to discuss politics these days. Personally I see most of this as smoke and mirrors and both parties want to break the contract with the people to support the elderly after they paid into it all their working lives. Yes both the Repub and Dems want to decrease payments.
I see Congress as not doing its job and debating bills and passing the one with the votes required to pass it. Instead we have behind the door deals because the annointed one stated he would veto them. Well by all means lets see if he will in fact veto a bill. Call the man’s bluff. Make the President responsible for his actions. The whole lot needs to be tossed out on its ears.
While we discuss issues, most Americans could care less to be honest. Go ask someone what QE is and they will not know. Most will spout off what they watch on TV and the media. I hope they do default. Maybe finally people will wake up. I know this will be bad but we have survived worse.
Politicians and the media are very good at scaring people as most will not even check the content and assume it is the truth. Currently I am beginning to wonder if they prefer the USA to default and then take over every facet of people’s lives. Never let a crisis go to waste.
I am disgusted right now with all of this postering and the branches of governement not doing their job for the people.
Hey, GCT, just giving you a heads up that I replied to your question here:
http://pragcap.com/the-dollar-debasement-myth-the-feds-balance-sheet/comment-page-1#comment-65027
“the real risk was … the very real possibility of an imminent downgrade of US debt due to the lack of a credible and sufficient long-term plan to address our real issues (medicare & s.s)”
That’s the real risk? I’m not sure the market really cares about a US debt downgrade, beyond a 1-2 day market movement.
If these clowns worked for a corporation, they would all have been long fired. They generate tons of heat, accomplish nothing. Does anyone ever measure their efficiency or rather lack thereof? If the historical norm for raising the debt limit is 5 days, dock a fraction of their pay for each extra day they take to accomplish this. If they are not able to come to a consensus in norm plus a week, turn the airconditioning off (to remind them of how much they are costing us) until consensus. If it takes another week and there is no decision, throw the bums out, and swear in the next panel – like we do for juries. In fact always have the next panel in place.
Me and family are moving to the USA in a couple of months to take up a new job. Are we insane or what? Seems to me tat both side do not understand what the real problem is. I think T-party/GOP are just confused. Obama/Dparty is also working under some misapprehension or other. But when I talk to ordinary people I get the impression that they know that it (the system) don’t really work like this. The politicos are miscalculating based on the support of a minority of nutters. I believe they will be found out at the next election.
Very insightful, Peerke. In my opinion about 65% of americans aren’t represented. Politicians cater to the fringe.
Of course you all realize that the reason we are in this scenario is because of the “Introduction” of a free floating exchange rate fiat currency. The real story is how this was “Introduced”. It was rammed down our throats by a gross violation of private property rights and breach of contract. How pragmatic was that?
Whatever the banksters (or do we call them TARPsters?) want (and it looks like they’re demanding a deal)….
YOU should WANT & DEMAND (from your members of Congress) the complete and utter opposite. Whatever Jamie (Dimon) and that ilk wants I WANT THE OTHER SIDE!!!!!!
My only other thought??
Were these criminals all in the same place when they issued their recommendation here to increase the(ir)debt limit???? If they were, I’d submit it would have been a great time to use one of our military’s drones and then send these assholes to the same place Osama Bin Laden went to, as together these criminals & mal-contents are responsible for inflicting more damage on the world in general and our country in particular, than any other terrorist act to date.
THEY ARE THE CAUSE OF ALMOST EVERYONE OF OUR FINANCIAL PROBLEMS IN THIS COUNTRY!!!!!!!!