Skip to comments.Citi Reveals The Most Likely Debt Ceiling Endgame, And Why It's Bad News For The US Dollar
Posted on 01/13/2013 5:08:35 PM PST by blam
Citi Reveals The Most Likely Debt Ceiling Endgame, And Why It's Bad News For The US Dollar
January 13, 2013
CitiFX guru Steven Englander has a new note out this evening titled: No coin + temporary debt ceiling extension + sequester = USD negative.
In it he notes that the rejection of the trillion dollar coin idea to avert the debt ceiling is not alone a market moving event, but that the hard language taken by the White House that the choices boil down to clean lift or default raises the odds of a debt ceiling breach.
So it is possible that we will get a technical default for a few days, but more likely that Congress will give in, vote the debt ceiling up temporarily, and let the automatic sequesters kick in. Mounting risk of a technical default was USD positive in 2011 because it led to cutting of long-risk positions and the USD/Treasury market remained safe havens. However, it also occurred in an environment of slowing EM growth and intensifying euro zone sovereign risk pressure, so the USD support came from external forces as well. Given that investors are now somewhat long risk again, the position cutting is again likely to be USD positive, however, unattractive US assets were. As was the case in 2011, it is very unlikely that the Treasury will not pay its bills, although even a technical default could have very unforeseen consequences, given the multiple functions that Treasuries play in global financial markets. The more likely scenario of sequester plus grudging debt ceiling rise is USD negative. It will put more pressure on the Fed to keep pumping liquidity into the US economy without giving any reassurance to investors that long-term fiscal issues are close to resolution.
(Excerpt) Read more at businessinsider.com ...
The Democrats REFUSE to stop spending and giving trillions to their friends. END GAME IS NEAR!
I see this contrary to everyone else.
This presents the sort of problem which will force us to start dealing with our deficit now, and concretely.
Now. We must stop spending. We must pay for what we buy.
That means we raise taxes on IMPORTS.
Just imports. That way our tax receipts increase. And our tendency to import goes down.
Do that enough, and two big problems are solved.
I’m tired of reading this lie that not raising the debt ceiling means that we default. It’s not true! We can easily continue paying mature debt and interest on the outstanding debt on current revenues without raising the debt ceiling another penny.
There’s no reason for default just because the debt ceiling is reached. Funds just need to be transferred from other programs to pay the interest on the debt.
Boehner is a boner, Can-or is appropriately named,
Its obvious that interest rates no longer are a gauge of relative risk of an investment. I see what we are headed to is not a bubble but a crater...
The question, as always, is relative to what? Price of the USD is always relative. Is it going to be stronger vs the Euro?
Long term - I agree this is profoundly negative for the USD. I’m in USD so I am concerned about this. However -
I believe the USD is cheap vs other currencies which are at historic highs vs the dollar. Selling the high flying currencies to buy USD loses me exactly nothing. Is default going to come at 120 percent? At 220 percent? At what point is hyperinflation going to bite?
“...Congress will give in, vote the debt ceiling up temporarily, and let the automatic sequesters kick in.”
That doesn’t sound like “giving in” to me.
There are some real spending cuts in the sequester.
Though I’d like more, any REAL cuts are impressive, and good news for Treasury Bonds.
Man, it burns my hide seeing "knowledgable" people keep bandying this crap about. In order to "default" we have to fail to MAKE INTEREST PAYMENTS ON THE DEBT! We obviously take in more than the amount owed on debt monthly, by quite a bit, so while they might have to quit paying some subsidies, or at the extreme, stuff like even Social Security (which you DO NOT have a guarantee or right to) we WILL NOT fail to pay debt interest barring treason or calamity.
BTW... ‘Sup Bro? ;-)
Wow, only imports get taxed. You must be channeling your depression era legislation. That’s how the Great Depression started.
“Now. We must stop spending. We must pay for what we buy. That means we raise taxes on IMPORTS.”
Actually it won’t matter. Once the dollar crashes, imports will triple in price.
But if we wanted to GET SERIOUS about our mess, the first thing we would do is disband the unions, so we could start making stuff again. Then relax environmental and workplace safety laws to a reasonable level.
Not going to happen, so we’ll just all watch the dollar crash instead, and that will make the US much more competitive in the world market (while people actually starve at the same time).