Suddenly, The "Unthinkable" Debt Ceiling Solution Is Becoming Mainstream (Default)

It was just in early April that were shocked to hear Chris Whalen argue for an intentional technical default on US debt.

At the time this seemed like an obviously out-there viewpoint, but in just a matter of weeks, the Whalen view has moved a lot closer to the mainstream.

Bank Of America's Jeffrey Rosenberg has made the 'case for default'. Hedge funder Stan Druckenmiller has made the case for a technical default now to clean up our house. In our interview with him, Jeff Gundlach has said a technical default would be okay. Fiscal expert Rep. Paul Ryan thinks a short-term technical default would not be a problem. And those are just some very notable names.

This shift was acknowledged in a note this morning from Citi's Steven Englander:

A breach of the credit ceiling is priced in neither fixed income nor FX markets to any significant degree now. Even two months ago there was a virtual consensus that a debt ceiling breach would be an unmitigated disaster for US asset markets. Confidence in Treasuries as the ultimate safe haven would be destroyed and there would very likely be spillovers into other asset markets. If investors or business were counting on using coupons or redemptions to meet obligations, there would also be the possibility of a series of business or investors defaults tied to delayed Treasury payments.

The revisionist view is that a breach of the debt ceiling would magnificently concentrate the minds of Congress and the Administration to reach a speedy deal on longer-term fiscal consolidation.

You just never know what will happen with a "default" on debt. King Philip III of Spain tried this about 1605 ~ shortly after he got all the major European states to sign on to his Treaty of London that brought an end to their various wars with Spain.

He, in turn, made room for the French in North America, as well as the English.

That's precisely why all those original settlements we claim as the foundation of America got their start at roughly the same time.

Then, after making peace with everyone, reducing his costs for his department of defense, and filling the state coffers with gold and silver, he ended up defaulting on debt held by the competitor states (England, France, Nederland, Belgium, the Italian states) simply because he was UNABLE to raise taxes to pay the debts. At the same time, due to the diligence of Spanish goldhunters Spain had acquired so much gold and silver that the value of those formerly rare commodities dropped like a rock (that's called DEFLATION).

The Spanish Empire then began a long decline ~ couple of centuries in fact.

It's Phillip III's Spain people point to in this debate about debt default, but you don't see the same folks pointing to Spain regarding specie! My goodness, the Spanish milled dollar was the premiere currency for international trade and Spain could grind them out at will.

200 years later, Napoleon Bonaparte, faced with a still bankrupt Spain now one of his staunchest allies, and himself lacking resources due to France having taken on too much debt, forced Spain to sign over its Louisiana Territory to Him, personally. He then sold it to the United States!

The United States continues to have resources ~ just as did Spain. We can use them to do whatever we want, and if that doesn't work out we can always sell them, just like Spain.

Not raising the “fictitious debt ceiling limit" is not the same as defaulting on our debt.

Defaulting on the debt is a decision that the President and the SECTRES make by not paying the interest on our loans because there is more than enough cash flow for that.

The debt ceiling limit is a plain bullshit number that the congress uses to fool everyone that they have fiscal responsibility.

The so called debt ceiling limit has been raised over 70 times since the congress came up with the idea to "put a ceiling" on the amount of money that they can borrow.

The debt ceiling will be raised. Both political parties will agree on such big spending, that the debt will eventually be repudiated. The repudiation of debt is yet a long way off, time-wise, because people in big government love to keep it big. And many politically active people in the population depend on government for high salaries and other benefits.

Look for more of the same, and there will be more monetization.

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