Trump may be able to negotiate a deal by then. When Obama had the same type of crisis in 2011, 2013, and 2015, he and Jack Lew stared down the Republicans and insisted that the Treasury was unable to prioritize payments and if it missed a single accounts payable deadline it would be in default. McConnell caved and this lead to a deal which will soon expire.
I think Trump is more devious than that. I think he will order that payments be prioritized so that payments for interest, Social Security, and the military, and other programs he likes will be paid, and programs he doesn't like, such as the EPA, won't. He will force a downsizing of the federal government whether anyone likes it or not. All hell will break loose, and this will end up in the Supreme Court.
Ironically, this will cause the stock market to boom, for the simple reason that cash has to go somewhere, and the government issuing bonds soaks up some of the cash.
The outcome? Who knows. But it could include riots in the streets and the national guard.
Two questions: will this cause a recession? I don't think so, at least not in the short run. The government is usually seen as a counterweight to recessionary forces, but it can also damper the "animal spirits". Unemployment is at a 30 or 40 year low, and the only signs of a recession are reduced government revenues and in retailers.
And is this good for the long-term fiscal stability of the country? Ironically yes. The biggest threat to the long-term stability is the debt, or more specifically the interest on the debt. Anything that stops the debt from growing is good. So bring it on.
I don't think very many people are aware of the constitutional crisis that will occur this summer. Well David Stockman has been yelling, but not many people are listening.
So, when the blockbuster hit comes out this summer, grab some popcorn and watch the world explode.
=========================================
Read this: https://dailyreckoning.com/fiscal-horror-show-playing-soon-washington/
I believe it is likely that the debt ceiling will not be raised at least at first when it is hit. By hit I mean after the Treasury plays it's usual bag of tricks to delay hitting the ceiling, if they do. Rather I believe that the White House will instruct the Treasury to simply pay only some bills and thus not 'shut down' the government. After all tax receipts are enough to pay around 90% of all expenditures.
Thus the power of the purse will go to the White House. Don't like EPA, stop paying their salaries. Don't like some program that sends money to Chicago to do something or other, don't send it. Of course they will pay the interest and principal on Treasury paper so there will not be a default on the debt which after all what default means. The question of if not spending money that has been appropriated, by our Byzantine and irrational congressional appropriations process, is default can be left to the courts. Even then why would the administration or the GOP abide by a Supreme Court decision they don't like. Who is going to make them?
An additional thing is that with no Treasury borrowing to suck up investment money it will have to flow into stocks. Something playing our already with a reduced Treasury borrrowing schedule as it burns through the huge $350bn plus cash balance it had when Trump was sworn in, $250bn left to go. (which is one reason stocks are marching higher so relentlessly. Because the Treasury is not in the market as much as it would otherwise be) With zero Treasury issuance it will be almost impossible for stocks not to rise. It will just be like $80bn a month in QE. Well except that the 3% of the money flowing into the real people real jobs economy will stop flowing. Can you say recession?
According to Bannon recession is a small price to pay for a revolution.
I wish someone would start asking the White House, the GOP leadership and the Treasury about this because I firmly believe it is planned already. If so then what we have seen the first two months of the administration is just a warm up to a constitutional and political crisis second to none since the Civil War.
=========================================
=========================================
More on the same topic:
The Treasury will likely be out of cash shortly after Memorial Day. ... Trump is going to find it quite challenging to find the votes to raise the debt ceiling. After everything that has happened, very few Democrats are willing to help Trump with anything, and many Republicans are absolutely against raising the debt ceiling without major spending cut concessions. So we shall see what happens. If the debt ceiling is not raised, it will almost certainly mean that a major political crisis and a severe economic downturn are imminent.
No comments:
Post a Comment