Washington is playing some very dangerous games right now. The shutdown, the debt ceiling and then topping it off by tying Obamacare to it all has the potential to make this really ugly. Don’t get me wrong, I don’t think Obamacare is anything other than another way for the federal government to extract more revenues from the economy. I am not a fan of it and the fact that no one was even able to read the bill before voting on it makes it that much more of a travesty to swallow…but…I don’t think it should be tied to the fiscal debate process.
Yes I know, many will say that the only way to get anything done is by using the leverage of forcing a default on the Treasury…and no one would be stupid enough to do this right? My point is that one side or the other absolutely has to give in or “blink” which of course will create other problems. Please keep in mind that this is being done very publicly and our creditors are watching closely which will put even more pressure on the Federal Reserve to sop up the global selling of Treasuries which began in May.
It is already clear that Obamacare will fail on its own so tying it to the fiscal debate is foolish in my mind because there is way too much to fix…it’s probably not fixable in any fashion anyway. The problem now is “time” or I should say lack of it. The Treasury has only 10 days or so to get its debt ceiling raised; changing Obamacare other than completely defunding it or erasing it would take 6 months or more. There is no time left! Not that it really matters because we are so far past “over the cliff” but “how much is enough?” How much of a raise in the debt ceiling is enough? Enough to last any amount of time before the same process needs to start all over again? And how much is “too much?” Too much as in enough to create a panic exit from existing Treasury owners when they realize “the sky is the real limit.”
10 days. 10 days between the current “fake shutdown” and one that is absolutely real. “Real” as in government checks of all sorts no longer going out …and if cashed coming back NSF. Real as in EBT cards no longer working. Real as in millions of government workers “essential” or not (imagine that) not going to work. Real as in the markets collapsing, the banks not opening and the inevitable global financial panic getting started.
I just heard Art Cashin on CNBC say that other “defaults” have occurred because of the inability to “pay” whereas this one would be “self-inflicted” and that even if a default did occur the Congress could just “flip a switch,” make payments and turn everything back on. I’m not so sure of this Art. I would speculate that it might only take until day 2 or 3 of a default before what is set in motion …cannot be “unset” in motion. The markets are so fragile and so over levered that tremors turned into convulsions may not be able to be calmed down or reversed.
Panics are a funny animal; they can be postponed for a long time but once they begin they normally cannot be halted until they run their course. Argue with me or not, what do you think will happen to the gold market were the U.S. to actually miss interest payments and not have “funds available” to prop up paper and depress real money? Again, my guess is that day 2 would be the point of no return. Should the PPT not have “unlimited” funds to prop up the dollar, Treasuries and the stock market I think we would see the beginnings of a wipeout waterfall.
If there were not unlimited “guarantees” to those short the paper metals markets what do think would happen? Day 1 might start out slowly and see a $30 gain by noon time and maybe $50 to $100 by the end of the day. What do you suppose day 2 would look like? We might actually get some follow through which has been negated with paper for more than 15 years? Could day 2 be a $200 day? $300-$500? I don’t know and no one does but I think it’s a very good bet that any default by the Treasury lasting more than 2 days will result in a very high number “bid” for gold with NOTHING offered!
Yes this is a very dangerous game of grenade they are playing because it could easily get out of control very quickly and become something too big with too many moving parts to “fix.” Whether you want to believe it or not, the rest of the world has been preparing for something like this for a very long time now. Without much imagination used at all, I can easily see how a “reset” doesn’t just “happen” but is forced on the U.S. Should we actually do something stupid in this game called “defaultornot?”
I fully expect some “wonderful deal” to be announced that “FIXES” everything. You know the type of deal that “puts us on a solid base again.” The type of deal that shows our “resolve” and “fiscal restraint.” Photos will be taken of smiling politicians and “all will be well again.”
…There is no deal or fix at this point that even Jesus Christ himself could manage short of turning lead into gold that will repair the current system. In my opinion, it is and has been only a matter of time before an epic panic out of dollars and everything else paper begins. How apropos would it be for Washington to do it to themselves?