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The World's Biggest Hedge Fund Complete Blow By Blow On What Happens If The Debt Ceiling Is Not Raised
While it is a 99.9% given that the soap opera on the Hill will be over very shortly (most likely courtesy of an outcome that will send the AARP in an apoplectic yet powerless to change anything fit of rage), there is always the chance that politicians will screw something up. After all America is in its current predicament primarily courtesy of the same politicians who are now scrambling to retain face with the electorate, while at the same time perpetuate the status quo. Which is why we present this just released analysis from the world's biggest hedge fund, Bridgewater, which asks the logical question: "what happens if the debt ceiling is not raised" and provides it answer in excruciating detail. The primary focus is what happens to Treasury holders as this would be the security impacted first and foremost: "As we in detail go through some of the largest holders of Treasury securities and the various places where Treasuries are used in collateral and index agreements, it looks to us like there is a fair amount of leeway to not immediately react in the event of a default. It doesn’t look like most of these entities would need to either immediately liquidate their holdings or renegotiate contracts where Treasuries are used as collateral due to ratings downgrades. While it looks this way, we can’t be certain of this, because there are so many financial interconnections where a ratings downgrade or default on Treasuries could create unforeseen knock-on effects. And of course, there is the risk, albeit small, of a more substantial loss of confidence in whether the US will continue to pay on Treasuries, which would become an increasing risk if the debt ceiling negotiations drag on for a while after the official default. That could lead to significant liquidation of holdings and logistically disastrous renegotiations of contracts." Granted, this is the worst-case outcome. For the various shades of gray, and for the other implications of a Default, none of them pretty, read the report below.
Full report:
Bridgewater the Implications of Not Raising the Debt Ceiling 2011-07-07
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They will raise the debt ceiling - it's all Kabuki Theater and nothing more.
Now, slightly OT, but amazing story and video, simplified enough so that even those who aren't "financially savvy" can understand it, so PASS IT ON - this is not intended for ZHers, as we know what transpired, but for those still out in the cold:
How Goldman Sachs Created 'Shitty' CDOs, Sold Them To AIG, Forced AIG Into Bankruptcy, Got A $20 Billion Bailout, Paid Themselves Billions In Bonuses, And Watched As Tim Geithner Covered It All UpYou are giving these idiots too much credit.
Politicians are so stupid they can't understand the implications of their actions if you beat them over the head with a 2x4.
Worse, they don't care enough to even try and figure it out.
Even worse, they don't care about what they do as long as they can frontrun it with their wallets open.
"Politicians are so stupid they can't understand the implications of their actions"
agreed, the boys at Goldman however are not morons. Say what you will about these thieving traitors but they are not stupid. They knew exactly what they were doing at every step of the meltdown and had positioned themselves (by capturing the Treasury) to make sure the marbles rolled their direction when the bottom fell out of the housing market.
It would be illegal for the us treas not to print money to pay its debt. That does not make it impossible but it does make it implausibly improbable. Worst case: There is a fiat flood. It would be a conceivable novelty that such a flood would earn a downgrade.
UHHHHHHHHHHHHHHHHHHHHHHHHHHH
reading through the document (read comments down below to find another link), I can't help but note...
According to their research some money market funds would break the buck on a 200bp rise on yields. While that is a move that likely couldnt happen too fast, should they not have more leeway than that? I mean, even up 200bp, is still below historical averages is it not?
Commentary on that would be nice....
no need to insult the Kabuki.
If God dropped acid, would he see people?
Steven Wright
so lets call it bukake then ...
If they don't raise the debt ceiling, I would like to take this opportunity to say goodbye to the boomers. It's been fun :/
They'll raise the debt ceiling. That's why it's "Ponzi on" today in the stock market. No matter what they say, they can't stop it or else have to face a tsunami of defaults.
Now that doesn't mean that every politician won't exploit the crisis atmosphere, pretend that they're shocked and outraged in order to advance the cause and demands of their paymasters. What else is new
Ponzi on ...Wanye
Ponzi on ...Garth
Sorry...I know people are going to jump on me, but I'm just not as smart as many here. Even if they raise the ceiling, they still need someone to lend them money? If so...and if the fed isn't "easing" currently, then what difference does it make if an arbitrary number is lifted or not? Hasn't the Fed been buying roughly 80% lately?
it's called "capture". The Fed has a captive audience in the form of foreign governments who want to do business with the United States, Pension funds who have mandates stating they must buy treasuries, the banking industry which is required to hold certain amounts of Treasuries because they are "risk free assets", etc....
There are plenty of "captured" institutions and foreign governments that the Treasury can force into buying their paper.
Does your country want access to US markets? Buy our paper!
Do you want our military to abandon your country so the Soviets can move in? Buy our Paper!
Does your country want access to lines of credit provided by US banks? Buy our Paper! etc...
Tyler has been posting (himself and guests) about the enormous amount of debt that must be rolled beginning in August. This is when we may see some badly failed auctions, and the need for the Fed to step back in with more easing.
So yeah, the whole debt ceiling debate is little more than political theater - of course it will be raised. The real issue as you state is who will step up to buy the huge amounts of debt if the Fed is not monitizing.
Just like earnings reporting, they will play it down with an assortment of doom mongering only to reveal all is well at the last minute. This show is getting old. Everything to the moon.
I won't even bother reading it. It's useless conjecture. Congress will raise the debt ceiling so it doesn't matter.
There is only a .1% chance they will not raise the debt ceiling--this report is too far out on the narrow tail.
There is only a .1% chance they will not raise the debt ceiling--this report is too far out on the narrow tail.
THEN what, Dr Engali? 25% lower dollar, $2 trillion more in debt, and same boat we're in right now. Big deal. In fact I hope they do raise the debt ceiling quick I want each of my gold coins shining $2,000.
You so right, GI. $2.4 T my ass. Lets do $5 trillion.
You guys think too small. +$100 trillion. Think about the party they can have with such a limit.
I think I have a perma junker. They will raise it because neither party wants to be responsible when it collapses. Then uncle benny will print print print. Then gold will go up up up. Actually it will be the dollar going down down down.
I don´t care if they raise it or not...I would be getting out of treasuries anyway...they are going to be paid back with dollars worth half of what you paid for them..simple math
Bankruptcy and default is all simple math certainty, yet all the pink unicorn and glitter rainbow crowd is sure it will all work, if only more fake money is thrown in. I say they go for it, Im now my own central bank and just care about my PM's....keep printin, boyz.
Everybody including the US is in technical default now, not making good on financial promises (think cutting pensions, entitlements, negative interest rates on bills etc...). But until somebody big actually calls in the chips it won't be "Bankruptcy". Until that day they can keep issuing IOUs till hell freezes over
Yep, until global goverment closes all loopholes, won't happen until Repubs crash the dolar thought and people will realize that if you tax the rich worldwide the argument that companies/rich will just go elsewere will cease to be valid.
+1. The first one to go for the exits starts the stampede. Therefore, everyone must remain at the table. This is in part why we see the US-EU hot potato toss. Of course, there is a limit to the game - and the longer it goes on, the higher the stakes get.
It seems this rabbit hole is quite a bit deeper than we thought.
Onward Bitchez! We haven't hit Wonderland yet!
As China has already said; paying back Treasuries in debased dollars is a technical default.
I wonder how much political currency this will cost the current administration?
Ben will just print more. Doesn't really matter.
Among politicians? None currency, they are all in it for the group sex.
Among voters? They have not the slightest clue what any of this means.
I'm sorta having a hard time imagining what curcuit breaker in what dusty corner of which forgotten room in our vast "economy" (ha ha) will over-heat, trip and subsequently blow this strange game to rat shit, but I guess it must be out there somewhere. Cuz I can't imagine them carrying this farce forward forever.
That sounds like A Banzi graPHic... lol
I suspect most of the administration's energy is going into a back-stabbing campaign to grab credit for any perceivable "good" of the Great Deal while blaming its opposition for all its flaws.
Anybody out there think Hillary might sneak in the side door in '12 (if we have elections)?
Yeah. That.
Since the GOP is the only political group with enough clout to put an end to the current spending spree and they're getting a lot of publc support for their position, the WH is going to have to give up something to get a deal...
<sarc>.....right?
+1
most people will pay you lip service and agree stuff needs to be cut, until things like Social Security start getting cut, then everyone freaks the fuck out and runs the other direction screaming.
Any politician who thinks the "people" have their back and go ahead with cutting Social Security will be promptly corrected (and voted out of office) in the next election cycle. This is the real problem with America. In order to get votes you have to pander to someone, and the educated portion of the population who realize this are an incredibly small percentage of the populous. Which raises the ultimate question. How can a democracy survive when the population is too stuid to understand the issues on the ballot?
the answer is already known.
"A nation of sheep begets a government of wolves." - Edward R. Murrow
But but bond guys always believe they get every "dollar" back plus interest...hahahahahaha
Everyone loves drama. Its up, up and away. When does POMO end so I can get out?
All this sturm und drang around raising the debt limit now.
Well guess what.
They'll have to go through the whole thing again in 3 months when they have to raise it again.
And another 3 months after that.
It has to end somewhere. And the ugly only gets uglier the longer they drag this out. Default is at the end of it all, one way or another. At $15T or $16T or $17T, it won't matter in the end. It will just be over.
Most of these idiots don't know that, and really don't care. This is just another hot button that they can use to visciously claw at each other for more power.
Suggested they'll raise it enough to get through 2012 elections (likely $2+T to nearly $17T).
But nothing to stop this game now...US buys T's, ECB / China buy Euro debt, BOJ buys Japanese debt...all will print money to do it and never realize the interest rate shock. Instead all money will be devalued...to pay unpayable debts at half price.
Could go on a long time.
It really could, couldn't it? I mean, so long as they all "agree" to all do the same thing they can move the ball forward a little every day.
So it will end I suppose when one of them does not agree. When one starts to play the game to win rather than just defend the status quo.
What does that look like? I guess it would have to resolve itself in some kind of competitive trade war. Or else closed borders and no trade at all.
Question: Could the US transition to an export-driven economy?
We've been exporting dollars for decades.
Answer: not without dramatically lowering manufacturing wages, thus lowering standard of living (even more.) It's too easy for corporations to offshore manufacturing and exploit the exceedingly lower wages in other countries.
financial innovation isn't an export? LOL
For TPTB, maintenance of status quo is winning! Who among TPTB want to change the game? Admit they went long in a Ponzi and sugget we all should take on a lower standard of living and short / medium term pain for long term gain? Nobody. So much easier to inflate, extend, pretend.
US can be export driven economy if dollar continues to tank (think 50), wages tank, environmental protections are scrapped, and/or US goes full on protectionist (ie, mandate 50% of all products from x company must be "made in America").
Atlas Shrugged: Directive 10 289...
In the name of the general welfare, to protect the people's security and total stability, it is decreed for the duration of the national emergency that:
#1. All workers, wage earners, and employers of any kind whatsoever shall henceforth be attached to their jobs and shall not leave nor be dismissed nor change employment, under penalty of a term in jail. The penalty shall be determined by the Unification Board, such Board to be appointed by the Bureau of Economic Planning and National Resources. All persons reaching the age of 21 shall report to the Unification Board, which shall assign them to where, in its opinion, their services will best serve the interests of the nation.
#2. All industrial, commercial, manufacturing and business establishments of any nature whatsoever shall henceforth remain in operation, and the owners of such establishments shall not quit nor leave nor retire, nor close, sell or transfer their business, under penalty of the nationalization of their establishment and of any and all of their property.
#3. All patents and copyrights, pertaining to any devices, inventions, formulas, process and works of any nature whatsoever, shall be turned over to the nation as a patriotic emergency gift by means of Gift Certificates to me signed voluntarily by the owners of all such patents and copyrights. The Unification Board shall then license the use of such patents and copyrights to all applicants, equally and without discrimination, for the purpose of eliminating monopolistic practices, discarding obsolete products and making the best available to the whole nation. No trademarks, brand names or copyrighted titles shall be used. Every formerly patented product shall be known by a new name and sold by all manufactures under the same name, such name to be selected by the Unification Board. All private trademarks and brand names are hereby abolished.
#4. No new devices, inventions, products, or goods of any nature whatsoever, not now on the marker, shall be produced, invented, manufactured or sold after the date of this directive. The Office of Patents and Copyrights is hereby suspended.
#5. Every establishment, concern, corporation or person engaged in production of any nature whatsoever shall henceforth produce the same amount of goods per year as it, they or he produced during the Basic Year, no more and no less. The year to be known as the Basic or Yardstick Year is to be the year ending on the date of this directive. Over or under production shall be fined, such fines to be determined by the Unification Board.
#6. Every person of any age, sex, class, or income, shall henceforth spend the same amount of money on the purchase of goods per year as he or she spent during the Basic Year, no more and no less. Over or under purchasing shall be fined, such fines to be determined by the Unification Board.
#7. All wages, prices, salaries, dividends, profits, interest rates and forms of income of any nature whatsoever, shall be frozen at their present figures, as of the date of this directive.
#8. All cases arising from the rules not specifically provided for in this directive, shall be settled and determined by the Unification Board, whose decisions will be final.
Get ready, 'cause here THEY come...
So what happens when gas is $6.50/gal in 2012?
You got your decimal place wrong. You did mean $65.00 in 2012, didn't you?
You are suggesting US face what EU has been facing for some time now - EU is looking at $10+ w/ taxes and VAT.
American's will adapt...just as they have since '00 when gas was $1. American's will adapt to higher prices, lower standards of living, and do it all because they are so dependent on big brother for everything that they won't question what they are giving up to gain their daily ration. I don't think the system crashes, I think the floor just continues to drop but not tooooo fast, keep normalcy and American Idol. American's will go along until they are starving in quantity...and that is what SNAP is for.
Bottom line is eventually bringing the wages of American's in line w/ the rest of the world will make them competitive again (and allow corporations to play wage arbitrage against up and coming consumers of China)...plus the overlords won't have to lose anything in the process. Round and round we go?
Christ, if the Irish (who are far worse off than we and have a long and bloody history of revolting) won't rise up against a system that ensures they never can win...I have no faith Americans will do any better.
We've had a 3X increase in gasoline prices since 2000. I don't think the US can absorb a 10X increase...
Of course we can and likely will...it will just force other changes and we'll adapt. Not saying anybody chooses this but explain how US will pay it's debt otherwise. Dollar devaluation seems it has a long way to go.
There are many ways to adapt...carpooling for example...taking public transport where available...for the folks who don't have these options, yeah, it's gonna be rough, but it seems that demand declines when prices get to a certain level, which levels off the price. Problem is that gas prices are not dropping back as far as they did last time the price of oil dropped.
Not when we are dealing with people like this:
http://dailybail.com/home/meet-chairman-bernankes-replacement-happy-hour...
I had forgotten about her. Thanks for the entertainment.
Luckily, for most humans, tomorrow is always in the future, so can be ignored.
Bankers buy the politicians.
Bankers want higher debt, in order to trade "paper for assets".
Higher the debt, the more real wealth they accumulate.
The people have no say, the owned politicians make the vote.
Default FAIL!
Debt Ceiling PASS!
QE MO and MO PASS!
Austerity Horizon PASS!
zzzzzzzzzzzz
I don´t care if they raise it or not...I would be getting out of treasuries anyway...they are going to be paid back with dollars worth half of what you paid for them..simple math
Congress men and women regarding raising the debt ceiling now:
www.youtube.com/watch?v=MsmybQKpmTw
Not funny anymore Grandpa.
if they haven't dealt w/ it, there's still hope!
if there has been any intelligent discussion about this, it must have been w/ joe biden. but i have discerned the national plan: The Big Whatever
i think the country is gonna be ok, if we just keep doing The Big Whatever.
trust me.
I would be better off reading a guide to how to pleasure Giselle. It is more likely that I spend a night with her than these idiots miss the deadline.
Is there such a guide? I'd read it!
Yes it's called the Tom Brady guide to quartebacking.
Why is there an assumption that not raising the ceiling automatically means a ratings downgrade or default?
http://www.businessinsider.com/gao-stands-by-1985-ruling-2011-5
Maybe it means that government has a partial shutdown while money goes to pay off obligations.
Because TPTB want to make it look worse than it actually is.
They will raise the limit, another EU country will cry for help and the whole scene will repeat till collapse.
In the meantime all those responsible will collect their bonus(s) and head for the high ground.
The entire system has fallen prey to the bankers based on a fiat system ruled by fear.
Wash. Rinse. Collapse.
Sen. Rand Paul says he will filibuster unless they pass a balanced budget amendment to the constitution
floor speech on the topic:
http://www.youtube.com/watch?v=UFuQHd3rZiU
mainstream media interviews:
http://www.youtube.com/watch?v=oLn2SRvopsw
http://www.youtube.com/watch?v=Sm7a2t-3DLo
http://www.youtube.com/watch?v=Yi2ce0ZCifg
If you don't raise the debt ceiling, we're going to come after your 401K and Money Market fund.
"Let me be clear." Fucking fear mongering imbeciles.
Uh, who actually voted for these dildos? Uh, who is the imbecile?
"Which" dildos? The one dildos or the other dildos?
Voting for politicians != voting for policies
Also: Even with the "record" turnout in 2008, the party with the highest "voter" share, was "no one", clocking in at 39% of the population.
I was being all-inclusive. If they are in DC, they are a dildo.
Okay, but considering the history of elections in the USA, the number of people voting is usually even lower. For example, in 1996, less than half of the population voted. What if it were even lower - let's say 33%? Would the idiots still get elected?
If so, then what does voting matter, when it results in the same regardless of if and for whom one votes?
Bottom line: What the population is responsible for, is not voting, not policies of politicians, but that there isn't a bloodbath in DC.
That would be my party--the party of "voted with their feet." I haven't voted in years and I don't expect to ever again, quite frankly. Those politician assclowns can all blow me.
Let's not forget to also consider a related hypothetical question based on a premise with a slightly higher probability, i.e., "What happens if the government shuts down for a month and no one misses it?"
That has already happened in the past. Your suppose to forget about how it became a non-issue.
Bill Hicks - Go Back to Bed America
I'll go against 'conventional' wisdom here. If they hold firm on the debt ceiling and manage to live within their means (or at least give the appearance of doing so) Treasury rates plummet. Raising the debt ceiling (and raising it again three months from now) should have the opposite effect anywhere except the Matrix. I'm not interested in Treasuries as an investment but why would the bonds of a profligate bankrupt be more attractive in the absence of any fiscal/monetary prudence going forward? Conversely why would they be less attractive if the can kicking is over? Isn't the eventual answer being clearly telegraphed by the interest rates of several rather porcine European countries and the price of gold at the moment? The can kicking can end voluntarily with much pain or it can continue until there are no pieces left to pick up.
I predict the latter.
looks like a first grader binom chart... somehow I don't see any rating agency scenario which could materially increase the cost of debt
Amid all the propaganda, it’s kind of hard for the takers when the major feeders all begin to line up at the trough at the same time.
It’s a War of the Criminals; they’ve got a wounded antelope on the ground, grabbing and fighting over what remains in value of the downed carcass of the U.S.A. and Europe, to see who gets the kill. Wherever you find a financial crisis, you’ll find these guys stealing your valuables - the Bridgewaters and Blackrocks , the JP Morgans, the Paulsons. the Soroses and Och-Ziffs… at the center of every crime.
Yep, the slow train wreck that was Argentina proved that verbatim..
Edit: part 1 is an intro, part 2 begins to expose the profiteers of Argentina's collapse http://www.youtube.com/watch?v=whVSw5X2pVU
Hey Tyler... should the red and blue teams NOT raise the debt limit, what are the odds Obamarama will invoke the 14th Amendment to end the debt ceiling impasse?
Seems to me, he frequently intreprets the Constitution and Amendments as he pleases and congress doesn't challenge the King of America. Something is in the air?
"I love the smell of napalm in the morning"
http://www.youtube.com/watch?v=sBksHaTQCbU
The smell, you know that burning black swan smell, the whole congressional hill. Smelled like … victory.
I for once can't wait to see BO grow a pair and invoking 14th. kicking ass.
This "crisis" belongs in Aesop's Fables "The Timmy cried "debt ceiling relief."
The politicos will raise the debt ceiling after having solemnly sworn that the cuts the Republicans have insisted are "none negotiable" are agreed to....take effect after the election. It will be the same old same old.
Lets just get the default over with. It is coming sooner or later anyhow so
they might as well just do it and get it over with and let the reset happen.
I'm saying no deal.
The longer this goes, the more each side's strategy gets played out in the media. Phone calls to legislators, jammed phone lines. Just like the immigration bill.
You blink first, you're toast. Both sides know it. The sphincters tighten up.
Obama is not leading, Boehner's not leading, Reid's not leading.
This plane is going into the mountain with all on board.
Hell, everybody thought Casey Anthony would be found guilty.
Yeah grunk.. I smell an end around and it's not Leo.
Politicians hate their current dilemma. Why? Because either way they decide to do things there will be a lot of pain and it will be blamed on them. If they keep spending as usual then their entitlement constituencies will be happy but the nobody else will be happy and the economy will remain on an unsustainable course. If they make drastic cuts then the entitlement constituencies will be very unhappy and the economy will still tank because of all the gov't largess removed from the system. However, in the long run, one way or another, the cuts will be made. The politicians will, of course, select the course that offers them the best chance of putting off the arrival of hell until after their next election.
I can't argue with this. But he really needs a follow up paper- what happens when we DO hit the default point on the time line.
To paraphrase:
On a long enough timeline, the survival rate for every country drops to zero.
Greece held on 4000 years.
Then they met Goldman Suchs.
+10
cradle of democracy
Until along came the TBTF guys.
MediScare the shit out of Obama. His teleprompter will freeze up.
Buchanon is right, Obama doesn't have the balls for this because he's an idiot who doesn't know what he's doing and has got no one else to blame it on. It's Obama's "experts" that have all waddled away in shame and failure. He's it, and no clothes.
What a waste of time. The U.S has already defaulted.
No one seems to have given a shit.
Looks like the document was removed from Scribd. Any ideas where we can still find it (yeah, I know it'll get yanked after the link is posted, but, some of us will get to it before it is taken down again...)?
supposedly it can still be found here.
Thanx, TD
Thank you very much TD, you run perhaps the only reliable outlet for relevant financial news. We (your readers) appreciate it!
UHHHHHHHHHHHHHHHHHHHHHHHHHHH
reading through the document, I can't help but note...
According to their research some money market funds would break the buck on a 200bp rise on yields. While that is a move that likely couldnt happen too fast, should they not have more leeway than that? I mean, even up 200bp, is still below historical averages is it not?
Commentary on that would be nice....maybe even a follow up article, or just correct me if I am ignorant lol
Eliminate the "debt ceiling" it doesn't mean anything.
"shades of grey" has left the building long ago
paddy was carefully chisselling out 2 neat ear shaped slots in ceiling of an arched bridge... mick says to him "what on earth are you doing"... paddy replies "the donkey is a bit too tall ..this way i get him under the bridge"... mick bemused says "surely easier to scrape a bit of muck along the floor..to do the same job"..paddy exasperated replies.."it's not his F**king legs that are too long ..it's his bloody ears"....
To quote a famous Silverstein: "Pull it (it's already yesterday's news YHVH dammint)!"
If "it" misfires, reload, take cover, and await further instructions.
Copyright Infringement? Those pricks!
(posted above)
What about my 28-day bill paying me a grand total of 0.000% interest maturing on the 4th of August?!?
For shits and giggles, email your CONgress critters and challenge them on whichever side of the political spectrum they fall - tell them to "not compromise on our party's principles," and "we who are with you will support you if you stay true to our cause," and similar bullshit.
And the outcome no one is thinking much about? A temporary increase of some nominal amount (say 100B$). This acheives the $400B/year reduction in government spending that the rebs failed to acheive in the last budget. Remember, they passed temporary budgets over four times when the last "deadline" was reached. Enough funds for about another month's issuance but without paying back the retirement funds that have been raided-thus perhaps driving more federal employees away? Amusing, n'est pas? This keeps the torture on Obama every months until the next election. How can the teaparty fail to love this outcome. A true budget diet that can't be vetoed without crashing the market. Its what I would do if I wanted to win big in 2012.
When countries experience hyperinflation, their citizens upon receiving pay, leave work immediately to spend the money before it devalues further. This (hyperinflation) is the point where everyone knows what is happening to their currency. This is how they react. Today, when I am payed, I go and convert what I can budget into real currency (G&S) that does not lose value. I and any that think like this are in essence spending their paycheck before prices rise. We see the problem that the majority don't. We are spending our paycheck on real things. Whether they raise the ceiling or not, the intangibles value is still questionable and the real problem is unresolved.