Yes, indeed it is. While everyone and their grandmother is foaming at the mouth how both republicans and democrats hiked the debt ceiling for umpteen times over the past x years, the truth is that never before has the ratio of the proposed debt ceiling to the tax receipt ratio been as high as it is now. At nearly 6 times, this means that the top line (forget bottom line) cash inflows into the Treasury are 6 times lower than the current debt ceiling. And following the upcoming $2.5 trillion this number will surge to almost 8 times. So please ignore the next "pundit" who is complaining about the hypocrisy of not agreeing to an outright debt ceiling hike this time around - as usual they have no idea what they are talking about.
Goodbye 11th hour. Hello 12th hour and 1 minute. According to MF Global's Chris Krueger, the probability that congress fails to raise the debt ceiling by August 2 is now 55%. Which means at least a 1 if not more notch downgrade by the rating agencies, which means massive and completely unpredictable spillover effects in money markets, structured finance, muni and all other financial products, which means the military will soon have to conduct many more urban exercises to prepare for "Tehran" (because the Iranian capital's downtown has at least 3 John Hancock center replicas). In the meantime, the market still thinks that Bernanke can fix this.
Both Reid and Boehner's Debt Ceiling Plans Would Still Likely Result In a Credit Downgrade for the United StatesSubmitted by George Washington on 07/26/2011 17:48 -0500
Still confused by all the various plans offered by the two parties? That is to be expected: after all these change on a daily, if not hourly basis, which was great a week ago, but now with just 3 days until the absolutely latest deadline by which congressional legislation has to be enacted, which is this Thursday, some cohesion would have been good. Instead D.C. keeps pushing further apart with no chance of a compromise anywhere on the immediate horizon. And while it does provide daily TV opera, it does nothing to assuage fears that next week America may stop paying out its checks as soon as a week from today (the details of when Treasury runs out of cash are irrelevant: the absolutely drop dead date is August 15, but without the machinery in place to resume refunding well ahead of it, the market will have no choice but to begin discounting that fact). And while we know that S&P has now sided with the uber-fluffy Reid plan, which does nothing at all to address America's encroaching insolvency, the real question here, as in every other topic, is what does Goldman think. Because after all Goldman rules the world. Here is the answer.
My fellow Americans... blah blah blah... stalemate.... blah blah blah... runaway spending... blah blah blah... all Bush's fault.... blah blah blah... compromise.... saving money from ending illegitimate wars.....blah blah blah... ceiling must be raised or America will be destroyed...blah blah blah... no more social security for anyone... blah....god bless you all... is the camera off? Where are the Camel lights?
It doesn’t matter what terms the President offers. It’s that simple. Boehner can’t deliver the votes...That's why Boehner is always crying--Alan Grayson
Boehner Just Took Debt Ceiling Negotiations Back Five Steps, Calls Obama's Request "Blank Check", Invokes Visions Of Hank PaulsonSubmitted by Tyler Durden on 07/25/2011 09:42 -0500
In a posting on his blog, Boehner just managed to snag any progress in the debt ceiling negotiation, saying that the president "is trying to set up a no-win situation for taxpayers: either he gets his $2.4 trillion blank check, or America defaults", generatinged much despised PTSD visions of Hank Paulson' staccato threats in Congress, and in doing so making any compromise he may have been pursuing with the Tea Party virtually impossibly and certainly nearly unpracticable with just 3 days before the absolute legal deadline this Thursday. Perhaps that is just the reason why bonds suddenly ripped. Remember: bonds will be bought if sendng is curtailed and no incremental debt will be layered... to a point. Should the US default, buying will turn to selling, first very slowly, then very fast.
Goldman performs the now traditional compilation of key global events and catalysts in the week ahead although there is really just one day that everyone is focusing on: Thursday: "House takes up Senate package, and potentially alters it. Under its rules, the House normally requires a bill to be publicly available for three days before voting on it, but might be able to bend the rules given the deadline. If support is lacking for the McConnell-Reid plan, as appears possible, the House may vote on an alternative package that pairs $300-$500bn in spending cuts with a debt limit increase of the same size. If it becomes clear during the Senate debate early next week that the Senate approach will not gain adequate Republican support in the House, House Republican leaders might move preemptively to pass a shorter extension rather than waiting to receive the Senate bill." Today the market did not crash, which foiled Obama's shock and awe plans (thank you Bernanke Put). However, if there is nothing by Thursday, then even the meanreversionbots will be powerless to just sit back and observe the massive carnage.
Debt Ceiling Negotiators Propose a "Super Congress" To Do the Dirty Work and Avoid the Wrath of VotersSubmitted by George Washington on 07/25/2011 01:39 -0500
I call super B.S.
The debt ceiling debate that has dominated the headlines over the past month has been thoroughly infused with a string of unfortunate misconceptions and a number of blatant deceptions. As a result, the entire process has been mostly hot air. While a recitation of all the errors would be better attempted by a novelist rather than a weekly columnist, I’ll offer my short list.
As we enter the overnight futures market open, there is still no resolution on the ongoing debt ceiling open question. Which is why we present SocGen's handy summary of the three scenarios that are currently in the running for a consensual resolution, together with the possible market reactions to each. The three plans are the McConnell-Reid plan, which as per latest news is in the frontrunning currently, not least (and probably only) due to the immediate beneficial impact it would have on stocks. The 2nd plan is a large deficit reduction plan, whose primary impact would be a significant drag on GDP. Stocks, and bonds, are likely to both rally on the news of this plan, at least in the short-term until the market realizes that some economic growth is actually necessary for the hopium illusion to continue. Lastly, the worst case outcome is no increase in the debt limit, which, logically, would mean that every illusion collapses and the emperor is finally exposed to be naked.
Latest In The Debt Ceiling Crisis: Reid To Offer $2.5 Trillion In Deficit Reductions And No Tax IncreasesSubmitted by Tyler Durden on 07/24/2011 15:54 -0500
Just out from CNN's Lisa Desjardins
- BREAKING - NEW Dem. debt plan: Reid to offer at "least $2.5 Trillion" in deficit redux w/ no revenue increases, Dem. source tells CNN.
- NEW REID PLAN: "At least $2.5 T in deficit redux" w/ no revenue increases. BUT, unclear what baseline he's using and what he'd cut.
- REID PLAN: Dem aide tells our @tedbarrettcnn they think it meets GOP call for dollar-for-dollar spending cuts with debt increase.
And we are confident that the spending "cuts" will take place over 10 years, back-end loaded, which means no spending cuts any time soon. Said otherwise, no spending cuts, no tax hikes. And yes, $2.5 trillion debt ceiling increase. Just as we predicted two weeks ago.
"I'll not have you tampering with this delicate user interface!
Following a resumption of the "failed" debt ceiling discussion at 11 am this morning, John Boehner has just released the following broad statement: “As I said last night, over this weekend Congress will forge a responsible path forward. House and Senate leaders will be working to find a bipartisan solution to significantly reduce Washington spending and preserve the full faith and credit of the United States." So much for the debt talks breaking down. And with so many "deficit-cutting" loose ends, all of which will eventually be resolved, probably by the time Asia opens tomorrow, here is Bloomberg's latest attempt at summarizing what is currently going on and why for Obama getting a solution before the market opens bidless on Monday is the most important thing right now.
I am not sure when U.S. politicians changed from being elitist, self-serving, perk enjoying, hypocrites, to teenage girls, but it has happened. Boehner sends a Dear John letter. Obama complains that phone calls aren't being returned. Reid is pulling petals from a flower repeating, 'he loves me', 'he loves me not'. We have had to listen to stories about getting homework done on time and eating our peas. I have seen this story before, actually multiple times a day, just turn on Disney network and you can watch the same story unfold over and over. We all know how those shows end, everyone agrees that the other side wasn't totally wrong, there is an awkward group hug, and everyone is happy, until the next episode.