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Barring a Debt Ceiling Solution, the US Will Begin Defaulting on February 15 2013

Phoenix Capital Research's picture




 

 

We’ve now have just a little over 30 days until US breaches its debt ceiling.

 

We would have already done so, except Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached).

 

The “solutions” to the debt ceiling discussions range from outright insane ($1 trillion coins) to just staggeringly irresponsible (just get rid of any oversight and grow the debt without restriction).

 

Let us consider the facts.

 

The only reason the US is even having these discussions is because we’ve added $1+ trillion in debt to our balance sheet every year since 2008. The reason we were able to get away with this was because Congress hasn’t even implemented a budget since that time. Indeed, the last time a budget was even proposed (by President Obama in that case) it was rejected 97-0.

 

Let’s say a US family spent all of its savings and income and so began using credit cards to fund its purchases. Then, instead of implementing reforms and a budget, these folks decide to abandon any kind of tracking of their expenses and start spending even more. Eventually this family would begin to stop paying its bills.

 

What would you tell these folks if their proposed solution to this situation was to stop opening their mail?

 

At the core of this entire situation is a total lack of financial discipline. Indeed, at this point, the only thing the political class in the developed world seems to pay attention to is the bond markets: only when their bonds collapse and interest rates spike is there any sense of urgency to do anything (with massive debt loads, any increase in interest rates means hundreds of billions of dollars in more interest expenses).

 

On that note, the US 30-year Treasury appears to just have taken out its trendline:

 

 

Bear in mind, the US Federal Reserve has been the primary buyer of US debt. So if the US bond market begins to collapse at a time when the Fed is already buying this much, there isn’t a whole lot the Fed can do to fix the situation (other than just buy more… which inevitably leads to a debt implosion).

 

This situation has the potential to get very ugly. Remember the impact the failed debt ceiling talks had on the markets in July 2011?

 

 

At that time, the only thing that pulled the market back from the edge was the Fed’s announcement of QE 2. But the Fed has already just announced both QE 3 and QE 4. So this option won’t be around to fix the fallout if the US breaches its debt ceiling again now.

 

For more clear independent insights and interpretations of the global economy and financial markets, swing by http://gainspainscapital.com/gpc-inflation/

 

Best

 

Phoenix Capital Research

 

 

 

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Thu, 01/10/2013 - 00:19 | 3139711 andrewp111
andrewp111's picture

The Trillion Dollar Coin will be minted and used.

Wed, 01/09/2013 - 23:02 | 3139506 GubbermintWorker
GubbermintWorker's picture

Hey, this is one of the better articles by Phoenix. But I'm a mere govt employee so what I know.

Wed, 01/09/2013 - 23:00 | 3139501 Room 101
Room 101's picture

Was there any new information in this article?  Why was it posted?

Just more preaching to the converted. The debt will continue to expand until it can't be.

Thu, 01/10/2013 - 03:13 | 3139415 laomei
laomei's picture

Good thing that the government isn't a household and that the people who make such allegories are idiots.

Wed, 01/09/2013 - 22:05 | 3139365 espirit
espirit's picture

"We’ve now have just a little over 30 days until US breaches its debt ceiling..."

Yawn... Wash, rinse, repeat.

Never gonna happen.

Wed, 01/09/2013 - 23:05 | 3139510 Room 101
Room 101's picture

You're right.  The debt ceiling is kabuki theatre just the same as the so-called fiscal cliff.  Obama and his minions have already floated the idea of extending the ceiling by unilateral decree.  They either get what they want out of Congress or they go ahead and extend the ceiling anyway.

Please save us the putrescent drama.

Wed, 01/09/2013 - 21:31 | 3139269 Bicycle Repairman
Bicycle Repairman's picture

Kabuki.

Wed, 01/09/2013 - 22:43 | 3139441 Joe moneybags
Joe moneybags's picture

-1 for cliche

Wed, 01/09/2013 - 21:24 | 3139236 Fix It Again Timmy
Fix It Again Timmy's picture

Do debt orgasms go on forever?...

Wed, 01/09/2013 - 20:09 | 3138957 orangegeek
orangegeek's picture

Debt ceiling is one issue - earnings season is happening now.

 

Dow Jones is still holding.

 

http://bullandbearmash.com/chart/dow-jones-daily-heads-higher-stronger-v...

 

Should be interesting to see how the numbers get spun this quarter - let's see what the crystal balls says - higher earnings on lower revenue/revised down from last quarter revenue.

Wed, 01/09/2013 - 20:25 | 3139016 Snakeeyes
Snakeeyes's picture

Oh please! Boehner and McConnell will posture. Obama will win.

Have we all forgotten the Republican surrender on the fiscal cliff?

http://confoundedinterest.wordpress.com/2013/01/01/fiscal-abyss-bill-pas...

Wed, 01/09/2013 - 22:17 | 3139391 StychoKiller
StychoKiller's picture

while (status_Quo == ponzi_Scheme)

{

   debt_Ceiling += 1000000000000.0;

}

great_Implosion = TRUE;

global_Reset( debt_Ceiling = 0.0 );

exit( status_Quo );

Wed, 01/09/2013 - 19:10 | 3138762 lolmao500
lolmao500's picture

Just look up the Obamabots forums, they LOVE the trillion dollar coin idea. If it was up to them, they would approve it right now.

Wed, 01/09/2013 - 18:41 | 3138658 20-20 Hindsight
20-20 Hindsight's picture

This financial armageddon will actually take place on February 2, any year now, but definitely on Groundhog Day!  That's right, the same story that keeps repeating itself each day...

Wed, 01/09/2013 - 18:18 | 3138583 Uber Vandal
Uber Vandal's picture

On Sunday, January 6, 2013, the Simpsons had an episode titled "Homer goes to Prep School", and in that episode, Homer gets introduced to "preppers".

When Homer goes to the preppers "secret location", the leader of the group says "Homer, we all know that America's collapse is about 3 months away", and one of the other "preppers" speaks up and says "six weeks at most".

What is six weeks from January 6, 2013?

The week of February 10.

What. A. Coincidence.

Tue, 01/15/2013 - 23:01 | 3156451 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

On Sunday January 13th 2013, Mr. Burns made a slur against Austrians economists with a simultaneous nod of approval for Keynesians. 

FTW

http://bastiat.mises.org/2013/01/the-austrian-school-referenced-in-the-s...

Wed, 01/09/2013 - 19:06 | 3138745 viahj
viahj's picture

no problem, they'll just rerun that program on Feb 8

Wed, 01/09/2013 - 17:57 | 3138463 Marc To Market
Marc To Market's picture

The only reason the US is even having these discussions is because we’ve added $1+ trillion in debt to our balance sheet every year since 2008. The reason we were able to get away with this was because Congress hasn’t even implemented a budget since that time. Indeed, the last time a budget was even proposed (by President Obama in that case) it was rejected 97-0.   

 

Really ? Is this factually true ?  The only reason the debt ceiling is an issue is because of the recent debt ?   What happened then in 1995 when the GOP Congress shut down the government, not once but twice ?  If one really thinks the US is going to default, there is an obvious trade, but I doubt you have it on, because if you did you would be losing money and lots of it.    Really ?  The US is going to begin to default on Feb 15 ?  Really ?  The US has been operating with a budget since 2008 ?  Really ?  Do you just make this stuff up ?  

Wed, 01/09/2013 - 17:51 | 3138449 Jack Sheet
Jack Sheet's picture

Yet more investment-grade bullshit from Phenix Crapitall Research.

Wed, 01/09/2013 - 17:51 | 3138448 Vooter
Vooter's picture

If the government doesn't give a shit about anything, why should I?

Wed, 01/09/2013 - 17:19 | 3138263 MrButtoMcFarty
MrButtoMcFarty's picture

FTW!!

MAGIC GEITHNER COINS BITCHEZ!!

Wed, 01/09/2013 - 17:16 | 3138231 imbrbing
imbrbing's picture

What are these "emergency funds" we speak of and where does one get them from? More out of thin air crap?

Wed, 01/09/2013 - 16:53 | 3138107 muppet_master
muppet_master's picture

valentine day MASSACRE!!

calling the bank to increase ur credit line so that you don't default...is just increasing the risk...go odummernomics go ! go bankrupt the US keynan-kenysian style

 a little default or super massive default?? ask the QEorganizer...maybe he wants to default when @ $20T debt instead of $14T (summer 2011) but now @ $16.8T

Wed, 01/09/2013 - 16:23 | 3137922 falak pema
falak pema's picture

you mean that the USA will be like Argentina and Potus will have to HIRE a plane and not fly in air force 1? 

Wow, Wow. 

Wed, 01/09/2013 - 19:54 | 3138909 Matt
Matt's picture

No, that only happens when you default for the third time in a row, I think.

Wed, 01/09/2013 - 16:12 | 3137866 holgerdanske
holgerdanske's picture

The discussion is getting rather boring.
You can't compare this to a family spending on a credit card. The state can print money out of nothing, and this whole circus is just a manifestation of the destruction of the value of the dollar.
As long as there is an idiot behind you in the queue, that will perform tricks for your dollars, this will continue.

The day you find yourself with a fistful of Dollars, and no-one interested, is the day this will stop.

Logically this should never have happened, yet alone continued for so long, but unfortunately, it is psychological and thus not subject to natural laws in the short term.

It will crash, no doubt about it, but when?

Wed, 01/09/2013 - 16:33 | 3138002 franzpick
franzpick's picture

"The discussion is getting rather boring", and continually misleading.  Why raise false threats when 1) there is more than enough incoming tax revenue to pay interest due on the debt, and 2) the 30 year bond doesn't break it's uptrend from 1983 until it goes below 125:

http://stockcharts.com/freecharts/historical/spxusb1978.html

Wed, 01/09/2013 - 21:00 | 3139138 hooligan2009
hooligan2009's picture

you mean until all taxes are used up..in making interest payments, there isn't a problem? hmmm, no medicare/aid/pentagon/foodstamps?

20 trillion x 12% = 2.4 trillion = taxes..so that's a long way away, around four years from now..and a much bigger interest rate (125% of GDP)

how about

30 trillion x 8%....thats 14 years..and a much bigger interest rate (180% of GDP)

or

40 trillion x 6% (250%) of GDP

of course..spanish and italian ten year interest rates are 5% and japanese interest rates are 0.8% with 250% of GDP..

damn clocks and children...death and taxes are not the only certainties in this failed keynesian model

Wed, 01/09/2013 - 15:58 | 3137799 OneTinSoldier66
OneTinSoldier66's picture

"Indeed, at this point, the only thing the political class in the developed world seems to pay attention to is the bond markets:"

 

Must.... protect.... the printing.... press.

 

Ben Bernanke.... must not.... be exposed... to... the... common... man.

 

You see it's not their fault. It's the voices in their head.

Wed, 01/09/2013 - 15:53 | 3137760 OneTinSoldier66
OneTinSoldier66's picture

"Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached)."

 

Where is my wallet? WHERE IS MY WALLET!? I need to check my wallet, NOW!

Wed, 01/09/2013 - 15:34 | 3137612 Tango in the Blight
Tango in the Blight's picture

Jack Jew should just buy a 100 Trillion Zim Dollar note on eBay and use a black marker to draw a line across the word Zimbabwe and write US above it and then send it over to Uncle Ben. Problem solved!

Wed, 01/09/2013 - 15:30 | 3137604 tango
tango's picture

Market determined bond trends are extinct.  The FED will do ANYTHING to keep rates from ever rising.  How can they allow rates to rise when a (for example) 4% rate would result in $700 billion in debt payments. Until we reach the inevitable consequences of central planning, we will have low interest rates. Of course, they could simply monetize the payments on the debt too.  I have waited for years to hedge treasuries and now realize this will never happen.

Wed, 01/09/2013 - 15:29 | 3137599 cougar_w
cougar_w's picture

The US will not default. The PTB will wait until the last instant and then -- with a theatrical florish -- extend the debt ceiling.

I was saying a while back that they will remove this provision, but I have since changed my mind. They need the fakester drama of a debt ceiling debate to make it appear they are doing something important, when they are not. It also works like terrorist alerts to keep the average person in a state of fear that something bad will happen.

Everyone needs to relax, take a deep breath and see all this for what it really is: a gigantic, orchestrated ongoing mind-fuck.

Wed, 01/09/2013 - 15:52 | 3137755 AGuy
AGuy's picture

"They need the fakester drama of a debt ceiling debate to make it appear they are doing something important"

Drama Queens putting on a performance! Neither party is serious about deficit or debt reduction. Its all just one big joke, on us and the rest of the world.

Wed, 01/09/2013 - 21:01 | 3139148 hooligan2009
hooligan2009's picture

i would be ringing my credit card company applying the same logic to increase my credit card debt limit to 15 times my annual salary at about this time...if i had a job and a credit card :)

I am SPARTACUS!

Wed, 01/09/2013 - 15:01 | 3137422 digitlman
digitlman's picture

MORE BILGE!

Wed, 01/09/2013 - 14:50 | 3137350 1eyedman
1eyedman's picture

..just in time for the asteroid to hit!

Wed, 01/09/2013 - 15:14 | 3137493 Bear
Wed, 01/09/2013 - 22:29 | 3139419 old naughty
old naughty's picture

I wondered why they held off on the cliff, and then the ceiling, now that he's got his second term (and can't be waiting for the first term guy from citi, after two BMO terms).

So you say they (his mnasters) knew, and exploit on the incoming chunk? Or the induced pandemic?

Perhaps they can up the guides from big pharma on the profit of the vaccines?

Nuts isn't it?

Well,...some event...

Be well,

Wed, 01/09/2013 - 14:44 | 3137310 Fizzywig
Fizzywig's picture

Time to mint some coins and head to the land of make believe.

 

Instead of minting a 1 trillion dollar coin, they should just mint a 1 zillion dollar coin.  The debt limit needs raising?  No, just change the definition of value for 1 zillion; never mint another coin again.

Wed, 01/09/2013 - 15:45 | 3137709 rsnoble
rsnoble's picture

Should I wear protective gear if I insert one of your zillion dollar coins into a gumball machine?

Wed, 01/09/2013 - 14:04 | 3137103 Vince Clortho
Vince Clortho's picture

QE5.

It does not have to work, just buy time.

Wed, 01/09/2013 - 15:31 | 3137613 cougar_w
cougar_w's picture

I doubt they will announce any more "named" QE. They have open-ended QE now and they need only stick with it, adding to the size of it if they want to.

Wed, 01/09/2013 - 13:51 | 3137051 e-recep
e-recep's picture

debt ceiling is no problem for the establishment. it will be pushed up and up.

Wed, 01/09/2013 - 20:43 | 3139071 Buck Johnson
Buck Johnson's picture

Geitner is getting out because he knows that this game can't continue and he sees any solution that doesn't stop spending will backfire on the president.  And it will also backfire on the republicans because a section of their party want the whole system to burn down and then they could build it back up from scratch.  And add on top of that individuals in the republican party that have to be tough this time.  We have the blind leading the fool.

Wed, 01/09/2013 - 22:49 | 3139467 Joe moneybags
Joe moneybags's picture

Geitner is getting out in order to become a multi-millionaire.

Wed, 01/09/2013 - 14:52 | 3137348 TerminalDebt
TerminalDebt's picture

At the last hour of course, to make it look like they don't want to.

Congress will have to be voting at 2am on the 15th and be heros.

The debt ceiling raise will also include 300B of pork just for fun.

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