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Citi: "It Is Possible That We Will Get A Technical Default For A Few Days"

Tyler Durden's picture


From Citi's head of FX strategy, Steven Englander

No coin + temporary debt ceiling extension + sequester = USD negative

There was a an out-of-left-field idea that you could mint such a coin deposit it at the Fed and have a trillion dollars to spend. It was based on a very strained reading of some old legislation.  The Washington Post link shows just how strained the reading is

It really was a non-starter because it would have been risky from a legal viewpoint and financial markets would have priced in the risk that courts would have rejected it and the US would be close to default, not to mention the Fed looking rather Weimarian had they signed up for it.

The rejection of the trillion dollar coin should not put any pressure on financial markets or risk-correlated currencies on Monday

It may be viewed as political hardball by the White House, as there statement implies that they will not negotiate. WP quotes Press Secretary Carney  “there are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default.” This is a new reading since in 2011, they were busily negotiating with Congress (which is how the sequesters and temporary debt ceiling increase came into being.)

So it is possible that we will get a technical default for a few days, but more likely that Congress will give in, vote the debt ceiling up temporarily, and let the automatic sequesters kick in.

Mounting risk of a technical default was USD positive in 2011 because it led to cutting of long-risk positions and the USD/Treasury market remained safe havens.  However, it also occurred in an environemtn of slowing EM growth and intensifying euro zone soveregin risk pressure, so the USD support came from external forces as well. Given that investors are now somewhat long risk again, the position cutting is again likely to be USD positive, however, unattractive US assets were. As was the case in 2011, it is very unlikely that the Treasury will not pay its bills, although even a technical default could have very unforeseen consequences, given the multiple functions that Treasuries play in global financial markets.

The more likely scenario of sequester plus grudging debt ceiling rise is USD negative. It will put more pressure on the Fed to keep pumping liquidity into the US economy without giving any reassurance to investors that long-term fiscal issues are close to resolution.

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Sun, 01/13/2013 - 20:19 | 3149572 SHEEPFUKKER

Just take the debt morning after pill and make it all right. 

Sun, 01/13/2013 - 20:23 | 3149587 THX 1178
THX 1178's picture

Hay everybuddy who holds our bonds... DUMP 'EM!!!

Sun, 01/13/2013 - 20:25 | 3149594 trav777
trav777's picture

just pass a goddamned budget and make the HNIC veto it

Sun, 01/13/2013 - 20:28 | 3149598 UnpatrioticHoarder
UnpatrioticHoarder's picture

"Mounting risk of a technical default was USD positive in 2011 because it led to cutting of long-risk positions and the USD/Treasury market remained safe havens."

Of course, naturally

Sun, 01/13/2013 - 21:14 | 3149681 Looney
Looney's picture

. "The rejection of the trillion dollar coin should not put any pressure on financial markets..."


AHHHHHH!!! AHHHHHHHHHHHH!!! (I am screaming so hard, my asshole has just fell out on the floor and made a huge dent) AHHH! AHHHHHH! AAAAAHHHHHH!!!

Instead of a brazilian-dollar-coin, someone should make 537 trillion-dollar- jalapeno-infused-TAMPONS (12” in diameter) and deposit those into every single asshole’s asshole in the District.  ;-)



Sun, 01/13/2013 - 21:17 | 3149683 Looney
Looney's picture



Sun, 01/13/2013 - 22:08 | 3149754 SubjectivObject
SubjectivObject's picture

You're looney, it's brazilion.

Mon, 01/14/2013 - 00:23 | 3149939 icanhasbailout
icanhasbailout's picture

Can't wait to read the news about the default on my ObamaPhone

Sun, 01/13/2013 - 23:27 | 3149838 AndrewJackson
AndrewJackson's picture

What is the problem? Doesn't it make sense that the closer someone gets to not being able to the more valuable their debt becomes?

Sun, 01/13/2013 - 21:31 | 3149694 DoChenRollingBearing
DoChenRollingBearing's picture

I have to agree with trav777 here.  PAFB!  Make Obama veto it.  Alas, Jim McTague, Barron's DC Pro, says the Republicans will roll over again, as they have a weak hand and are inept.  Yes.

Review of Barron's -- Dated 14 January 2013:


Sun, 01/13/2013 - 22:18 | 3149764 hoos bin pharteen
hoos bin pharteen's picture

Reid would block a bill in the Senate and the MSM would run flak and bury the story.

Sun, 01/13/2013 - 23:05 | 3149811 DoChenRollingBearing
DoChenRollingBearing's picture

That is very likely true.  Sigh...

Sun, 01/13/2013 - 20:55 | 3149654 Stares straight...
Stares straight ahead's picture

CHECK! That would be basically the same people that issue them.

Sun, 01/13/2013 - 20:58 | 3149662 GtownSLV
GtownSLV's picture

House needs to pass a debt bill that only allows the ceiling to be raised to pay existing debt but not current or future deficits. Let AIDS boy chew on that.

Mon, 01/14/2013 - 06:52 | 3150142 Accounting101
Accounting101's picture

Or just move the debt to the private sector. That's what happens when the government de-leverages, right?

Sun, 01/13/2013 - 20:20 | 3149576 koaj
koaj's picture



oh wait wrong country...or is it

Sun, 01/13/2013 - 20:21 | 3149580 Snakeeyes
Snakeeyes's picture

No guff Chet. Each taxpayer’s share of the Total Public Debt is $145,737. And each taxpayer’s liability for unfunded entitlements is $1,083,342. And growing!


Mon, 01/14/2013 - 06:59 | 3150143 Accounting101
Accounting101's picture

No Snakes, each taxpayers share is $145,737 worth of asserts, and growing. Unless, the Earth is indeed flat.

Sun, 01/13/2013 - 20:24 | 3149581 Haole
Haole's picture

"...we will get a technical default for a few days"?

Cue the smoke and mirrors!


Sun, 01/13/2013 - 20:24 | 3149582 Everyman
Everyman's picture

And our lives are affected by the Congress and the ratings agencies as well.  All for a bunch of corrupt congressctritters that cannot seem to recognize and understand they are there to "do the peoples business".  Harry the asshole Reid needs to pass a fucking budget,  At least on of the 17 that the House has sent them.  This is Harry's problem.  Harry is a traitor.  If the HOuse caves for a debt ceiling top rise, all hell is gonna break loose.

I was in a line this weekend to buy a gun, 2.5 hour wait for paperwork.  People I know across the country did the same thing this weekend coincidentally, and they saw the same lines.  People are very angry.  They are angry at the GOVErNMENT, whoever they see.  The real issue is that "people" in those lines are REALLY PISSED at ALL IN CONGRESS and Elected office.  If these guys don't start doing what they are supposed to do for the best intrest for the country and in line with the constitution, I think we are not to far from revolution.  Plain and simple folks.   Many have had enough.  Action (from the citizenry) is not too far away.

Sun, 01/13/2013 - 20:28 | 3149599 trav777
trav777's picture

selection bias.

The 7/10 million new californians over the past 30 years who went onto state assistance are VERY happy with government.  The 47% is happy with it.

The people NOT in gunstores are happy.

In fact, if they are unhappy it's only because the government isn't doing ENOUGH to make people like you unhappy.

Sun, 01/13/2013 - 20:32 | 3149609 fonzannoon
fonzannoon's picture

when you can only pay your bills by borrowing more money you have already defaulted u Citi retards.

Sun, 01/13/2013 - 20:51 | 3149644 TheSilverJournal
TheSilverJournal's picture

The masses will be very angry at the government...for not doing enough. When the printing press is rendered worthless and the government is no longer able to borrow and print in norder to support the US credit/consumption/service sector/government dependent economny, and people become very poor, the cries for the government to "help" will grow the loudest. The fact is there is nothing the government can do to help except get out of the way, and if those cries are answered, the black hole of central planning will engulf the world and prosperity may be forever lost.

Hopefully, those cries for help are not answered by the government and capitalism and free markets are chosen after fiat collapse...

Sun, 01/13/2013 - 20:55 | 3149653 fonzannoon
fonzannoon's picture

or this just goes on for fucking ever.

Sun, 01/13/2013 - 21:47 | 3149730 espirit
espirit's picture

Cue smoke.

Cue mirrors.

Cue printers.

Cue punters.

Sun, 01/13/2013 - 21:48 | 3149731 TheSilverJournal
TheSilverJournal's picture

Ponzi schemes must grow or implode. There is no forever with ponzies.

Sun, 01/13/2013 - 22:46 | 3149785 NoDebt
NoDebt's picture

No, it won't.  There will be an end.  It's just that they realize it's unstoppable so they're getting while the getting is good.

Quick story..... a million years ago I worked for Xerox.  Bunch of us found out that their 401k plan had an option to buy and sell pretty much anything we wanted, including individual securities- a self-directed brokerage acct.  We day traded dot-com stocks like we worked on Wall St. or something.  Memo comes down "You better knock it off, you're killing us in transactions costs.  If you don't stop we're shutting down that program."  Did we stop?  Fuck no.  We did it twice as much until they eventually shut it down.  We knew the jig was up so we whipped that rented mule until it croaked.


Mon, 01/14/2013 - 00:18 | 3149928 lunaticfringe
lunaticfringe's picture

Most excellent.

Mon, 01/14/2013 - 02:19 | 3150044 Matt
Matt's picture

As a fund for hundreds if not thousands of employees, couldn't they have gotten a break on brokerage fees?

Mon, 01/14/2013 - 07:18 | 3150150 Accounting101
Accounting101's picture

No debt??? Really? Isn't that an economic improbability? Please explain how no debt is possible. I wait with bated breath!

Mon, 01/14/2013 - 00:58 | 3149975 you enjoy myself
you enjoy myself's picture

you're forgetting the multiplier effect.  krugman, who has a nobel prize, a beard, and an association with princeton, says moar debt=awesome.  which means you are wrong.  

Sun, 01/13/2013 - 20:34 | 3149614 The Shootist
The Shootist's picture

True. But who wins, lazy uneducated slobs living off stolen government scraps, or well armed patriotic firebrands?

Mon, 01/14/2013 - 02:33 | 3150053 Matt
Matt's picture

Since everyone is free to individually define their own victory conditions, everyone can be a winner.

Sun, 01/13/2013 - 20:29 | 3149601 SHEEPFUKKER

Unfortunately my friend, I think they are doing their jobs.  They don't work for the people and haven't for quite some time. They are doing exactly what they are told by their banking corporate masters. 

Sun, 01/13/2013 - 22:14 | 3149758 formadesika3
formadesika3's picture

US system of gov does not work, except at manipulating public opinion Bernays-style thus options short of military adventurism are/have been exhausted.

Basic premise of time mgmt is to not neglect what's important  at the expense of what's urgent. Congress has failed on epic scale to perform on this count. Even proles with attention-span of poultry now knows something is wrong, giving Congress lowest marks in history but few among general public can view issues except through false left/right ideological lenses.

Banksters Rubin/Greenspan/Sommers used Libertarian watchword of "starving the beast" in 1990s as cover to enrich Wall Street and MIC while the rot increased. Fraud permeated the system without adequate checks on financial markets since the only starving that occurred involved cutbacks to financial regulatory agencies. If gov has any legitimate regulatory role, it's this, to regulate against fraud in financial markets.

Louis XIV said "Apres moi le deluge." The deluge has arrived.

Mon, 01/14/2013 - 02:00 | 3150033 jerry_theking_lawler
jerry_theking_lawler's picture

Correction: You mean the 'current' US system.....

The original was almost perfect (except for the GD commerce clause) and a few other ideas that should have been state could never be changed.

Sun, 01/13/2013 - 20:30 | 3149605 StychoKiller
StychoKiller's picture

All the background checks in the world cannot catch someone who's snapped inside and is contemplating taking out one of TPTB; opportunity awaits the prepared...

Sun, 01/13/2013 - 20:33 | 3149613 UnpatrioticHoarder
UnpatrioticHoarder's picture

The come back is "Americans voted for Congress", but did they. Democracy is a release valve, by fiddling election results TPTB are bottling up an awful lot of voter discontent.

Same with gold and silver manipulation, the longer the distortion and suppression, the more dramatic the reversal.

Sun, 01/13/2013 - 20:40 | 3149618 Chupacabra-322
Chupacabra-322's picture

@ Everyman,

"When people lose everything, and have nothing left to lose, they LOSE IT." -Gerald Celente

“When all else loses, they take you to war.” -Gerald Celente


By the way Everyman, there're Criminal corrupt congressctritters.  And need to be referred to as such.  CRIMINALS.....





Sun, 01/13/2013 - 20:53 | 3149650 centerline
centerline's picture

Celente is right.  And he is also fun to listen to.

Sun, 01/13/2013 - 21:27 | 3149691 Everyman
Everyman's picture

I stand corrected Chupra.  +1

Sun, 01/13/2013 - 20:55 | 3149655 Poetic injustice
Poetic injustice's picture

It's normal. In Soviet Union you waited in line for 4-5 hours, unless all the items were sold earlier. The same with paperwork, it could take countless hours.

Sun, 01/13/2013 - 20:22 | 3149583 koder
koder's picture

Wake me when the EBT cards stop flowing...

Sun, 01/13/2013 - 20:22 | 3149585 q99x2
q99x2's picture

Sounds like I better max out the available student loans this year.

Sun, 01/13/2013 - 22:45 | 3149784 ForTheWorld
ForTheWorld's picture

Good thing you'll never really have to pay them back either. Isn't America great?

Sun, 01/13/2013 - 20:23 | 3149588 rehypothecator
rehypothecator's picture

Ho hum, no big deal if we have a technical default, everyone's doing it, no big deal.  Then again, if you are suspected of maybe having an illegal gun, you can expect a no-knock raid that night, because some laws are incredibly important to enforce right now, while other laws are merely guidelines and suggestions.  Specifically, those laws that constrain citizens are urgent and important, while those that constrain government are optional and unimportant.  

Sun, 01/13/2013 - 20:58 | 3149663 Poetic injustice
Poetic injustice's picture

For the record of TSA, NASA and all other random spying agencies. I do detest previous comment, and my dog accidentally hit on +1 button. As it is my wife's dog, I don't object if you waterboard dog to get information on which terrorist organization aforementioned dog works.

Sun, 01/13/2013 - 20:23 | 3149589 Taint Boil
Taint Boil's picture



Aren’t we about due for the “deer in the headlights” picture? Bring it!  ….Sorry, just got into Peoria, driving 7 hours ….need to relax, breath deep … a little Zero Hedge …  a little alcohol … everything is OK , aaaahhh.


OK…….. I’m OK now - carry on.

Sun, 01/13/2013 - 20:24 | 3149592 Dan The Man
Dan The Man's picture


Sun, 01/13/2013 - 20:27 | 3149595 knukles
knukles's picture

Technical default, my ass.
There are no terms and conditions of default anywhere in the federal code, no indenture under which federal debt is issued.  None.  By default (LOL) it would mean the basline rudimentary non payment on timely basis of interest or principal when due. 

Out-standings to Lockheed Martin and Halliburton, be damned.


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