Carson Block: "The Possibility Of US Default Is Greater Than Anyone Seems To Realize"

Tyler Durden's picture

Authored by Carson Block via Bloomberg.com,

Euphoria has been pervasive in the stock market since the election. But investors seem to be overlooking the risk of a U.S. government default resulting from a failure by Congress to raise the debt ceiling. The possibility is greater than anyone seems to realize, even with a supposedly unified government.

In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default.

The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt. Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately.

Reaching 218 votes in favor of raising or suspending the debt ceiling might be harder than in any previous fiscal showdown. President Donald Trump almost certainly wants to raise the ceiling, but he may not have the votes. While Republicans control 237 seats in the House, the Tea Party wing of the party has in the past has steadfastly refused to go along with increases.

The Republican Party is already facing a revolt on its right flank over its failure to offer a clean repeal of the Affordable Care Act. Many members of this resistance constitute the ultra-right “Freedom Caucus,” which was willing to stand its ground during previous debt ceiling showdowns. The Freedom Caucus has 29 members, which means there might be only 208 votes to raise the ceiling. (It’s interesting to recall that, in 2013, President Trump himself tweeted that he was “embarrassed” that Republicans had voted to extend the ceiling.)

It may be unrealistic to expect Democrats to save the day – at least initially. House Democrats may be more than happy to sit back and watch Republicans fight among themselves. If the Democrats eventually ride to the rescue, it probably won't be until after a period of Republican-on-Republican violence.

Nobody wants the Treasury to reach the point where it has to prioritize payment of interest over other obligations – a threshold where creditworthiness and market confidence will have begun to retreat. The bond market already seems to be reacting to this possibility, sending yields higher and prices lower, even as the S&P/Dow/Nasdaq have been on a tear and are showing scant concern over the potential turmoil.

In an ideal world, all sides would come together and not play politics with the debt ceiling again. Clearly that’s not the world in which we live. America’s partisan divide may now be so wide that a default will occur. That isn’t my base case scenario, but we will probably come down to the wire.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
NugginFuts's picture

Let's see.... target interest rate per Yellen is 3%. We currently owe $20 trillion.... makes yearly debt payments go up to $600 billion.

Yeah that ends well. 

Croesus's picture

One thing's for sure...when this thing finally does blow...the aftermath will probably result in the greatest wealth-building opportunity ever known, for people who are positioned properly.

Boris Alatovkrap's picture

Wealth is not create through fraud and manipulation or by totalitarian police state. Wealth is create by elimination of fraud, manipulation and totalitarian police state. Thing blow is presume power organ of today is not also control and manipulate in future, but why are you think so? You are think maniacal compulsive autocrat and kleptocrat is place tail between leg and walk away?

Kotzbomber747's picture

Wasn't this debt ceiling discussion/vote supposed to be also today?

I remember drama-queen David Stockman making a big thing out of 15th March about a month ago.

BandGap's picture

Stockman was ranting a few DAYS ago. This is usually a big brew-ha-ha.  Not a fucking peep makes me wonder if something os afoot.

macholatte's picture

 

WTF kinda name is Carson Block?
Is that like...
Sanding Block
Mental Block
Engine Block
Writers Block
Road Block

froze25's picture

Ehh, I want it to happen, let Trump get line item veto on spending. Whats that you say we can have an Airforce or the EPA.....Well looks like the EPA is gone.

SafelyGraze's picture

when there is no more FRNs to draw on, simply issue US Notes.

hugs,
abe lincoln

me too! -jfk

 

BennyBoy's picture

 

WTF!

The USA is going to default?!

Again. History keeps repeating.

NidStyles's picture

Where was this guy 20 years ago?

HowdyDoody's picture

Possibility of US default? The probability of a US default is ~ 0.99999

Mr. Universe's picture

On a long enough timeline the probability for default of the U.S. increases to 100%

8774_44887's picture
8774_44887 (not verified) Mr. Universe Mar 15, 2017 5:57 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

fbazzrea's picture

i suppose with as many aliases as you possess, at some point, numbers are so much easier.

laser's picture

The US already did default when Nixon closed the gold window.

zippedydoodah's picture

Cure: Executive Order.

That wasn't fucking difficult, was it?

JRobby's picture

This has been done purposely, by design.

When will the sheep of this country wake up? That cash drop you see on the chart was created by purposely not refinancing a large portion of maturing debt to create a serious, dangerous crisis.

If a treasury operation in a private company did this, heads would roll for 2 or 3 months. 

WAKE UP!!!!!!!

JRobby's picture

Why would Obama (Manchurian Kenyan) leave the checkbook a mess on his way out?

45North1's picture

Still waiting to see how the allegations of  Obama using Freddie and Fannie profits to subsidize the ACA turn out...

Placerville's picture

Where your car is when you have to get under it.

 

Carson Block

Theosebes Goodfellow's picture

~"Where your car is when you have to get under it."~

Damned straight. They're right out there in the front yard between the street and the Sofason Block.

Croesus's picture

@ Boris:

Times of crisis also create opportunities, regardless of who's in charge. "Inflate or Die" as a policy hurts everyone who isn't first in line to the "money" spigot, but even those who are hurt by it can potentially turn it to their advantage...

https://greenewable.files.wordpress.com/2008/10/wsj-10-11-08-car-for-sal...

TPTB play a long game, and their strategy has served them well, for >200 years. Why more folks don't adopt that strategy, I'll never know.

froze25's picture

Most people barely have enough self discipline to make it to work on time or a meeting on time let alone adopt long term strategies that will greatly benefit them. Why do you think most disciplinary actions have been made illegal to use in public school (not talking abuse) or will get parents in front of CPS agents these days. TPTB don't want any competition. My father hit both my brother and myself when we stepped out of line, we had it coming and today I thank him for it.

A question I ask people before I hire them is "do you garden at all?" It's innocent enough not to raise eyebrows but if they do you at least know they can think beyond 20 mins in advance, make a plan and execute it. Typically I find that if they Garden, have kids and do some type of occasional volunteer work they make great assets and won't cause issues. Most of this has to be adjust a little depending on the age of the applicant.

shovelhead's picture

Ask them if they grow MJ.

It shows they understand EROEI and time management.

froze25's picture

Nah, thats too easy. Any fool with sunlight and dirt can grow that plant. Seriously there is a reason its called weed. It does look cool though.

Flash007's picture

You have obviously never grown any it's a little more than just popping a seed in the ground and regular watering.

detached.amusement's picture

*chuckle* yeah, if you want to grow shitty weed, that's pretty easy to grow donkey dick sized colas, but they're going to smoke like a pack of nitrates.

froze25's picture

Yeah, we are talking about simply growing a plant not creating the best bud ever. Do you really expect me in an interview to say "hey man, can you grow killer weed"?

trulz4lulz's picture

Depends, am I interviewing for a Billion Dollar a year, grow op? THen yes, yes you would ask me that question.

froze25's picture

True, regrettably i am not in that business.

gunsnmoney's picture

Gotta love Boris....that is if Man/Man love is OK where he's from.

zippedydoodah's picture

Boris, aka a Tyler pseudonym . Guaranteed to get massive votes on every post he makes. Isn't that amazing.

HRClinton's picture

The Modern Monetary System won't just "blow up". Its masters will pop it when they're good and ready, to replace it with something else. Until then, there are many knobs to turn and many digits in the computerized Ledger.

My guys at GS had me go big into stocks after the 2008 crash, that was an amaaaazing BTFD opportunity. They also shorted PM in 2012-2017, that made me more money.

What have the Zero Bears done for you? Besides make you permanently angry and ever more poor. Didn't your parents teach you boys not to pee into the wind?

JRobby's picture

A few people will be arriving at your door momentarily. They will be hard to miss because they will have guns drawn.

Goodbye Troll Cocksucker.

JRobby's picture

If you have noticed, they are positioning themselves for the great wealth building event and excluding as many "others" as possible so the will OWN ALL!

JackieG's picture

When this does blow it will be the most awesome God damned event to ever take place on the planet.

There will be no ring side seats as everyone will get scorched.

Boris Alatovkrap's picture

Da, da, da, if any other entity is have such great debt to earning ratio, default is scary probability, but Rothschild backed Federal Reserve is one thing no other entity is possess… printing press for petro dollar (apology for much alliterations).

IronSights on'um's picture

I hadn't thought of it but if the US defaulted, who would serve as the repo man for the Fed?

detached.amusement's picture

Its just a cock block, it will be extended in perpetuity so long as the banksters have control of the system.  If they get close to losing their grip, that is their ace up the sleeve to punish the plebes as forcefully as possible back into their masters' hands.

buttmint's picture

China as RepoMan
They already own most of the Federal Buildings in DC.

MFL5591's picture

Trump did nothing to create this debt and better to let it crash and give the credit to the X Mulsim President!

Dabooda's picture

One of the few things that prompted me to vote for Trump is his proven willingness to declare bankruptcy.  Default and repudiate the national debt.  And blame it on Obama.

 

Quoth Murray Rothbard: "The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing, and, once again, relieve him of $200 billion in annual interest payments. The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly."

shovelhead's picture

"You no throw trash in my Yellastone Park. Guard shoot you in face. You give 500 dollah or die. You do now."

Mr. Universe's picture

How much for the UN building? The Statue of Liberty, I want to buy your woman, sell them to me, sell me your children...