• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

SocGen On The Three "11th Hour" Debt Ceiling Scenarios, And Their Respective Market Reactions

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Sun, 07/24/2011 - 17:51 | 1488613 rajat_bhatia
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Sun, 07/24/2011 - 17:57 | 1488640 bankrupt JPM bu...
bankrupt JPM buy silver's picture

So we rally, and the metals get slain..?  Till Friday that is.

Sun, 07/24/2011 - 17:59 | 1488645 At120
At120's picture

Are you here 24/7?


Sun, 07/24/2011 - 19:33 | 1489074 DeadFred
DeadFred's picture

The government's psyops computers are state of the art and can run 24/7

Sun, 07/24/2011 - 17:52 | 1488621 bugs_
bugs_'s picture

we may hear them talking about the goldilox default scenario

Sun, 07/24/2011 - 18:11 | 1488714 Ghordius
Ghordius's picture

Your comment makes me so nostalgic. Ahhh, the Goldilocks!

Sun, 07/24/2011 - 22:54 | 1489542 eureka
eureka's picture

Yep - and then add some more nostalgia, like "De-Coupling" (this time from reality itself) - and a "Jobless" - not to mention "Homeless" "RECOVERY" - Kudlow is gonna blow and huf and puf - all very nostalgic and topped off with tons of custom ordered Wall Street "Greenshoots".

Sun, 07/24/2011 - 17:54 | 1488623 Prepared
Prepared's picture

sad, rediculous and pathetic.  This is like watching a slow moving hurricane target our shores.  You know it's coming one way or another.  Bonus time to prep is a good thing. 

Sun, 07/24/2011 - 17:55 | 1488629 TheGoodDoctor
TheGoodDoctor's picture

14th Amendment Bitchez?

Sun, 07/24/2011 - 17:56 | 1488632 AldousHuxley
AldousHuxley's picture

how about some austerity in the bankster industry? lay them bankers off and watch the economy take off!

Sun, 07/24/2011 - 17:56 | 1488634 Bill Hicks
Bill Hicks's picture

"The contraction would be in the magnitude of 10% of GDP annualized if the stand-off lasts from August to September. This could risk putting the US back into recession"


Ummm...a 10% drop in GDP is NOT a recession, it's a depression. 

Sun, 07/24/2011 - 17:57 | 1488642 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Hey buddy, change your photo to Dennis Leary.

Sun, 07/24/2011 - 18:20 | 1488754 Franken_Stein
Franken_Stein's picture


I love it when people talk to themselves.

Happens to me all the time, too.


Sun, 07/24/2011 - 18:21 | 1488758 Franken_Stein
Franken_Stein's picture


He's right.

Listen to this Frankenstein guy and you will become a wise man.


Sun, 07/24/2011 - 21:47 | 1489389 Bill Hicks
Bill Hicks's picture

I'm Bill Hicks...and you're not. 

Sun, 07/24/2011 - 22:50 | 1489533 oblonsky
oblonsky's picture

not sure if they mean a 10% drop in GDP or a 10% drop from 2% to -8% or from 2% to 1.8%. 

Sun, 07/24/2011 - 17:59 | 1488635 Ghordius
Ghordius's picture

"We continue to believe that the most likely scenario is a last minute deal to increase the debt ceiling with very little in agreed spending cuts."

Chance: 90%

Markets by then: "priced in"...

Sun, 07/24/2011 - 17:57 | 1488638 pesamystik
pesamystik's picture

If I lose one god damn dime because the oligarchy failed to perpetuate the status quo another day, I'll be very mad. I want DOW 36,000 NEXT GOD DAMN WEEK. RAIN MONEY DOWN ON ME BEN, RAIN IT DOWN.

Sun, 07/24/2011 - 19:04 | 1488995 Noah Vail
Noah Vail's picture

Markets will rallly if I pee on my shoe.

Sun, 07/24/2011 - 17:59 | 1488643 Derpin USA
Derpin USA's picture

This analysis completely ignores the large amount of institutional investors who would be forced to divest of treasuries in the even of a downgrade from AAA.

A rally in Treasuries? I think fucking not.

Sun, 07/24/2011 - 18:04 | 1488676 Ghordius
Ghordius's picture

Downgrade from AAA? This year?
The Basel rules would force all TBTF to increase their equity.
This would harm banker's bonuses.
Remember who pays Rating Agencies?

Sun, 07/24/2011 - 18:11 | 1488716 Derpin USA
Derpin USA's picture

An event of default would do that. The article argued that equities might suffer and Treasuries migh gain in the event of a default. I find that to be a very wrong analysis based on what I said previously.

Mon, 07/25/2011 - 01:38 | 1489832 darkstar7646
darkstar7646's picture

I'd lay odds on "this week".

Sun, 07/24/2011 - 18:29 | 1488794 snowball777
snowball777's picture


It's not a matter of demand or "flight to safety" in that case. It's black-letter contract law.

Sun, 07/24/2011 - 19:36 | 1489080 Newtons Lawyer
Newtons Lawyer's picture

Ratings agencies are unlikely to do anything but threaten to downgrade.  Debt service is still a small part of the budget and will be the first priority.  So Treasuries could rally, as well as the dollar.  Equities probably wouldn't fare as well but with Ben around, who can do anything other than guess.

Sun, 07/24/2011 - 17:59 | 1488644 rubearish10
rubearish10's picture

Well, SPU's are indicated 10 points lower. Better pass something now or else. HLOY CRAP (real sarcasm)

Sun, 07/24/2011 - 17:59 | 1488646 Captain Benny
Captain Benny's picture

Seems like everyone and their child is thinking that the equities will rally on a debt ceiling increase.  Am I the only one that thinks one of the ratings agencies will finally get some balls and straight up tell it how it is and downgrade the US for kicking the can down the road?

I personally think we'll see commodities rally with any debt ceiling deal, but I can't say I see equities rallying from their already high point.

Sun, 07/24/2011 - 18:08 | 1488695 Ghordius
Ghordius's picture

Where is your trust in rating agencies coming from?
They will serve their client's interests.

Sun, 07/24/2011 - 18:14 | 1488719 Captain Benny
Captain Benny's picture

Whose to say that they don't have clients betting big that the US is doing to be downgraded?  I honestly don't expect a downgrade any time soon, but I do expect expect one eventually.  This week I expect more statements trying to scare the populous into thinking a downgrade is imminent.

Sun, 07/24/2011 - 18:08 | 1488701 TooBearish
TooBearish's picture

Anyone who thinks they will downgrade the US to AA is smoking - S&P and Moodys would lose their cartel status and hafta do some real work - absolutly no chance of a downgrade - move along.

Sun, 07/24/2011 - 18:11 | 1488705 Everyman
Everyman's picture

"According to our models, if sentiment reverses after the raising of the debt ceiling payroll growth should return toward a 150k-200k range by the fourth quarter."

Your models are asinine then because it does not take into account that the majority of investors, citizens, etc. ALL understand that the "debt ceiling increase" is only for 2-3 months.  Only complete morons pumpertards would make the assumption that this plan "resolution" is a resolution.  What kind of idiots are making these idiotic calls???????

"The market reaction to news of a grand plan could be similar to the reaction we saw when both stocks and the long bond rallied on the news of the “Gang of Six” plan."

AGAIN, you make ASSUMPTIONS you even know "what" is in the plan, and you are taking the word of a bunch of coward liars (congresscritters) that this "fixes" the problem.  Again you are an idiot that aught to get a jalapeno enema with a turpentine corncob butt rub.  You analyze financial trends and give advice to investors??? Feel sorry for your clients!!!!!

"That said, if there were no increase, it would result in the US entering into a technical default and this would be followed by a downgrade to its rating by credit ratings agencies."

NO it WOULD NOT.  We have enough money and revenue coming in to pay for interest and that majority of our debts.  We WOULD have to select which debts to pay and not, but we do not "technically default", so not only are you a fucking ignorant analyst, you are also a LIAR!!!  You are a PRICK and need to self lobotomize, you fucking freak!!!!!

Sun, 07/24/2011 - 18:09 | 1488706 Everybodys All ...
Everybodys All American's picture

What is bizarre to me is that no one mentions the utterly insane Federal Reserve that has been ruining the dollar and creating the environment for more deficit spending. Face it if the Fed had decided not to buy every friggin Treasury we would not be in this crazy mess. We might be in a recession but no one would be considering the dropping of AAA credit rating and the next likely hood of dropping the dollar as a reserve currency. Bernanke has to be mentioned along side the most idiotic people who have every run our government. For Obama to keep him at this point shows you his ignorance as well.

Sun, 07/24/2011 - 18:10 | 1488711 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The Dollar Bill turned 150 last week so I'm too tired from the festivities to give a damn.

Or more prosaically, if the debt ceiling does not pass, let them eat cake.

Sun, 07/24/2011 - 18:24 | 1488762 r101958
r101958's picture

This article points out quite well how warped the GDP measure is. When government spending determines the health of the economy. Let's face it. The real and accurate current GDP is whatever the GDP would be without the yearly deficit. Just remove the extra 1.5 trillion and then you will get a good idea of how we are and have been in a depression. The only reason it doesn't feel quite like it right now is because of all this deficit spending and of course the economy will not be fixed until that happens.

Sun, 07/24/2011 - 19:19 | 1489029 Noah Vail
Noah Vail's picture

GDP is a complete fraud starting with the fact that it counts pretax dollars. The governmnt then taxes and spends the money so the tax is counted twice as "product". On top of that gvt borrows foreign dollars and counts that too as "product" when in fact all borrowing is a liability, not a fucking product.

By the logic of the GDP formula, the more the gvt borrows and spends, the better the economy is. All economists ought to be hung from traffic lights.

Sun, 07/24/2011 - 18:25 | 1488777 Yes_Questions
Yes_Questions's picture

McConnell-Reid Plan. This is multiple stage plan which sees the debt ceiling increased by $100bn immediately followed by much larger increases in the future which are tied to matching spending cuts...

Uh, what?

Sun, 07/24/2011 - 18:36 | 1488819 Franken_Stein
Franken_Stein's picture


The same Mitch McConell, whose Chinese-American wife Elaine Chao was once head of the department of Labor., when the Martin County sludge spill in Kentucky happened.

Guess who operated the sludge basin ?


Don Blankenship's Massey Energy.




You Americans are ruled by scum.

And Blankenship is still NOT IN JAIL !

Even after 29 DEAD West Virginia miners !


For heaven's sake, put the asshole in the slammer !


Sun, 07/24/2011 - 22:16 | 1489463 HungrySeagull
HungrySeagull's picture

There are hundreds of miners dead. I believe between Morgantown and Pittsburgh. A small memorial stands at the site next to the highway. I think they died between 416 and 500 feet down.

Sun, 07/24/2011 - 18:31 | 1488813 snowball777
snowball777's picture

McConnell-Reid won't cut it if Timmay needs to issue 3X that $100B increase to "catch up", right? Their only politically viable plan is fiscally DoA. Buahahaha; fucking pikers.

Sun, 07/24/2011 - 18:33 | 1488829 American Sucker
American Sucker's picture

I don't understand why the United States would necessarily enter technical default.  After all, debt rollovers could easily be met with current revenues.  Now, the United States would have to slash expenditures to revenue immdiately so as to not issue more debt, and that would cause serious pain, but that wouldn't be a default.

Sun, 07/24/2011 - 19:27 | 1489061 Everyman
Everyman's picture

"Technical Default"
 is a lie just like the lies the congresscritters and the President uttered, that if the debt ceiling is not raised, the US will default.  BS, just for the reasons you post.

The "Rub" is that these politicians realize that some bills won't be paid, and are playing "hot potato" because nobody wants to pull the string on this and get the blame.  SOMETHING will get cut and has to get cut anyway, because we will be right back here again in 2-6 months.

Sun, 07/24/2011 - 18:45 | 1488891 cfigueir
cfigueir's picture


pretty picture, except that real GDP was actually more like 1.75%, during QE2, and likely will come in lower for 2H 2011. Add in austerity (any plan will result in cuts and/or raises in revenue), and you have guaranteed drags. The probability of negative GDP this year, if not early next year, will be a near certainty with any austerity...

Sun, 07/24/2011 - 19:29 | 1489066 Everyman
Everyman's picture

"The probability of negative GDP this year..."


Do you mean the probablity of OFFICAL NEGATIVE GDP this year?

Sun, 07/24/2011 - 19:01 | 1488985 heywood jablowme
heywood jablowme's picture

Why is everyone ignoring Ron Paul...all the US needs is for Bernanke and Co. to forgive the interest and repayment of the debt the Fed is holding and the debt cieling is magically increased $1.7 trillion.  Tear up those bonds just like Goldman tore up its AIG CDS.  The fed can then just monetize more debt as its balance sheet will be reduced $1.7 tillion.

Sun, 07/24/2011 - 19:34 | 1489075 goldsaver
goldsaver's picture

They cant. The 1.7T in debt are all in the balance sheet as reserves. It represents 17T in currency issuance. If the Federal Reserve has to contract the balance sheet by 1.7T, is has to pull the 17T out of existence. Add to that the CDS losses to banks and you have a whole lot of pain going on.

Sun, 07/24/2011 - 19:02 | 1488989 heywood jablowme
heywood jablowme's picture

Why is everyone ignoring Ron Paul...all the US needs is for Bernanke and Co. to forgive the interest and repayment of the debt the Fed is holding and the debt cieling is magically increased $1.7 trillion.  Tear up those bonds just like Goldman tore up its AIG CDS.  The fed can then just monetize more debt as its balance sheet will be reduced $1.7 trillion.


Sun, 07/24/2011 - 19:15 | 1489023 wombats
wombats's picture

What does a default, or even a slight delay in payments do to bank holdings, especially banks like BofA that are teetering on the brink of insolvency anyhow?  Do we start seeing at-risk banks start collapsing?

Sun, 07/24/2011 - 19:31 | 1489068 Everyman
Everyman's picture

Hopefully we start seeing the criminals losing.  and YES I do hope BoA goes tits up.  They should have been reorganized years ago, and those that put this crap and lied about it ought to be in jail or drug behind a pickup until there is nothing left but boots.  These people are REALLY REALLY bad, and we need to get rid of them.

Sun, 07/24/2011 - 19:47 | 1489116 bakken
bakken's picture

Wishful thinking.   The Treasury no llonger needs Congressinal approval for bail outs.  Credit Paulson for that one and Timmy needs no help to do what he woukd love to do anyway.  Evidently the toxic asset buy back from Fan/Fred hasn't been enough, the zombies are still entitiled to more and larger transfusions.

>>>>>>No Bank Blowouts while their punk is at the helm!!!!!


[OMG  Please do something about the size of this typeface!]

Sun, 07/24/2011 - 20:30 | 1489197 cfigueir
cfigueir's picture


They will grow closer to insolvency as their leverage increases. As default risk gets priced into treasuries, the existing instruments held by banks being marked to market will drag down book values.

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