Is the stock market going to tank?

[Kevo]

Your cash is going to devalue if the US government defaults. The backup plan for a default is to print money to pay the debt.

I'm not saying that to pimp crypto or tell you to reallocate, just calling it out.

I honestly don't know of a safe asset in the event of a default. Maybe gold? Maybe BTC? Maybe Yuan?

[summit]

Definitely not Yuan... maybe Gold

[Cono Este]

9mm and 5.56 ammo by the crate. Followed. By malboros and chicken in a biscuit.

[Brock Landers]

WTI still looking like $50. Another failed rally.

Production cut coming. Again.

[Brock Landers]

Your cash is going to devalue if the US government defaults. The backup plan for a default is to print money to pay the debt.

And this is different from the last 15 years…how exactly?

S&P cut the US govt rating back in 2011. Treasuries skyrocketed.

[J. Barron DeJong]

And this is different from the last 15 years…how exactly?

S&P cut the US govt rating back in 2011. Treasuries skyrocketed.

Hehe. Potential US default creating uncertainty about the global economy? Rush to the safety of the US dollar.

[skaredshtles]

Hehe. Potential US default creating uncertainty about the global economy? Rush to the safety of the US dollar.

So it's a feature?

[Kevo]

And this is different from the last 15 years…how exactly?

S&P cut the US govt rating back in 2011. Treasuries skyrocketed.

It is my understanding that despite printing a shit ton of money that we have yet to print money to directly service our debt.

[J. Barron DeJong]

It is my understanding that despite printing a shit ton of money that we have yet to print money to directly service our debt.

Whay does that mean exactly? Like, what’s the difference in mechanisms between ‘printing money’ and ‘printing money to directly service the debt’?

[Kevo]

My understanding, feel free to correct it I'm incorrect-

Printing money with QE- Fed prints money to buy treasury bonds. The Fed now owns treasury debt. The payments on the debt are made by collecting and remitting tax revenue.

Printing money in default to cover debt obligations- congress cannot come to an agreement to remit enough tax revenue to cover debt payments, so instead the fed prints money to pay bond holders. This scenario isn't directly caused by a lack of revenue, but the default will lead to lower credit ratings and increased rates for US national debt going forward. It is conceivable that interest rates on US government debt could get so high that it is impossible to raise taxes enough to cover debt obligations in the future.

Countries that have had some form of the latter (can't pay debt, so print more money) have often experienced hyperinflation and currency collapse.

[Cono Este]

^^^^

I’d argue higher rates are the first competition we’ve seen for bloated stocks in the last 20 yrs.

It would also help pull the rug out from under the mkt.

[kokomas]

Helpful on difference between QE and debt monetization
https://economics.td.com/gbl-debt-monetization


Highlight: While QE programs over the past decade have led to an increase in the monetary base, they have done little to increase money supply. This was partially due to central banks paying interest on reserves at the central bank and a reluctance of banks to lend in the period right after the global financial crisis (GFC).

My take: since the larger Fed balance sheet causes a liability on bank balance sheets it is not inflationary in itself. It is better just to look at Fed intentions and prevailing interest rate. I.E. before they wanted higher inflation, now they want lower inflation.

People want to be confused by this and see some grand conspiracy. I don't.

[Hott Butt Mud]

.25bps hike today and I think market may go boom. ADP Payrolls higher than expected.

Anything more on rate increase and seems like shit gonna go cray.

[4matic]

Spineless Powell would rather put more banks out of business than stand aside and wait. QT is more important to continue vs more rate hikes. 10y yield going to dive either way. 3% on the way.

[J. Barron DeJong]

My understanding, feel free to correct it I'm incorrect-

Printing money with QE- Fed prints money to buy treasury bonds. The Fed now owns treasury debt. The payments on the debt are made by collecting and remitting tax revenue.

Printing money in default to cover debt obligations- congress cannot come to an agreement to remit enough tax revenue to cover debt payments, so instead the fed prints money to pay bond holders. This scenario isn't directly caused by a lack of revenue, but the default will lead to lower credit ratings and increased rates for US national debt going forward. It is conceivable that interest rates on US government debt could get so high that it is impossible to raise taxes enough to cover debt obligations in the future.

Countries that have had some form of the latter (can't pay debt, so print more money) have often experienced hyperinflation and currency collapse.

The way I see it is that a ‘default on the debt’ because the the debt ceiling isn’t raised by law (which I believe is the scenario your thinking about) is a very different thing than monetizing the debt.

Right now, and for decades, the US hasn’t had enough tax remittances to cover spending, and you could say that ‘printing money’ has been the way to make up the difference. (I don’t think printing money is the best terminology there, but good enough.) And I don’t think it’s right to say that payments on that debt are currently coming only from tax remittances, not from printing money; it’s all intertwined, so how do you say this dollar came from taxes, and that one was printed?

But there’s no reason that a continual tax revenue shortfall needs to lead to hyperinflation.

The hyperinflation happens when instead of collecting more tax revenue to cover the interest payments on ever increasing debt obligations, they decide to ‘print money’. That devalues the currency, market demands higher and higher interest rates to hold debt, etc. and you get the inflationary spiral.

The debt-ceiling issue is very different than that. There’s no doubt the US is capable of paying the interest on it’s current outstanding treasuries without ‘printing money’ in a way that would lead to hyperinflation - the monetary base has actually been shrinking over the past year, so the opposite of printing money.

The question is what happens if the US doesn’t make interest payments on it’s bonds, even when it has the capacity to, which to me is a very different scenario.

[kokomas]

Spineless Powell would rather put more banks out of business than stand aside and wait. QT is more important to continue vs more rate hikes. 10y yield going to dive either way. 3% on the way.

Lowering inflation is the Fed objective, not protecting banks which chose not to diversify deposit bases and or hedge rates. Tightening policy tightens conditions.

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[4matic]

Lowering inflation is the Fed objective, not protecting banks which chose not to diversify deposit bases and or hedge rates. Tightening policy tightens conditions.

Sent from my Pixel 7 using Tapatalk

It’s not full employment? Banks bought the Fed manipulated low rate bonds as a safe reserve and now the Fed manipulated short rate makes those same assets a liability. It’s quackery all around.

Remember, 15 months ago the Fed target rate for 2022 was like .50% so banks manage their assets using Fed guidance.

[406]

The question is what happens if the US doesn’t make interest payments on it’s bonds, even when it has the capacity to, which to me is a very different scenario.

Does anyone benefit if this happens? Seems like even China wouldn't escape the fallout. Scary thing is if it happens sooner than the now moved up expected date and is a surprise. I'm guessing the big money behind the GQP will be making some phone calls if it gets too close and the showmanship will end.

[kokomas]

For the foreseeable future, economy is at or through full employment. Not the binding objective here. Objective is to slow output growth enough to raise the unemployment rate. Perhaps they have done enough at this point, perhaps they will have to do more. Not an easy job

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[J. Barron DeJong]

Does anyone benefit if this happens? Seems like even China wouldn't escape the fallout. Scary thing is if it happens sooner than the now moved up expected date and is a surprise. I'm guessing the big money behind the GQP will be making some phone calls if it gets too close and the showmanship will end.

Im not an expert, and from the bit I’ve read, I don’t think the experts really know how it would play out.

I’d speculate that a default due to debt ceiling doesn’t actually benefit anyone, but the downsides aren’t felt evenly. Maybe China ends up less worse off than US, but still worse to some extent?

I’d hope that if there’s no successful vote to raise the debt ceiling, then it’s ignored, or one of the potential workarounds are implemented. There are a few options there, but legality of everything (including the debt-ceiling itself) is questionable.

e.g.



https://twitter.com/paulkrugman/stat...sR_NcRK2VkCfkg

[J. Barron DeJong]

Kevo, this might be relevant to your initial question as well:



https://twitter.com/paulkrugman/stat...sR_NcRK2VkCfkg

[4matic]

Powell stuttering gibberish press conference. No vision.

[BobMc]

As someone that watched almost 6k go up in smoke via FRC, WAL is looking familiar…

Oil prices going down all week and locally here gas prices going up all week, crested $4.00 today. I’d like to see $50 WTI but I don’t think that will happen.

https://oilprice.com/Energy/Oil-Pric...ventories.html

I’m still holding a lot of energy, thankfully it’s been doing steady and helping offset the FRC asskicking.

[Brock Landers]

It’s not full employment? Banks bought the Fed manipulated low rate bonds as a safe reserve and now the Fed manipulated short rate makes those same assets a liability. It’s quackery all around.

Remember, 15 months ago the Fed target rate for 2022 was like .50% so banks manage their assets using Fed guidance.

Can’t blame the Fed for the couple banks that completely butchered their balance sheets and ALM. Interest rate and yield curve risk is like day 1 shit. Oh rates can change? Well fuck then.

[Buzzworthy]

Question for y’all, say I’ve got a bit of money in a college fund, that’s tied to stock performance, distributed into 4-5 funds in Vanguard. I can pull money into “cash” and keep it safe from market fluctuations under the account without penalty so it’s no longer tied to the market. If this makes any sense to you, would I be smart to move some of it into that safe area called “cash”?
At any time I can always roll it back into the funds tied to market performance.