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Debt ceiling jitters lift US credit default swaps to highest since 2011
Spreads on U.S. five-year credit default swaps - market-based gauges of the risk of a default - widened to 49 basis points, data from S&P Global Market Intelligence showed, more than double the level they stood at in January.
A showdown over U.S. government efforts to raise the $31.4 trillion debt ceiling for the world's largest economy have sent jitters through global financial markets.
JPMorgan said in a note published late Wednesday it expected the debt ceiling to become an issue as early as May, and that the debate over both the ceiling and the federal funding bill would run "dangerously close" to final deadlines.
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Earlier estimates for debt-ceiling drop-dead date were in August, but weak tax receipts may have moved it to June.
FWIW, I'm to chicken to put a huge percentage into a momentum play, so my ceiling at this point is 10% of my self managed holdings in IAU.
Yes, and I'm not very happy with the MSM "gotta compromise" framing of it -- normalizing hostage-taking behavior -- which is giving the hostage-takers oxygen, and probably making a sane resolution less likely.
For a couple of months now, I've avoided buying T-bills that mature over the summer to limit the damage if the unthinkable happens. It's hard to imagine Treasury not paying off maturing T securities, but there's a first time for everything. On the hedging side, an equity short is all I've got right now, small to start, but the closer we get without a resolution, I may add significantly to it, depending on what the market's doing at the time.
@AndyJ, Also there are bullions $ of money market funds invested in treasury. Hard to imagine they will not be affected.
the consequences of a "Default" would be so extreme, so quick to be noticed and so quickly reversed that I am not really worried. It might be possible to trade it, ie buy gold or shorts on SPY or treasuries due in a month, and then sell, but if it is not over in a day or so, you will not be able to buy gas, or food and your investments will be the least of your concern.
In a rational world the Dems would agree to some concessions in exchange for eliminating the debt ceiling all together.
American Enterprise Institute - The Foolish Idea of Default Denialism - "A craze is sweeping the nation, the idea that failing to raise the debt limit would not be an abomination." (2013). Also cited by Barry Ritzholtz.
The lack of responses to your question "where to hide?" is not necessarily due to people viewing a default as a highly improbable hypothetical (even hypotheticals can be useful to consider). Rather you may be getting few responses because IMHO there are no good answers.
As sma3 expressed, the potential consequences are so extreme that they would either be (if possible) reversed immediately or your question about where to keep investments would become the least of your worries.
@sven - your links lead right back to your post (message 60984 in this thread). While it is true that the stock market fell following the S&P downgrade in 2011, the Treasury bond market rallied.
NPR - Developing: In Wake Of S&P Downgrade, U.S. Stocks Tumble (Aug 8, 2011) As observed in the AEI piece cited above, the bond market fell as actual default neared. But not as a result of any ratings agency actions.
Discussion may have been quiet, but a proposal that would suspend the debt ceiling until the end of the year and includes additional work was announced yesterday by the Problem Solvers Caucus.
https://problemsolverscaucus.house.gov/media/press-releases/problem-solvers-caucus-endorses-bipartisan-debt-ceiling-framework
As I understand how this group (evenly divided between Democrats and Republicans) functions, all members commit "to vote for anything that’s endorsed by 75 percent of their caucus". That currently includes 31 House Republicans, well above the 5 or so needed.
That's likely why the press release states that their proposal "has the support of more than 75% of Problem Solvers Caucus members".
At the time, the other rating agencies (Moody's/MCO, Fitch) just decided to wait and watch. A concern now is that one of these may now do the downgrade this time.
We need to honor our debt obligations for spending previously approved by Congress.
Spending negotiations should occur during the budget appropriation process.
The consequences of a default are potentially catastrophic.
The US dollar's position as the default global reserve currency would be jeopardized.
So-called "patriots" in the GOP would in effect weaken our nation and aid our adversaries.
I'm not aware of any effective solutions to protect investors from the worst-case scenario.
Because of the dire consequences, I believe Congress will lift the debt ceiling (probably at the last minute).
It's certainly possible that the GOP remains exceedingly obstinate and causes a very short-lived default.
The excrement will then strike the whirring blades and there will be a tremendous impetus
to resolve the situation.
About the best you can do if you think a default is probable is go to gold, foreign currency or cash. There is something people can do from a political perspective—vote, canvass, call your representatives, organize and protest to make sure these kinds of financial terrorists don’t remain in power or ever get elected again. In some respects, finding an investment solution to this problem for your portfolio is like asking how to prep your portfolio for a nuclear war. We’ve always known the nuclear warheads are there as the ultimate fat tail, but what can you really do to insulate yourself from that risk? The only solution is a mass political one not an individual investment one— throw the bums out of office.
dry powdercash ready to go.I don't have to write my reps, cause I live in Massachusetts. I agree in theory that democratic actions ( letters, calls, marches campaigning) would work if everyone did it, but only 50% max of the public even votes.
Most of the reps leading the charge for this crap have been gerrymandered into districts they can't loose.
My sister in Texas is gerrymandered into a very red district. Her Rep Chip Roy is one of the more extreme GOPers. He refuses to respond to her emails, and will not let anyone but registered Republicans into his town meetings. There are guards at the door checking names off the voter lists.
Her local school board just voted to require the history teachers to only teach to their students that Trump won the 2020 election and it was stolen.
Unfortunately I think until the real awful consequences of the debt ceiling refusal really hit the fan nothing will change.
on this week's Wall Street Week episode.
We should not be taking hostages and making threats which are counterproductive for everybody.
We do need to have a fundamental conversation about governmental finances.
Mr. Summers would like the key players - President Biden, majority/minority leaders of House/Senate,
to recognize that default is unacceptable.
It's not realistic to think that any meaningful reform will occur when facing debt limit time constraints.
If the US dollar loses it's status as the global reserve currency, it will be the least of our problems.
This will happen only if the US is no longer respected or strong in the world.
Where will people move to?
The Renminbi is not a viable alternative to the US dollar.
As a nation we need to focus on our fundamentals and strategy
and if we're successful the dollar will be ok.
Summers' Segment
You are correct, but when only 50% of eligible voters actually vote, a minority can control a lot of stuff.