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We approach another debt ceiling drop dead date. The next month is thus fraught with unknowns. It makes projecting our QE and PONTs charts beyond the next two weeks all but impossible. We’ll just have to wait and see along with everybody else. Of course we view the world a little differently than everyone else.
Here’s the view through that prism.
Word is that Yellen says the new drop dead date (DDD Day) when the Treasury runs out of money will be December 18. You’ll get no argument from me on that score. The extrapolations of Treasury cash spending and revenue seem to support a mid December deadline. At that point, all new debt issuance will stop, and Treasury spending will be severely curtailed. The Federal government will be unable to pay somewhere around 40% of its bills on average.
Everybody else thinks that a debt default would be a catastrophe. I’m not so sure. No doubt it will throw the Treasury market into chaos, but there will still be vultures buying any dips, knowing that a technical default will be cured sooner or later. A stoppage of issuance will mean that new supply will be zero. How much supply will come from panicked sellers, and whether that will overwhelm demand from dealers flush with QE cash, and hedge funds that are short Treasuries, remains to be seen.
The consensus seems to be that a default will trigger a really bad something something something, in the stock market and economy. The economy? Make me laugh. Irrelevant for our purposes.
But the stock market? A complete halt in government debt issuance could be very bullish…
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