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All times in this update are in US Central time (UTC-6 clock).
Song of the Week - Jimmy Wopo - Elm Street
Table of Contents
Potential of US Debt Default
Economic Calendar
New Zealand Interest Rates
US FOMC Minutes
Crypto Macro
Price Action
BEN and PSYOP
Securities Clarity Act
Pulse Chain
Gensler Says No
Conclusion
Internal References
1. Potential US Debt Default
We’ve discussed the US debt ceiling and it’s impact on markets previously before at the start of February, so I’m going to avoid retreading the same grounds and instead focus on the current negotiations and future outcomes. If you need a refresher, here is February’s post.
Sinc then, McCarthy and House Republicans passed a $1.5 trillion spending bill at the start of this month, but it was rejected by Biden and the Democrat Senate because the spending cuts were deemed too steep.
Also, Biden’s Treasury Secretary Yellen released a statement (in the same link above) stating that the treasury would default as soon as the beginning of June. However she may have been overstating the drop-dead date, and if the Treasury can make it to June 15th, another wave of quarterly estimated tax payments are due and could give the treasury another month or so of rope before an actual default date.
So while the June 1st date may seem scary, it’s quite possible that the current state of affairs can be extended all the way into mid/late July. The incentives for the involved factions to actually come to a deal are just not in place at all. There is no positive incentive for any of the sides involved to come to the table or really offer any sort of compromise here. Avoiding a default won’t win you any voters. American politics are mostly fractured, depending on how government impacts your life is all that determines how you vote.
People have mostly already decided who they will blame for the first US debt default since 1979, even I’ve already decided, even you; you may not know it yet, but you’ve probably decided too. We’ve all already decided.
Whether you’re right or not is of less consequence, but just sit for a moment and ponder how a country like this where a majority of the population have already made their minds up before an event occurs can possibly co-exist.
It’s likely that we can’t.
Because of that fact, there is no incentive for either faction to compromise and make concessions to the other side, and so they probably won’t. The real question is who cares more. Does the freedom caucus within the republican party care more about reigning in government spending than residing in congress during a default? Do Biden and the Democrats care about staining their reputation and overseeing the first US debt default recognized by the media (headlines often say we’ve never defaulted despite briefly defaulting in 1979).
We’ll see.
So far, Biden and the Democrats have been slow to make any moves regarding the potential for a debt default, with the administrations first move being the appointment of 2 negotiators last week.
You’ll recall that at the start of the year I had low expectations for Republicans to actually hold out beyond a token resistance.
The Freedom Caucus is not big enough to actually stall the votes. The Freedom Caucus only represents 53 members of the House (of a total 435 members). It was enough to give McCarthy some heartburn as it took a significant number of meetings to approve him as Speaker of the house. But this is not enough members to realistically stall a vote for longer than a month or two. McCarthy was likely leveraged by the Freedom Caucus to agree to a few concessions before they’d vote for him as Speaker of the House. I’d bet that one of those concessions was centered around the debt ceiling. So we’ll see him put forth a token resistance until the Democrats offer him and other republicans something they want enough for them to give up their pretend ethics.
Scathing. I’m like a dog that fear bites. Every human master I’ve had has hit me, so now I just bite whenever any human comes close. I don’t want to risk being hit, so it’s easier to just bite first.
Outside of a few dozen house and senate members I have routinely been let down by the US legislature. Far easier to be pessimistic than to look at each event with new eyes (and be inevitably hurt when they do exactly what they said they wouldn’t).
Do I dare to hope? McCarthy has been a swamp creature his entire tenure in Congress. Did the Speaker of the House vote this January genuinely rattle his cage? Are the other RINO’s actually going to stick to the concessions made to the Freedom Caucus? Or are they going to stab the Freedom Caucus in the back and tell us an outlandish story of how they were struck by lightning?
I’ll admit that the number of based Republicans is slowly growing. We saw the minting of Byron Donalds and several others in the latest House elections and the creation of the House subcommittee on digital assets. Do we dare hope?
Might we also get a Republican leadership who is willing to let the US government default on it’s debt? I hope so. Not because it’s good for crypto, but because it’s the only honest thing we can do in this situation. Opening a new line of credit is not a responsible move for someone in crippling debt. Neither is raising the debt ceiling a responsible move for a country with over 100% of it’s GDP in debt.
The existing problem we have where the middle class is being hollowed out as stagflation puts most asset classes permanently out of reach is a direct cause of continuously raising the debt ceiling for the past 100 years. Where fiat is concerned, there is no fight more important to the long-term survival of the dollar than for the US government to get it’s spending under control. Yes, I care about the dollar. It may come as a surprise considering how bought into crypto I am, and how little regard I hold towards my home country, but there are a lot of people dependent on the dollar’s survival and global demand. They earn dollars for work, they pay for their lives in dollars, while everyone gets what they deserve, it would be nice if the world was a little less satanic. You shouldn’t have to navigate a minefield of IQ tests just to be able to afford to raise children and have a home. You shouldn’t have to understand the implicit inflation behind CPI headline reports just to be able to retire without running out of money. This is a hellscape, and I don’t care if people at least 1 standard deviation above average IQ can get rich far easier than other places. This is still a hellscape, and something should be done about that.
Are these the droids we’re looking for? Do we dare to hope for an actual default? Do we dare to hope that this time those looking to spend our grandchildren’s money on behalf of our largesse are the ones who will end up being forced to compromise? I don’t know, I’m just the scruffy dog in the corner of the kennel eyeing each strange face with a level of distrust that has been hard earned.
Yet, I still hope that this is what we see. Of course, the longer the negotiations fail to come together, the less downward pressure is on the crypto sector as interest rates get pushed down the longer new treasuries aren’t flowing into the markets. To provide some perspective, this is probably the closest we’ll ever get to having our side represented in debt ceiling negotiations. My entire life, I’ve never seen this level of pushback before. The Tea Party was alright, but was quickly co-opted except for a few remaining members that formed what is today the Freedom Caucus. This is as close as we’ve ever gotten so far.
Hopefully this year will be the year that the money-printers are told that this time, they have to move.
So, what can we look forward to? Realistically, the Treasury will make it to June 15th, and get an infusion of quarterly tax payments. They can probably run that string out for another ~40 days (rough gut feeling).
Meanwhile, the Republicans have put a $1.5 Trillion spending deal on the table. It’s a horrible bill, from my perspective, and from the perspective of others.
Biggs agreed, saying in a statement that the measure only lowers the projected gross national debt a decade from now from $52 trillion to $47 trillion. Gaetz cited a similar figure, saying in a statement that "gaslighting nearly $50 trillion in debt to America is something my conscious cannot abide at this time.”
But it does cut a lot of existing legislation away.
Discretionary spending cut by ~8%.
Repealing most energy tax credits from 2022 Democrat climate bill
Rescinding IRS unobligated IRS tax enforcement and climate grants as well as unspent CovID pandemic relief funds
Cancelling Biden’s unconstitutional Student Debt Relief plan
Increasing work requirements for welfare beneficiaries without qualifying disabilities
Requiring congressional authorization for major regulatory initiatives (the law already requires this, but everyone ignores it now and the courts never prosecute over-reach)
The Democrat response to this has so far been unhinged, but if the freedom caucus can hold strong it’s possible they may genuinely come to the table next month.
House Democrats all voted against the bill, arguing that Congress should raise the debt limit without conditions. They also slammed the spending cuts in the bill, saying they would have a massive impact on government programs Americans depend on
Democrats so far want an unconditional surrender from the House Republicans. So long as the Republicans stay united behind the speaker and the speaker keeps faith with the freedom caucus, there is nothing the democrats can do to force capitulation. But if any of the RINO’s in the House go behind the backs of the freedom caucus or the Speaker of the House, they very well could give us a debt ceiling increase with little to no conditions by simply voting with the House Democrats on a new bill.
I’d much rather we had a default than having the current Republican bill pass, because the bill really solves very few problems and leaves all of the largest ones on the table. But, I guess it’s better than nothing.
Currently I see no indication that they will come to an agreement quickly.
Neither side has really budged at all and other than ongoing scheduled meetings there really haven’t been any public signs of progress.
Unless something drastic happens, I don’t see them coming to an agreement for another few weeks, and I don’t see the default really being on the table until July.
There is still time in the markets for us to be stupid longer than they can be solvent.
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