Hey There Income Hunter,
A debt ceiling crisis is on the horizon, and the 2023 edition may end up taking the title of all-time works
The chart below illustrates in the red circles the 1996, 2011, 2013, 2015 and 2021 episodes, with 2011 currently being the worst ever.
Notice that in 2011 the VIX spiked to 50 before a solution was reached.
Think about that … In 2022 the highest level reached in the worst financial asset bear market in 40 years was a high of 39 …
Today, we’ll take a close look at how this will unfold and what it could mean for markets.
Treasury Issuance Pushing US Debt to Its Limit
The US has roughly nine months before official emergency measures must be deployed to create room under the debt ceiling.
According to Wrightson ICAP, whihc specializes in US Treasury financing trends, a recent surge in Treasury bill issuance will put the US $10 billion above the debt ceiling after Jan. 19.
Treasury issuance of bills, notes and bonds this week added $32 billion in new issuance, leaving only about another $28 billion before the ceiling is breached.
Prior to reaching the debt ceiling, Treasury Secretary Janet Yelleny will have to notify Congress that it must invoke extraordinary accounting measures in the next few days.
This Time Is Different
Could 2023 have as negative an impact on the markets as 2011?
The answer is a definitive yes …
2023 will be worse because a probable recession will require more government borrowing (US expense), while at the same time reducing tax receipts (US income).
This is a double-whammy, which could ultimately, force the Fed to pivot back to QE
The pivot would be the Big Long scenario I discussed at the Win the Week live event.
Here is the timeline – and potential timeline – of events triggered due to a delay in government default on its debt …
Bring It Home
One way or another the above scenario will become reality because the US government debt is 125% above our income (GDP) and can never be paid back …
The US must choose between an outright default on the debt, causing a complete collapse of the economy …
Or accept high inflation and print unlimited amounts of money to monetize the debt while holding interest rates well below inflation, which slowly inflates the debt away.
My bet is we will accept inflation and use it to devalue the debt away …
This is how we’ve started the year …
Live and Trade With Passion My Friend,
Griff