Key to Debt Ceiling Extension: Make the Markets Worried
Author: 8
September 20, 2021
Key to Debt Ceiling Extension: Make the Markets Nervous
September 20, 2021
BOTH SIDES ARE BITTERLY DUG IN on extending the debt ceiling — so dug in that a catalyst will be required to break the logjam. Unfortunately, that catalyst probably will be very nervous markets, which will demand a deal later this fall.
TREASURY SECRETARY JANET YELLEN DID HER PART, attempting to scare the markets, writing in a Wall Street Journal op-ed this weekend that failure to act will lead to “widespread economic catastrophe.”
YELLEN WARNED this could lead to “millions of Americans strapped for cash,” with Social Security payments jeopardized, troops unpaid and the child tax credit suspended.
FOR THE MARKETS, SHE SAID, there could be a spike of interest rates, a steep drop in stock prices and an inability to make payments on car loans and credit card bills.
THE STRATEGY THUS APPEARS to be a scare campaign, pressuring Mitch McConnell and Republicans to cooperate on a debt ceiling hike, blaming them if the markets get nervous. Democrats need ten GOP votes in the Senate to break a filibuster and raise the debt ceiling; presently they have none.
THE TIMETABLE: Democrats probably won’t have a massive social spending bill ready for a vote by next Monday, as promised by House Speaker Nancy Pelosi. Perhaps more importantly, they will need to quickly pass a continuing resolution (CR), keeping the government open when the new fiscal year starts on Oct. 1.
A DEBT CEILING HIKE could be included in the CR, which also would contain hurricane relief. If the Republicans reject this package, there could be a federal government shutdown in less than two weeks.
THIS IS ALL ABOUT WHO GETS BLAMED for massive new spending. Republicans don’t want their fingerprints on raising the debt ceiling, even though they spent freely during the Trump years. Yet they want to stop Biden’s massive spending bills. Democrats want to blame the GOP for a shutdown or even a federal default.
THE POSTURING WILL CONTINUE for several more weeks — plenty of time for the financial markets and the public to tire of the Washington dysfunction on the debt ceiling, conflicting signals on tax hikes, threats from Joe Manchin, gloomy news from China, illegal immigration, Fed asset tapering, etc.
BOTTOM LINE: At some point the debt ceiling will get raised — after this crisis deepens. It always gets raised. But when the U.S. Treasury Secretary scares Americans about an “economic catastrophe” and warns that Social Security checks could be jeopardized, that threatens a significant crisis of confidence. A message to the Democrats: be careful what you wish for.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2022 AGF Management Limited. All rights reserved.
