Trending
EVERYONE SEEMS TO HAVE A FORECAST on when the U.S. could default on debt — some optimists think it might not come until this summer, but new data shows that the Treasury could run out of money within two weeks.
OF ALL THE REASONS TO WORRY about a genuine crisis, the most persistent factor is simply time. Congress took way too long to ratchet up negotiations this spring, and now there’s probably not enough time to finish a deal by early June.
HOW MUCH TIME IS LEFT? Mick Mulvaney, the former OMB Director, said yesterday that some estimates are too alarmist. The so-called “X Date” might not come until late June, he said.
MANY MEMBERS OF CONGRESS, mostly Republicans, believe Janet Yellen has been too pessimistic and that there’s enough money to keep the government funded into the summer.
BUT THAT ASSERTION HIT A WALL yesterday, when Bloomberg reported that Treasury’s cash balance fell to $87 billion on Monday from about $140 billion Friday, partially due to an unexpectedly large volume of state and local-government securities redemptions.
IF TREASURY HAS RUN THROUGH all but about $87 billion of its authorized extraordinary measures, a crisis is only weeks away, perhaps not enough time for a scheduled cash replenishment in mid-June.
HERE’S OUR TAKE ON WHAT MAY HAPPEN:
* Use of the 14th Amendment to the Constitution to avoid default: A gimmick, but an increasingly plausible option.
* Reaching a budget deal by early June: Unlikely, not enough time, and there’s little consensus between the two parties on spending cuts.
* A “discharge petition” to force a Congressional vote: too complicated, not enough votes.
* An extension until later in the summer: The logical move, giving negotiators a few more weeks.
* A debt default: Can’t totally rule it out, but these other options will come first.
BOTTOM LINE: With President Biden in Asia until Sunday and negotiators making very slow progress, the issue to watch will be Treasury cash balance data — which persuades us that an unprecedented crisis may be only two weeks away.
Related: A Warning From the Fed on Commercial Real Estate
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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.