The Biden Debt Crisis | Debt Ceiling BREACHED.

something that irks everyone in markets

is the following chart folks it is the

US no longer actually approaching the

debt ceiling but actually having hit the

debt ceiling on Thursday of last week

and we should touch a little bit on the

implications of uh hitting the debt

ceiling and some of the potential

Solutions or not solutions that that

have been proposed for dealing with the

debt ceiling so first we hit the debt

ceiling limit that doesn't actually mean

anything yet because we haven't

defaulted on our debt everybody's

worried about default so think about it

kind of like maxing out your credit card

but not actually missing a payment yet

on what's owed or what you're using your

credit card for this is because the

government's kind of like going around

looking in the Mattress Corner you know

the crevices of the mattress and trying

to rejigger things to make sure that

well we can extend the time to that that

in which we would actually default out

to something known as default day or as

Janet Yellen calls it the X State some

of the ways that the government plays

with the X state is they can pause

contributions or investments into

government workers retirements Health

Care payments they can delay tax refunds

they can also suspend new investments

into things uh like the disability fund

or the post office retirement health

care benefit funds they can do a lot of

this and and right now the estimate is

that we'll have enough money not to

default on our debt until hopefully June

5th 2023 so somewhere in here some

analysts suggest maybe July and August

so her date of June 5th is a little bit

of a surprise but yes right now we're at

a hundred percent of our authorized debt

limit now when the debt limit and the

debt ceiling was first created it was

designed to allow the government to

actually borrow money and make it easier

for the government to borrow money but

what it's actually done is now it's

become a political battle and has led to

a government shutdowns much like in 2011

where the United States lost its AAA

debt rating when we were just hours away

from a default and everyone on TV had to

deal with seeing Parks shut down uh

people pissed that they couldn't go to

work or weren't getting paid as

government workers even some essential

services and that ended up leading our

credit rating to fall and the stock

market did react to this however the

sort of impact in the bond market was

relatively limited uh we we didn't see

much uh inter in the way of fluctuation

and yields any more than we would have

seen otherwise on a regular basis so it

seemed like markets kind of got over

this and since 2011 we haven't had such

crazy debt ceiling locations however now

you've got concerns that well what if

this time is different and what if this

time Republicans end up more hardlined

than what they have been in the past

part of the reason people are this

fearful is because of Kevin McCarthy's

election remember that Kevin McCarthy

speaker election was so contested that

it took 15 rounds to get him elected we

haven't seen that many rounds of a

speaker election since the

mid-1800s when we were debating slavery

that's intense now we've had multiple

speaker rounds as recently as the 1920s

but nowhere near as intense as what we

saw just now since the 1850s which is

remarkable Now Kevin McCarthy calls for

cuts to discretionary spending and

something actually that a lot of people

think is kind of odd Republicans want to

cut spending potentially for defense by

as much as 75 billion dollars now part

of the reason or motivation for that is

they want to crimp the ability for the

current Biden Administration to send

money to Ukraine for Aid keep in mind

that so far NATO has been pretty

committed I mean I would say astutely

committed to supporting Ukraine even to

the point now that you've got Poland in

the Netherlands considering sending

Generation 4 F-16 fighter jets to

Ukraine which would completely change

the future of the battlefield in Ukraine

they have essentially no air superiority

or uh really capabilities of offense

Beyond some tactics that they're using

like drone attacks uh uh against Russian

uh positions now or even into Russian

territory actual Russian land uh and so

Republicans are calling for a limit to

how much offensive power that Ukraine

could get and really a limit to the

spending in an argument that if we

continue supporting this war we could

end up in a World War III situation and

given that Russia is a nuclear power we

end up walking into a nuclear war now

NATO so far seems convinced and Europe

seems convinced that the likelihood of

Putin engaging in any kind of nuclear

combat including strategic deployments

of sort of localized nuclear warfare or

Warheads is very very small and even

though Putin has threatened it NATO

seems to be calling his bluff even just

because of talks around f-16s going to

Ukraine but also now more than just

armored personnel carriers potentially

going to Ukraine but potentially actual

battle tanks coming over like the German

Leopard uh battle tank uh heading over

to Ukraine or at least potentially

heading to Ukraine from Poland this is

what Republicans want to reign in they

want to reign in the billions of dollars

of discretionary spending that the Biden

Administration has available

the Biden Administration says they will

not negotiate over the debt ceiling and

this uh and if anything the Biden

Administration so far seems convinced

that the debt limit should be raised

Chuck Schumer argues that we want to

move quickly on raising the debt ceiling

and given the potential stalemate that

we saw by Republicans under Kevin

McCarthy's leadership where even

Republicans can't get on the same page

with things there's a lot of nervousness

that this could be another one of those

default environments where yep the U.S

finally ends up not only leading to a

government shutdown much like what we

saw in 2011 but for the first time ever

the government ends up defaulting on its

debt that could be really bad because it

could reiterate that Black Swan event

remember earlier we talked about how

there's a lack of liquidity in the bond

market and if there's a lack of

liquidity in the bond market and all of

a sudden we potentially default on our

debt then there will be even less

liquidity in the bond market and and now

you're in a situation where the debt

ceiling itself could create the Black

Swan that crashes markets substantially

lower than we've ever seen in this last

down cycle that is we could hit brand

new lows the vix could Spike to 40 or 50

the fear-based index the volatility

index and we could actually see

capitulation that the United States has

just lost their ability to operate

institutions and foreign governments

reduce their willingness to actually buy

U.S treasuries as foreign assets because

now they're more unstable or the value

of them has just plummeted yields rise

and the economy goes into a deeper

darker recession the worst time to

probably default on our debt would be in

a recession which is one that we're

probably in right now now there have

been some ideas around this and some of

these ideas seem interesting some of

them have already been shot down uh in

terms of how to potentially solve the

disaster of approaching the debt limit

one of the ideas as put together by

Barons is actually this idea that maybe

maybe

Joe Biden can just break the law

and

play continuous spending anyway let's

take a look at this argument because

it's interesting it's I find it actually

a little bit more interesting than the

trillion dollar coin which I'll

reiterate in just a moment so there are

two potential things that the government

uh can do and one of them is the

trillion dollar coin which we'll talk

about in a moment but the other is the

institution of something known as the

Congressional budget and impoundment

Control Act of 1974.

this Law requires that the president

spend money for programs that have been

legislated now the reason this came up

is because President Nixon said you know

what I disagree with a bunch of spending

so I'm just gonna not spend the money

and so Congress is like dude we've

allocated this money you have to spend

it

and Nixon's like make me and so they did

they passed the 1974 impoundment act

which forces the president to spend

money for things that Congress has

allocated

in other words Joe Biden potentially has

a choice of breaking the law in that he

breaks the law by not spending money

uh via the 1974 law

or

he breaches the debt limit

either way he's in a situation where

Barron says he would be in violation of

one of his obligations as president

that is the obligation to uh either make

the payments as required by the 1974 law

or uh he ends up breaking uh the the

idea the law in the other direction by

saying well we're just going to break

the debt ceiling and make sure we kind

of honor the other half of this law

which says I'm not allowed to break the

law of not making payments on things so

this is a really interesting thesis that

I believe this was the Barons editorial

board put together yeah Baron Baron's

advisors editorial team put this

together and they say they've actually

sent this idea to the treasury

Department to encourage them to do just

this now they say they haven't heard

back but uh Barons makes it pretty clear

that hey we have a potential solution

where you could break less of a law than

a big law by breaking the debt ceiling

and potentially driving us into a uh a

deeper recession

so fascinating idea will it actually go

anywhere probably not because we'll

probably just end up raising the debt

ceiling we'll come to some kind of last

minute negotiated settlement now there

is this idea that the Oba that the Obama

Administration came up with and this was

the idea that let's just create a

trillion dollar coin and uh the since

since the treasury Department can mint

money they'll just create a trillion

dollar coin and if they create a

trillion dollar coin we have a coin

around here no I don't have a prop

around here if they create a trillion

dollar coin they could just go to the

Federal Reserve and say hey we'd like to

deposit this with you

and the FED would just hand them a

trillion dollars of cash

and given that the government runs at

about a trillion dollar deficit every

year that could fund us for about a year

now Janet Yellen has argued that this

could be rejected by the Federal Reserve

and it's unlikely that it would actually

be accepted but the idea was that this

trillion dollar coin would actually be a

physical coin made of platinum and it

would be pegged at one trillion dollars

there is a picture of potentially what

it could look like and that's on screen

now the one trillion dollar coin it's

basically just it looks like a thick

quarter with dollar sign one t on it and

the Statue of Liberty

all right so that's an idea

but again probably neither of ideas are

likely to happen uh Congress could

potentially just pass some kind of uh

borrowing suspension uh or or basically

a short-term extension for three to six

months my expectation and and end up

negotiating uh some kind of debt hike uh

you know my guess is that real talks in

Congress won't actually start happening

until after tax season one of the

reasons for that as well is because the

treasury Department's going to get a lot

of money from tax Collections and then

the treasury Department will actually be

able to more accurately tell us when the

X date is for the debt ceiling but

usually the debt ceiling debates

at least historically are just a bunch

of political hardlining and they're a

bunch of nonsense