Buy Treasurys if debt ceiling deal isn't reached

Don't buy the hype of the default-doomsters in the event of no debt ceiling deal, says John Makin - formerly a principal at Bruce Kovner's Caxton, now with the AEI. Instead, buy long-dated Treasurys - lots of them.

Reaching the debt ceiling means no new government borrowing, but does not mean default as the Treasury brings in plenty to pay its debt service. However, government spending will need to by cut by about 20%, or 5% of GDP - sure to plunge the economy into a nasty recession and a dangerous deflation.

Those screaming instant chaos this month will initially be seen as "crying wolf," but - with a 20% cut in government spending - trouble will hit soon enough. That means everyone loses - except buyers of Treasurys.


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Comments (13)
  • june1234
    , contributor
    Comments (4406) | Send Message
    that's what I like about the US; country can plunge into a recession and everybody wants to buy our debt; no wonder so many hate us
    15 Oct 2013, 04:43 PM Reply Like
  • mobyss
    , contributor
    Comments (2608) | Send Message
    Existing US debt ($16.7 Trillion) would become like any limited-edition item, only increasing in value over time. In fact, the bonds would eventually trade at 0% interest, and would simply become bearer notes like currency.
    15 Oct 2013, 06:08 PM Reply Like
  • Bouchart
    , contributor
    Comments (1131) | Send Message
    If we reach the debt limit and Obama ignores it, the resulting political instability will mean everyone will be looking to dump Treasuries as soon as possible.
    15 Oct 2013, 06:33 PM Reply Like
  • stabletker
    , contributor
    Comments (58) | Send Message
    This nut has no idea. Adams and Lincoln paid our debt in our most troubled times and now Tea Party pick now to stiff everyone, anyone who dosnt think it will matter,well is, nuts!
    15 Oct 2013, 06:34 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13475) | Send Message
    Lincoln couldn't print the old money so he just printed unbacked pieces of paper called Greenbacks. He was one of the least fiscally responsible, but at least he didn't tax people to death with his "greenacks". He used the Constitution's power to print without the need for a central bank or anything else. The cost for that was the inflation rate preventing anyone from escaping the "tax" on printing more and more paper.


    Our existing system is quite a level uglier than this system but in essence is the same, fiat printing of money backed by nothing. The only problem is we pay a whole lot of nobodies to do what we can do without them and then need to pay interest on our printing. And worse yet, we delegated the power to someone outside of the government. We are stupid nuts to do this and expect everything to go swell.


    Well now it isn't. The central bank has to rig its own auctions. The government spends without concern about the money supply. And Congress can't coin money meaning the voters aren't in charge of controlling their economic destiny anymore. And when money is made by the central bank it just goes to banks at interest rates lower than the government now pays to buy up the assets of the American public who are losing assets because they can't get access to the money supply from the Central Bank.


    And then the Federal reserve says, it's mission is to grow the economy and insure employment. What a load of garbage when banks benefit more from causing recessions when they want to acquire assets than preventing them. And then benefit more from causing bubbles when they want to make a profit selling the same assets than preventing bubbles.


    The Federal Reserve is a purposeful volatility machine, not a architect of stability they say they are.
    16 Oct 2013, 04:13 AM Reply Like
  • User 353732
    , contributor
    Comments (5160) | Send Message
    If vast bad debt and limitless fiat money to propel ever increasing government spending were the basis of wealth creation no polity in history would ever have been poor or become defunct: Zimbabwe ought to be the richest nation per capita based on this notion and Weimar Germany would have the very model of prosperity, stability and sanity.
    Reducing Big Government by 20% and constraining further public debt would not cause a recession: it would lead to sustained growth in the Productive Economy.
    15 Oct 2013, 06:43 PM Reply Like
  • chriff
    , contributor
    Comments (117) | Send Message
    This is assuming that you reduce the government by 20% in an orderly fashion over a period of time to give the economy time to adjust. Doing the same thing overnight with no plan would be outright chaos.
    16 Oct 2013, 11:48 AM Reply Like
  • Sir. Monaco
    , contributor
    Comments (362) | Send Message
    I like your explanation on the mechanics involved with this trade,


    one thing I could say to add to the conversation is,


    "now throw Yellen into the mix of a limited supply of treasuries and you have a recipe for super high prices and super low yields"


    which also fits in nicely with her attempting to lower yields to support lending/refinancing rates in the residential housing market,
    15 Oct 2013, 08:22 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    1. The "Default Crisis" is the Y2K crisis of our time.


    2. Don't believe media hype.


    3. There is PLENTY of tax revenue to pay interest on the bonds.


    4. Spending cuts are healthy as money stays in the private economy instead of being peed away in the public bureaucracy.


    5. A freeze on borrowing will actually help our deficit and national debt picture.


    6. There is no sin in living within our means.


    7. If you never really trusted what politicians said before then why would you all of a sudden trust what they say now?
    15 Oct 2013, 08:38 PM Reply Like
    , contributor
    Comments (207) | Send Message
    Interesting concept! Throw more money in the private sector so CEOs can sit on it!
    15 Oct 2013, 10:36 PM Reply Like
  • sarichter
    , contributor
    Comments (601) | Send Message
    Exactly, it's this false notion of 'trickle down economics' that people still insist works. It doesn't... it never has and never will. People can be so blind and ignorant.
    15 Oct 2013, 10:49 PM Reply Like
  • rjroberts
    , contributor
    Comments (370) | Send Message
    The CEOs just bury the money in their back yards instead of burning it up in profligate government spending. LOL!
    16 Oct 2013, 05:45 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (7053) | Send Message


    Nope, no doomsday coming.
    15 Oct 2013, 11:31 PM Reply Like
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