On Thursday, the Federal Government will breach the debt ceiling once again.
The government has added nearly $15 trillion in debt since the last debt ceiling crisis in 2011. That figure represents a nearly 90% increase in the Federal debt in 11 years.
At some point we’ll start talking about “real money” I suppose.
For today, I want to talk about what comes next for the Federal government, preview the company dramatics around the debt, and talk about the best way to trade it.
Congress is about to start debating the future of the U.S. dollar. What could go wrong?
Extraordinary Measures Start Now
Treasury Secretary Janet Yellen is about to play a game with the Federal budget.
In two days, the Treasury Department will start a process known as “Extraordinary Measures.”
As we push the boundary of a $31.381 TRILLION debt ceiling, Yellen and Company will get creative. They’ll start a process of prioritizing payments of U.S. obligations to certain parties that will take specific debts off the government’s books. Why is it necessary to get certain debt off the books?
Well, because the government will need to turn around and borrow MORE MONEY.
When Congress authorizes a $1.7 TRILLION Omnibus Bill with a massive deficit attached, we have to borrow money to keep this shell game running. So, the government will borrow money in the short-term and try to keep the government running through April.
These “extraordinary measures” will effectively cease at the end of the first quarter.
Then in April, we get a short-term lifeline. That lifeline is the U.S. taxpayer.
The government will collect tax payments in April and immediately spend all of that money on short-term payments that are again prioritized. That money will be spent before it’s received.
The infusion of cash from taxpayers will run out by the end of the summer.
What does the government do in September? Well, funny you ask.
They’ll spend the money received by companies and taxpayers that delayed their payments in April through the end of the year. That gives us until October…
But if there’s no solution, no debt ceiling hike or serious resolution, then it’s game over.
What’s Coming in 2023?
The U.S. government has a massive spending problem. Again, we’ve nearly doubled the debt in 11 years. But this isn’t something that we can play chicken around for the year ahead.
The U.S. debt is unsustainable. This debt is why we’re on the verge of paying more in interest than we spend on the military or social security. There will be Members of Congress who push for spending cuts… who push us to the verge of a default.
They will be demonized across the political spectrum all year. And we’ll likely hear plenty of people say that the debt doesn’t matter, that we can just spend into oblivion, and that we just need to tax billionaires to solve the problem. We clearly need reform. But we’re not going to get it. In fact, I doubt we ever will – pushing us to this constant brink of economic peril.
That said, the United States simply cannot default. A default would cause economic problems that push global debt markets away from the United States. It would undermine the dollar. And it would put us on a path that resembles Argentina in the future – a wealthy nation that simply could never get its economic house in order.
I look at the current economic problems and see that governments around the globe are loading up on gold right now. Gold demand among central banks hit its highest levels in 47 years in 2022.
I don’t think there’s any coincidence that this gold demand emerged at a time when the world is de-globalizing, inflation is elevated, and U.S. debt levels are hitting points that we’ve never seen before.
I don’t know what the endgame is here with the debt ceiling. But I’m expecting a very ugly political battle that takes us to a hasty, last-minute deal.
Gold Prices On the Verge of Surging
In the process, I expect that we’ll see a repeat of the surge in commodity prices – especially gold – as this battle unfolds. As you can see, gold prices surged in 2011.
I think there’s a real case for gold surging again – hitting $2,500 if this debt ceiling crisis explodes. At the very worst, a 10% move from current levels remains in the cards.
The reopening of China, the explosion of global debt, and the threat of default is enough to charge gold much higher.
We’ll talk about my favorite way to trade gold in the coming days.
To your wealth,
P.S. Please let me know if you have any feedback, questions about today’s issue or anything else. Just email us at email@example.com.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
Market Momentum is Green
Markets remain positive, with the S&P 500 bouncing around the 4,000 level from Friday. Commodity prices continue to push higher, and a short squeeze is giving investors ample opportunity to reset expectations around earnings season. As we move past bank earnings and start to focus on technology stocks, we could see an uptick in volatility. Continue to monitor the S&P 500’s tracking along the 200-day moving average. That will set the tone for the rest of the quarter.