As the spectacle of heavily-indebted Chinese real estate giant Evergrande held investors in its sway for a second day, another drama played itself out on the other side of the globe yet in a way that hasn't yet captured the market attention.
As usual, the warring factions that run the government in the world largest economy are trying to raise the statutory borrowing limit, currently set at $28.5 trillion. As usual, Uncle Sam will resort to extraordinary measures to keep paying bills until Congress and the White House come to a deal.
And, as usual, the eventual agreement won t solve the central problem: The government simply cann't stop deficit spending even though revenues have been near the highest they have ever been — even in front of COVID -19.
Here Congress might come a little bit closer to the edge, Ed Mills told Yahoo Finance Live on Tuesday, speaking about Debt Ceiling talks.
But ultimately, there is a backup strategy and a backup to the backup strategy that prevents us from questioning the full faith and credit of the U.S. government, he added.
However, the Evergrande crisis and Washington's looming fight over the debt gives us an opportunity to revisit a recurring theme. For a variety of reasons — most having to do with rock-bottom yields and voracious central bank buying — this big macro theme has NOT been reflected in global bond markets.
What also implies that economies are awash in debt with no conceivable way to pay it all back, especially as a certain virus continues its implacable march across the world.
In a less topsy-turvy world, investors would force the hands of officials by selling bonds, and driving up borrowing costs in fact, we used to have a name for them: bond vigilantes Needless to say, these are far from normal times. Earlier this year, economists at Barclays released a lengthy report that warned ultra-low interest rates had encouraged many policymakers, economists and market participants to argue that large debts do not matter. The bank stated that rates are likely to fall further, but global growth rates unlikely will. This will stress repayment capacity, notably for emerging low-growth high-rate market economies.
Think about Evergrande being a microcosm of what, in a world where long-established rules of macroeconomics have not been turned on their ear, could be happening in the U.S. and other major countries if you are turning it on their ear.
Recently, Jon Lieber at Eurasia Group recalled the 2011 debt ceiling battle that led S&P Ratings to downgrade the US credit rating and, as the person who led the committee making that decision said in May, the fundamentals are even worse this time around. Having learned these lessons, Congress smoothly extended the debt ceiling in 2014, 2017, 2018 and 2019 well before it became disruptive to markets, Lieber said.
But, in 2021, we may not be so lucky, he added, explaining that Congress walked directly up to the deadline as markets began to price in inaction in the weeks before. All of which suggests that the complacent markets could definitely get jolted in one unexpected, ugly surprise if all parties don t get their act together, and soon. And Evergrande is a reminder that rosy things can appear when the wine flows freely, eventually the bill will come due.
by Jay W. Barond, editor at Yahoo Finance. ET: MBA Mortgage Applications, week ended September 17 0.3% during pre-business week None 10: 00 a.m. ET: Existing home sales, month-over-month, August - 1.8% expected, 2.0% in July None 7: 00 a.m. ET: General Mills GIS is expected to report adjusted earnings of 89 cents per share on revenue of $4.30 billion.
ET: KB Home KBH is expected to report adjusted earnings of $1.62 per share on total revenue of $1.57 billion
ET: BlackBerry BB is expected to report adjusted losses of 7 cents per share on revenue of $166.80 million.
None President Biden is back in Washington this morning after his speech to the UN General Assembly. He is still involved in the proceedings remotely and hosts a virtual COVID- 19 Summit with other world leaders today.
No The Centers for Disease Control and Prevention will have meetings today and tomorrow to discuss COVID booster shots. Last week, a Food and Drug Administration FDA advisory committee recommended boosters for Americans at high risk of falling seriously ill from coronavirus.
None The Senate may consider a plan to avoid a government shutdown and to raise the debt ceiling. It passed to the House of Representatives on a Party Line vote last night with Republicans vowing to block it if it reaches the Senate.
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