Blazing Saddles, Flying Sacks Of Heroin, And The Debt Ceiling

People just can’t hide it anymore.

Either that, or they’re trying to hide it but the reality of the situation has become so inherently ridiculous that simply describing what’s actually going on is now funny. There’s no need for spin. No sarcasm is necessary. The well-done New York strip is just perfect without a side of cynical ketchup.

Read this short Friday recap from Bloomberg:

Trump may vacillate on issues, but his tax-reform team led by Gary Cohn and Steven Mnuchin is staying the course on their timeline — one reassurance for investors with a bullish bent on U.S. stocks and the economy. Cohn said in an FT interview a bill will be written in the next few weeks and hopefully passed this year, backed by a subsequent series of Trump speeches to tout taming the tax code. That closely mirrors the “aggressive” timeline outlined by the White House on July 31. The heavy lifting of writing the bill rests on Congress and would relegate Trump to the role of outsider, which is helpful considering the details could get complicated quickly.

Read that bolded bit again. Basically: “writing legislation is something that requires attention to detail and critical thinking, so thank God Trump won’t be involved.”

Similarly, check out this deadpan bit from Deutsche Bank out this evening:

Debt ceiling anxiety came back in full force this week after President Trump threatened to shut down the government in order to advance his wall-funding agenda.

Again, it sounds so absurd when you read it that your first instinct is to think they’re being tongue-in-cheek and then you realize that actually all they’ve done is state the facts.

The situation is so surreal that reality is now its own joke.

Donald Trump is the President of the United States and he’s holding the federal government hostage, Blazing Saddles-style, and demanding a $25 billion ransom.

If he secures the money, he’ll use it to wall us all off from Mexico by constructing a giant barrier that may or may not be built out of solar panels and should be “transparent” because – and this is a direct quote – “as horrible as it sounds, when they throw the large sacks of drugs over, and if you have people on the other side of the wall, you don’t see them — they hit you on the head with 60 pounds of stuff.”

So if you’re wondering why people are still talking about this even after Cohn, Mnuchin, McConnell, and Ryan have all said the debt ceiling will be raised, the reason is because whether we’re talking about the debt ceiling, a government shutdown, or both (all of this is inextricably linked), the X-factor is a President who thinks our border agents are in danger of being killed by flying, 60-pound sacks of heroin and who once told Alex Jones that InfoWars’ “reputation is amazing.”

And with that, here’s yet another debt ceiling piece, this one from Deutsche Bank’s European credit team…

Via Deutsche Bank

Bad politics: The debt ceiling

Debt ceiling anxiety came back in full force this week after President Trump threatened to shut down the government in order to advance his wall-funding agenda. To avoid a shutdown, Congress must pass new legislation, either in the form of a full budget or a continuing resolution, by September 30. As the debt ceiling is ingrained into the budget process, a tacit agreement of allowing the deadline to expire without a budget resolution heightens the headline risk of the debt ceiling will not be lifted in time to avert a US Treasury default.


If September 30 passes without a budget deal, it is almost certain that the debt ceiling will be held hostage to further political brinkmanship, with a resolution unlikely until the 11th hour. Recent history of similar episodes has shown that 10yr yields have tended to decline during the Congressional standoff. Two weeks before the Treasury runs out of the money, VIX jumps and T-bills with maturities around the “X date” begin to price in increased default risk. As a result, Treasury collateral cheapens, compressing the Libor-GC spread, and swap spreads out to the 5yr sector tightens.

A government shutdown could intensify the market’s reactions, as was the case in the 2013 debt ceiling showdown. Approaching the “X date” in October 2013, the 10/24/13 T-bills cheapened from -10bp to +35bp against matched-maturity OIS Treasury GC repo rates spiked, trading close to as high as 3m Libor at one point. This became a driver in the further collapse of 2yr spreads, which had already begun its tightening 7 weeks earlier.



One thought on “Blazing Saddles, Flying Sacks Of Heroin, And The Debt Ceiling

  1. I’m sorry to unmask you publicly, but after that Blazing Saddles reference that very few will get, I now know that you are the great Mel Brooks. Bravo!

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