Two Men’s Pride Threatens ‘Inflection Point’ For Dollar Hegemony

Joe Biden described himself as a "congenital optimist" while speaking to reporters about the debt ceiling ahead of a make or break week for a standoff with the potential to turn a calm market into a melee. Biden is set to meet with Kevin McCarthy again on Tuesday, and staff-level negotiations over the weekend were "engaged, serious and constructive," according to Lael Brainard, who weighed in during a CBS interview. It's important that market participants (and voters) understand the nature of

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10 thoughts on “Two Men’s Pride Threatens ‘Inflection Point’ For Dollar Hegemony

  1. in recent times (pick your horizon), has there been much beyond ‘optics’ and ‘gestures’ in US political domain? Even when some try to govern, optics and gestures take forefront (or, capture the media’s attention, and then our eyeballs)

    1. Biden and the previous Congress 20-22 passed massive legislation on a broad array of topics. They were one of the most successful legislative bodies in the history of the country if we define success by the objective measure of volume of legislation.

      We can also look at the success of some short run effects (though judgement of long run effects are still pending). It is the fiscal policy put forward by the administration and the last Congress that has allowed the economy to remain strong while everyone expected the entire system to crash due to the Fed’s tightening. Further, this economic strength was resulted in an increase in the velocity of money, meaning the real economy is growing, not some false optic trickle-down growth “trickle” driven by monetary policy largesse.

      Unfortunately, the Biden administration is terrible at messaging and there are billions of dollars of assets focused on lying about our present such that many (even intelligent people) can not differentiate the lies from the truths.

      1. I take your point, but I think it’s a stretch to suggest (regardless of your definition) that the last Congress was the “most successful legislative body in the history of the country.” Also, we’ve learned (and I wish this wasn’t true, but it is) that it’s very hard to get hot nominal growth without inflation. In fact, there’s a sense in which the idea of such a conjuncture doesn’t make much sense. Personally, I prefer an argument that says Main Street suffered severely during The Great Moderation, and particularly post-GFC, and that as such, maybe 3.5% or even 4% inflation is something we should try given the potential for higher wages, more bargaining power for workers, a more vibrant economy and so on. But suggesting that this administration has been a “success,” on any front, is a tenuous proposition. It’s surely better than the alternative on offer in 2020, which was soft autocracy and everything that goes along with it, but that’s a pretty low bar.

  2. Can you spell “depression”? I would anticipate a drop in the Dow of over 5,000 points in one day and market rates for trading treasuries starting at over 25%. The death before dishonor politicians are financially illiterate, and in many republican cases, illiterate literally. The lowest common denominator has taken control and is determined to take us all down if they can’t win. Compromise has been taken out of the dictionary.

    1. I agree with your last three sentences, but your prediction about Treasury yields isn’t possible. There’s no chance of that. The odds of 1-handle 10s are infinitely greater than 10-handle 10s. 20-handle 10s isn’t something that would be permitted under these sorts of circumstances. (You could see something like that in a nightmare macro scenario where inflation spiraled to 15% and the Fed had to raise rates commensurately, but there’s no chance at all of 20-handle 10s overnight based on some accident in D.C. The Fed wouldn’t allow it.)

    2. I hate to say this, but compromise was never in the dictionary. The history of this myth shows us that the only time both sides of the aisle are able to “compromise” is when money, goods, or useful promises are exchanged. For many years my wife and I played a fun game called the “St Valentine’s Day Massacre” which involved a proxy sports car rally conducted on the pages of each current year’s Rand McNally US road atlas. To win required meticulous tracing of a route through most of the US and a good bit of Canada to find and document 120 check points. While following these routes across the map one can easily see what has supported so-called compromise. Every state in the union except one, Iowa, houses at least one major government installation. From the names of these military bases, parks, major offices, etc one can easily tell which senators and congressman yielded major power at some point in time and had to be “bought off.” Pork barrel spending, while being the constant target of ridiculous rhetoric, is the grease that creates compromise. The unwritten rule is that every sitting member of Congress must be given something to take back home at election time. This horse trading is essential. The last time we broke that rule more people died than in all our other wars combined. The clowns making useless demands in DC now will start our destruction if they don’t make serious changes.

  3. In addition to the face-saving, the negotiations are also about setting precedents. If the Republican Party is successful in its brinksmanship this time around, similar negotiations will likely become an annual practice whenever the Administration and House of Representatives are controlled by different parties in the future. The risk of default going forward will rise, and an actual default at a later date will become much more probable.

  4. I don’t think we’ll get to default on Treasuries, because before that we’ll get to suspension of SSS, SSI, Medicare, VA, etc, benefits and before that we’ll get to the sort of partial federal government shutdown that has ended prior budget and debt ceiling standoffs.

    We’ve been here before. 2013 most recently. The Administration has many levers (things to shut down) to ratchet up pressure on Congress. House Dems only need a few Republicans to cave, or several to abstain. Biden was VP then, knows what levers to pull, and hasn’t even started pulling.

    For reference, the 2013 federal govt shutdown was one of the shorter ones. This could last a month or months.

  5. H I can’t decide if the MAGA bozos in the house are going to do it but the apparent reemergence of media evil genius Trump advocating for a default makes me think the odds are higher. Do you agree with this as a real factor?

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