Countdown To Catastrophe

If you believe Treasury Secretary Janet Yellen, the U.S. is headed to “an economic and financial catastrophe” if Congress doesn’t agree to increase the federal debt ceiling.

Even worse, she warned in an interview with ABC News, we are headed to a “constitutional crisis.”

You know something is purely political and not to be taken too seriously when a prominent official in Washington warns that something is a “constitutional crisis,” as if that is the absolute worst thing that can possibly happen, short of war or some other real calamity.

According to Yellen, doomsday will occur around June 1, at which time the government will purportedly be unable to pay its bills, unless the Republicans in the House knuckle under and agree to increase the debt limit.

For good measure, she wrote in a letter to Congress that “we have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”

All of which has never happened.

When the government “defaulted” back in 2011 I seem to remember that the biggest imposition was that the national parks were closed for a few days. Anyone who was owed money, such as federal employees who had their paychecks delayed, soon got all the money that was coming to them.

Yes, Standard & Poor’s lowered the U.S. government’s credit rating to AA-plus from triple A - where it still stands - but did anyone really care? (Moody’s, Fitch and DBRS all still rate the government’s credit rating at triple-A).

If you were wondering, other countries with AA-plus ratings from S&P include Austria, Finland, New Zealand, and Taiwan. Canada, Germany and the Netherlands, among others, sport AAA ratings. With all due respect to those countries, does anyone seriously believe that you run a greater a risk lending money to Uncle Sam than you do to those nations? 

Indeed, if this impending “catastrophe” were as real as Yellen claims, why aren’t investors running for the exits? Why isn’t the stock market down a few thousand points and government bond yields in double digits?

The biggest indicator that some investors may be getting a little antsy is in the short-term U.S. Treasury market, where one-month T-bills were yielding 5.5% last Wednesday.

By contrast, the yield on three-month bills was 5.25%, and one-year bills considerably less at 4.78%, while paper due in two years was at 3.96%, indicating investors expect only a short-lived problem, if any.

But their concern isn’t that they won’t be paid, but that there may - I emphasize the word “may” - be a slight delay in getting their money, so if anything it’s a way to make some easy money.

As we get closer to Yellen’s precipice, the cries of pain and suffering will only get louder. As I said back in January - was it really that long ago? - when the doomsday clock started ticking, try to relax. It’s just politics as usual, definitely NOT a constitutional crisis.

Rest assured that if it actually did become one, where the government really couldn’t pay its bills for a significant amount of time, the Federal Reserve can be counted on to step in and flood the market with massive amounts of cheap money, about the only thing it can be counted on to do right.

Of course, as we know, putting the genie back in the bottle without causing inflation really isn’t its forte, any more than regulating banks is. So just try to ignore the noise.

Another thing that doesn’t seem that long ago was when I started writing this column back at the end of 2014, nearly 10 years ago. I never dreamed I would have this gig this long, so I am grateful to INO and my readers for allowing it to happen. I’ve really enjoyed the freedom INO has given me to voice my opinions a couple of times a month with minimal editing, so this was very much a dream job. I am grateful for being given the opportunity. Thank you to all.

George Yacik Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

2 thoughts on “Countdown To Catastrophe

  1. There is a Constitutional Crisis when the executive branch consistently commits more than is authorized by law, and a collusion when the FED backs up the executive branch in defying the constitution. Last I looked, congress and only congress holds the purse strings just for this reason, to put a damper on a maniacal executive branch obsessed with destroying the dollar so they can implement digital currency and control every dollar everyone spends. - Here's a hint - That in and of itself is the end of liberty and freedom.

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