Far Right GOP Will Force U.S. Debt Default Triggering Financial Crises
Kevin McCarthy's deal with the 20 far-right holdouts to become House Speaker would set the stage for the U.S. government's fall debt default. To benefit from the 40% to 50% stock market downturn before and after the default, investors should purchase put options on the S&P and Dow Jones and migrate into bonds and gold.
Congress is in the hands of a small of domestic terrorists who have been legally elected to the House of Representatives. The far-right members of the Republican-controlled Congress want to kill Obamacare, slash Social Security, and dismantle Medicare and Medicaid. Their far-right agenda will also target our nation's military and humanitarian aid to Ukraine.
The Republicans campaigned largely on lowering gasoline prices, reducing inflation, reforming immigration, and stopping illegal immigration. Instead, we will see a series of congressional investigations into Hunter Biden, President Biden, Alejandro Mayorkas (Biden's Homeland Security Secretary), and even an investigation into the January 6th investigation.
The first eight months of the 118th Congressional House may only partially pass a single consequential bill to help the American people. Worse, the U.S. Senate may take up not a single bill passed by this new GOP-controlled House.
This will all happen with the backdrop of the former 45th President of the United States, Donald J. Trump, and members of his cabal that attempted to illegally overturn the 2020 election being indicted in as many as five jurisdictions and sued civilly for billions of dollars by-election machine companies, election workers, the Capital members of Congress and Capital and D.C. police.
The deal negotiated by Speaker Kevin McCarthy made him the weakest Speaker House since before the civil war. Literally, one member of the House Republican Caucus could prevent a vote to raise the country's debt limit and install a new speaker who would allow the 118th Republican Controlled Congress to default on its debt.
The Democrats and moderate Republicans will holler about this being the first time the U.S. will default on its debt. The far-right radical Republicans will call them liars and cite four times the U.S. defaulted on its debt and didn't destroy the U.S. economy, as recently reported in and by The Hill…
- The default on the U.S. government's demand notes in early 1862 was caused by the Treasury's financial difficulties trying to pay for the Civil War. In response, the U. S. government took to printing pure paper money, or "greenbacks," which during the war fell to significant discounts against gold, depending particularly on the military fortunes of the Union armies.
- The overt default by the U.S. government on its gold bonds in 1933, in clear and entirely unambiguous terms, was caused because the U.S. promised the bondholders to redeem these bonds in gold coins. Then it refused to do so, offering depreciated paper currency instead. The case went ultimately to the Supreme Court, which on a 5-4 vote, upheld the sovereign power of the government to default if it chose to. "As much as I deplore this refusal to fulfill the solemn promise of bonds of the United States," wrote Justice Harlan Stone, a member of the majority, "the government, through the exercise of its sovereign power…has rendered itself immune from liability," demonstrating the classic risk of lending to a sovereign. In "American Default," his highly interesting political history of this event, Sebastian Edwards concludes that it was an "excusable default" but clearly a default.
- Then, the U.S. government defaulted in 1968 by refusing to honor its explicit promise to redeem its silver certificate paper dollars for silver dollars. The silver certificates stated and still state on their face in a language no one could misunderstand, "This certifies that there has been deposited in the Treasury of the United States of America one silver dollar, payable to the bearer on demand." It would be hard to have a clearer promise than that. But when an embarrassingly large number of bearers of these certificates demanded the promised silver dollars, the U.S. government simply decided not to pay. For those who believed the certification which was and is printed on the face of the silver certificates: Tough luck.
- The fourth default was the 1971 breaking of the U.S. government's commitment to redeem dollars held by foreign governments for gold under the Bretton Woods Agreement. Since that commitment was the lynchpin of the entire Bretton Woods system, reneging on it was the end of the system. President Nixon announced this act as temporary: "I have directed [Treasury] Secretary Connally to suspend the convertibility of the dollar into gold temporarily." The suspension of course, became permanent, allowing the unlimited printing of dollars by the Federal Reserve today. Connally notoriously told his upset international counterparts, "The dollar is our currency, but it's your problem."
Each of the instances the far-right financial terrorists cite will not be relevant to the default on the federal debt in today's world.
In our modern economy, a default on the U.S. debt, forever destroying the "good faith and credit of the United States," will send equity prices, U.S. Treasury Notes, and Bonds into - a nose dive that will make 2008 and 2009's drops look mild. A liquidity panic will drive a severe sell-off because if the U.S. defaults on its debt, all of the banks and every financial institution and business in the United States will be forced to close their doors.
Crypto investors would see one after another vaporized while silver, gold, platinum, and palladium quickly jump a few hundred percent driven by panic buying.
The second phase of the financial nightmare a default will cause is triggering a global financial panic, and, like dominos, a great number of governments around the globe would be toppled by their nation's military. If you can't pay your army, it won't stay your army very long.
Those in the "just be strong and don't bend" far-right caucus looking for a showdown will refuse to negotiate, even if super donors to the GOP confront them. Some men and women can smell, taste, feel, and even see it for themselves, and others are simply blinded by ignorance, or they would like to see the world burn.
Speaker McCarthy wanted his new job so bad his entire career and may just walk away by September. The next six months will be ugly virtually every day in Washington. The democrats will push through another 40 judicial confirmations and confirm an ambassador to India. But any attempts to develop a bipartisan solution for inflation and immigration.
The problem solvers' caucus solutions may still exist. They can stop Kevin McCarthy with a single vote and keep him from winning a confidence vote. Still, the reality is that these congressional financial terrorists will not negotiate.
During the inflationary spiral of 1970-80, the federal interest rate spiked to 20%. Defaulting on the debt could send interest rates to 30%, 50% or higher. Six or 20 far-right members of the House are so sure that President Biden and democrats will agree to their blackmail demand to kill Obamacare, slash Social Security, and dismantle Medicare and Medicaid and then cut corporate tax rates and for the ½ richest. It's a nightmare to 99% of those who understand the danger.
President Biden won't be blackmailed. There will be serious problems for investors to profit from this impending crisis because all the major stock and futures exchanges will be shut down for a week or two. When they re-open, they will have new rules to limit daily losses. Investors and especially speculators looking to take advantage of the panic we'll see this fall unless…
- Enough Republican congressional members are forced to resign because of indictments, scandals, or sudden death.
- Kevin McCarthy dares to pre-empt the financial terrorists in his caucus, wave the rules he just negotiated with them and passed with 217 votes with sic present, and call a vote for raising the U.S. debt ceiling or allowing a discharge petition to force a vote. I'm not so sure McCarthy dares to do anything but lie and cower.