Recap 10-09-13


More Republicans are saying the 10/17 date doesn’t matter. Some actually seem to think that ObamaCare is worse than a Treasury default. A couple of moderates in the Senate were quoted recently:

  • “We always have enough money to pay our debt service,” said Mr. Burr, who pointed to a stream of tax revenue flowing into the Treasury as he shrugged off fears of a cascading financial crisis. “That’s manageable for some time.”
  • I think the real date, candidly, the date that’s highly problematic for our nation, is Nov. 1,” said Senator Bob Corker, Republican of Tennessee.

What these guys say is useful in so far as they may reflect the “tipping date” for the more moderate Republicans in the House. This is important because it appears that the political strategy of the more moderate Republicans may be to cave at the last second en masse. By doing so, as a group they will be individually less susceptible to Tea Party challengers in their primaries, since the Tea Party won’t be able to single out any particular Republican.

Also, this is a pretty interesting read investigating who “the Republicans” actually are:

The Evangelicals appear to be a key segment behind this. Link:

And the divide appears increasingly defined by Urban vs Rural worlds:


I haven’t seen this mentioned elsewhere, but it seems to me that the Treasury is constitutionally obligated by the 14th amendment to PRIORITIZE Treasury payments should cash run low. Section 3 states: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” The main question is whether Social Security is a pension as defined by Federal law. Now, I’m not a lawyer, but the answer seems fairly likely to be in the negative. Some differences according to Wikipedia,

  • Unlike a pension, for example, Social Security pays disability benefits.
  • A private pension fund accumulates the money paid into it, eventually using those reserves to pay pensions to the workers who contributed to the fund; and a private system is not universal. Social Security cannot "prefund" by investing in marketable assets such as equities, because federal law prohibits it from investing in assets other than those backed by the U.S. government.
  • Privatization advocates nonetheless do not believe that social security taxes will be sufficiently regarded as pension contributions as long as they remain legally structured as taxes (as opposed to being contributions to their own private pensions).

This suggests, at least to me, that the Treasury may not payout the entitlement program expenditures on 10/23, should the debt ceiling be a constraint at that time.


  • Yields on the 10/17 TBill jumped today on news that a major bank is not accepting it as collateral or repo.
  • Obama officially nominated Yellen for FOMC chair. Consensus expectation is that she will wind up getting the Senate confirmation
  • FOMC Minutes
  1. In general, those who preferred to maintain for now the pace of purchases viewed incoming data as having been on the disappointing side… questions were raised about the effects on the housing sector and on the broader economy of the tightening in financial conditions in recent months, as well as about the considerable risks surrounding fiscal policy. Moreover, the announcement of a reduction in asset purchases at this meeting might trigger an additional, unwarranted tightening of financial conditions, perhaps because markets would read such an announcement as signaling the Committee’s willingness, notwithstanding mixed recent data, to take an initial step toward exit from its highly accommodative policy. As a result of such concerns, a number of participants thought that risk-management considerations called for a cautious approach and that, in light of the ambiguous cast of recent readings on the economy, it would be prudent to await further evidence of progress before reducing the pace of asset purchases.
  2. The participants who spoke in favor of moderating the pace of securities purchases at this meeting also cited the incoming data, but viewed those data as broadly consistent with the Committee’s outlook for the labor market at the time of the June FOMC meeting … Moreover, they highlighted what they saw as meaningful cumulative progress in labor market conditions since the purchase program began.
  3. For several members, the various considerations made the decision to maintain an unchanged pace of asset purchases at this meeting a relatively close call.

Weidman said he doesn’t see a need for another LTRO


  • Politico: Right now, there doesn’t appear to be any incentive to back down. Republicans largely say they aren’t feeling any pressure from their constituents and instead say that people contacting their office are urging them to keep up the fight.
  • HuffPo: Michael Needham, CEO of the powerful group Heritage Action, said that he opposed conditioning a crucial vote to increase the government’s borrowing authority on the group’s main goal: defunding Obamacare.
  • NYT: “Koch has not taken a position on the legislative tactic of tying the continuing resolution to defunding Obamacare, nor have we lobbied on legislative programs defunding Obamacare”
  • Politico:
  1. The interviews reveal unanimity on one point: Boehner’s speakership now hinges on whether he can somehow emerge from the showdowns over funding the government and raising the debt limit with some victory in hand and without a capitulation to Obama and Hill Democrats.
  2. Regarding tea party Republicans and junior members, Boehner privately believes it his job to “protect these guys from hurting themselves.” While broadly sympathetic to their ideas against excessive government and regulation and in favor of free markets, he believes they will damage themselves and the party with a strategy of nonstop confrontation.
  3. This is a group whose members Boehner has no ability to discipline through fear — he can’t cut off their earmarks or special projects because these don’t exist anymore — or favor, since they have their own base of power with GOP activists. As one Republican leadership aide said: “All these guys do is get two inches to the right of us, and then they fundraise off it.”

Upcoming Data:

  • Wed: Australia CPI, Employment
  • Thu: BoE
  • Fri: Canada Employment, UMichigan Confidence, BoC Survey
  • Mon: US Holiday, China Trade Balance, AU Home Loans, China CPI, RBA Minutes
  • Tue: UK CPI, German Zew, Canada Existing Home Sales,