The scenario of a U.S. debt default would be devastating for institutional investors; furthermore, catastrophic for the world economy. US$ 16.4 trillion is the current debt limit for the United States. Political gridlock and balance of power which has served the United States well for over its history has manifested the issue of debt ceiling brinkmanship. In 1917, Congress passed the Second Liberty Bond Act which put in place statutory limits on the amount of federal debt allowed to be outstanding at a point in time. Over the decades and years, Congress has repeatedly raised the debt limit in order to permit additional borrowing.
Recently, an idea from the internet took hold, the plan of minting a US$ 1 trillion platinum coin through an obscure law that was meant to mint commemorative coins. The minted coin would be deposited at the Federal Reserve Bank of New York to hold over the U.S. government’s debts until a debt limit increase. Financing the Federal government, through a coin or coins, would be a clear, negative signal to institutional money in the long-term. The coin plan would undermine the United States budget process and set precedence for executive power in American politics; however, a default would be far worse in terms of current investments. Ratings agencies would most likely act in a negative manner if this coin scenario came into fruition.
During a press conference on January 9, 2013, White House spokesman Jay Carney did not rule out the idea of minting a US$ 1 trillion coin.
Brinkmanship is a dangerous strategy to engage in; however, there are many points in economic history where brinkmanship led to positive outcomes. The United States has amassed a massive current account deficit over the decades, more so at a faster pace in recent years. This battle of ideas could result in spending cuts and entitlement reforms, if the White House were willing to compromise with Congress. While the rest of the world’s fiscal governments cut spending, sell off public assets (some to sovereign funds), and raise taxes, the United States keeps expanding debt. This approach has irritated many sovereign funds and pension investors as they have had to increase risk in their portfolios to achieve their target level of returns. This has been a boon for alternative asset managers.
Medium-Term Market Reaction Scenarios
|Possible Scenarios||Medium-Term Reaction||Probability|
|Negotiations – Significant Reform, Contain Spending||Very Positive||Low|
|Negotiations – Scalpel Reform||Positive||High|
|Negotiations – Postponing||Neutral||High|
|New Debt without Congressional Approval||Negative||Medium|
|President’s usage of Section 4 of the 14th Amendment||Negative||Low|
|Platinum Coin(s) Minting||Very Negative||Low|
|U.S. Default||Catastrophic||Very Low|
Source: Park Alpha
In the coming weeks, the White House will likely not mention the coin deal scenario publicly. The scenario that would most likely happen if negotiations with Congress fail is that the White House may go with the “Weimar” coin plan as a last resort. This would be used to prevent a calamitous default. If President Obama used the coin deal, then Congress would have leverage that the President has tipped the balance of powers of U.S. government.
Naperville, Illinois-based Calamos Investments signed a deal to acquire Milwaukee-based Timpani Capital Management LLC, which focuses on small and small-midcap growth investing. Founded in April 2008, Timpani Capital Management oversees around US$ 588 million in assets. The deal is expected to close in the second quarter of 2019.
The Russian Direct Investment Fund (RDIF) and the Russia-Japan Investment Fund (launched by RDIF, the Japan Bank for International Cooperation and JBIC IG Partners) have reached an agreement with the Japanese corporation SBI Holdings to invest in SBI Bank LLC, SBI Holdings’ subsidiary in Russia. SBI Bank LLC will undergo a large-scale reorganization.
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The youngest woman ever to serve in U.S. Congress – starting at the age of 29 – already has an opponent in her sights. Freshman U.S. Representative Alexandria Ocasio-Cortez, often dubbed AOC on Twitter, was appointed to the House Financial Services Committee, where the democratic socialist will oversee Wall Street. This committee oversees the banks and financial institutions of the United States. With Republicans controlling the U.S. Senate and the White House, and the Democrats controlling the House, one can expect less game-changing bills being turned into laws in the banking sector.
While bartending and waiting tables at the Flats Fix taco bar in Union Square, Ocasio-Cortez upset the more centrist Representative Joe Crowley, Chairman of the House Democratic caucus. Encouraged by her success, other far left democrats are planning to challenge moderate democrats in the 2020 primaries. Ocasio-Cortez is also expected to further strengthen the influence of Chairwoman Maxine Waters of the House Financial Services Committee. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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