WEBVTT - Make America Pay Its Bills. Again.

0:00:00.120 --> 0:00:02.720
<v Speaker 1>One of the things that made America great is the

0:00:02.840 --> 0:00:06.960
<v Speaker 1>breadth and depth of the US government bond market. That is,

0:00:07.000 --> 0:00:10.080
<v Speaker 1>the belief that the full faith and credit of the

0:00:10.200 --> 0:00:14.160
<v Speaker 1>USA is the ultimate safe asset. Even in the depths

0:00:14.240 --> 0:00:16.919
<v Speaker 1>of two thousand and eight, the one thing there was

0:00:17.000 --> 0:00:21.079
<v Speaker 1>great demand for was U S Treasury securities. They're the

0:00:21.160 --> 0:00:24.480
<v Speaker 1>things the US selves to make up for any shortfall

0:00:25.079 --> 0:00:28.800
<v Speaker 1>between what the government needs to finance spending authorized by

0:00:28.880 --> 0:00:32.480
<v Speaker 1>Congress and what it brings in from revenue that would

0:00:32.479 --> 0:00:36.400
<v Speaker 1>be taxes. Now. Critical to that market is a thing

0:00:36.440 --> 0:00:40.519
<v Speaker 1>called the debt ceiling, strict limits imposed by Congress on

0:00:40.560 --> 0:00:43.920
<v Speaker 1>how much debt the United States can have, and as

0:00:43.960 --> 0:00:47.559
<v Speaker 1>Congress typically isn't great at balancing its books, there have

0:00:47.680 --> 0:00:51.120
<v Speaker 1>been exceptions every couple of years that debt ceiling has

0:00:51.159 --> 0:00:54.120
<v Speaker 1>to be raised. No one loves voting for it, but

0:00:54.200 --> 0:00:57.320
<v Speaker 1>they do love the things that government programs can deliver

0:00:57.880 --> 0:01:01.000
<v Speaker 1>for their districts and states, and they know it has

0:01:01.040 --> 0:01:03.600
<v Speaker 1>to be done and that time is just about with

0:01:03.760 --> 0:01:15.959
<v Speaker 1>us once more. Welcome to Benchmark, a podcast about the

0:01:15.959 --> 0:01:20.399
<v Speaker 1>global economy. I'm Daniel moss I cover global economics for

0:01:20.440 --> 0:01:24.880
<v Speaker 1>Bloomberg View in New York. Our two special guests today

0:01:25.040 --> 0:01:29.520
<v Speaker 1>are Alex Harris and Brian Shappatta, who cover the US

0:01:29.600 --> 0:01:33.120
<v Speaker 1>bond market for Bloomberg News. And a special shout out

0:01:33.160 --> 0:01:36.640
<v Speaker 1>to Alex, who once worked in the bond market. So

0:01:37.400 --> 0:01:43.200
<v Speaker 1>why is this problem coming at this particular time? Isn't

0:01:43.240 --> 0:01:48.280
<v Speaker 1>this just a Washington ritual that always ends up getting resolved.

0:01:48.360 --> 0:01:51.160
<v Speaker 1>They walk up to the line, then there's a deal,

0:01:51.200 --> 0:01:54.480
<v Speaker 1>and then the issue goes away. You know, Dan, it's

0:01:54.600 --> 0:01:57.600
<v Speaker 1>not you know, it's the walk out to the line.

0:01:57.640 --> 0:02:01.160
<v Speaker 1>But I think given the year we've seen new administration,

0:02:01.600 --> 0:02:05.160
<v Speaker 1>Republican Congress, and they have both the House and the Senate,

0:02:05.640 --> 0:02:08.080
<v Speaker 1>you know, the expectations they get more done. But now

0:02:08.160 --> 0:02:12.520
<v Speaker 1>after the dysfunction of healthcare, people are just assuming now

0:02:12.560 --> 0:02:14.520
<v Speaker 1>that we're going to see the same dysfunction as we

0:02:14.560 --> 0:02:16.919
<v Speaker 1>walk up to the debt limit, and they don't want

0:02:16.919 --> 0:02:19.800
<v Speaker 1>to take that risk. They investors don't want to risk

0:02:20.040 --> 0:02:23.960
<v Speaker 1>being caught off guard. Um if Congress cannot get a

0:02:23.960 --> 0:02:27.000
<v Speaker 1>deal done in time. And just so we clear of Brian,

0:02:27.160 --> 0:02:30.160
<v Speaker 1>we have had situations such as during the George W.

0:02:30.360 --> 0:02:33.239
<v Speaker 1>Bush administration where there was a Republican in the White

0:02:33.280 --> 0:02:37.680
<v Speaker 1>House and Republicans controlling at least one chamber of commas. Again,

0:02:37.800 --> 0:02:40.720
<v Speaker 1>let me press you on this. We've been here before,

0:02:40.800 --> 0:02:43.760
<v Speaker 1>haven't we, And it's been resolved yes, And I think

0:02:43.800 --> 0:02:47.040
<v Speaker 1>the expectation is, of course that ultimately it will be

0:02:47.120 --> 0:02:51.280
<v Speaker 1>resolved again. But the issue that is, you know, confronting

0:02:51.360 --> 0:02:54.040
<v Speaker 1>traders right now is how do we how do we

0:02:54.080 --> 0:02:56.679
<v Speaker 1>play this? I mean, we do have an administration that

0:02:57.000 --> 0:03:01.120
<v Speaker 1>has been especially volatile um and hasn't really gotten a

0:03:01.160 --> 0:03:04.079
<v Speaker 1>lot of things done that even with the goop control

0:03:04.280 --> 0:03:07.760
<v Speaker 1>of the legislative chambers, uh, they still manage to get

0:03:07.760 --> 0:03:11.080
<v Speaker 1>anything through. So there is this concern that you know,

0:03:11.200 --> 0:03:16.120
<v Speaker 1>ultimately warring factions within parties will make this time different.

0:03:16.480 --> 0:03:18.920
<v Speaker 1>What does this mean for me? Well, Betty, yet, what

0:03:19.040 --> 0:03:22.399
<v Speaker 1>does it mean for our producers? Eighty year old mother?

0:03:22.720 --> 0:03:25.120
<v Speaker 1>What does it mean for the person standing in front

0:03:25.120 --> 0:03:27.400
<v Speaker 1>of you in the line at Starbucks? Why should't they care?

0:03:28.160 --> 0:03:31.280
<v Speaker 1>So leading up to it, there's a series of major

0:03:31.320 --> 0:03:35.600
<v Speaker 1>payments that Trugury has to make every month. This includes um,

0:03:35.640 --> 0:03:38.880
<v Speaker 1>a large Social Security payment on you know, the first

0:03:38.880 --> 0:03:41.720
<v Speaker 1>week of the month of every month. This also includes

0:03:41.840 --> 0:03:46.560
<v Speaker 1>veterans payments, military payments, civil service payments. If Tarugury cannot

0:03:46.560 --> 0:03:50.320
<v Speaker 1>borrow that money, they don't get their checks. So now

0:03:50.760 --> 0:03:54.920
<v Speaker 1>Congress's biggest concern is having these constituents, our producers, eighty

0:03:54.960 --> 0:03:57.680
<v Speaker 1>year old mother, you know, calling and saying, why can't

0:03:57.680 --> 0:03:59.880
<v Speaker 1>I get my Social Security payment? Why is this not

0:04:00.040 --> 0:04:03.680
<v Speaker 1>coming through? If this is so imperative to things like

0:04:03.800 --> 0:04:07.520
<v Speaker 1>Social Security payments and paying salaries for our men and

0:04:07.560 --> 0:04:11.240
<v Speaker 1>women in uniform, why on earth does Congress even hesitate.

0:04:11.840 --> 0:04:15.400
<v Speaker 1>I think Congress enjoys having the power of accountability. I

0:04:15.440 --> 0:04:19.520
<v Speaker 1>think that they really feel like this is in the Constitution.

0:04:19.640 --> 0:04:22.360
<v Speaker 1>It says we have this power, we can authorize borrowing

0:04:22.880 --> 0:04:25.800
<v Speaker 1>on the U s is dime, and they don't want

0:04:25.839 --> 0:04:28.880
<v Speaker 1>to do away with that because there is this concern

0:04:29.000 --> 0:04:32.680
<v Speaker 1>that in the future, you know, maybe an executive or

0:04:32.839 --> 0:04:36.880
<v Speaker 1>future congressional officials would not be as accountable as they are,

0:04:37.040 --> 0:04:40.200
<v Speaker 1>and it's something that is important to a lot of constituents.

0:04:41.200 --> 0:04:45.560
<v Speaker 1>Let's take a step back. Not every major economy is

0:04:45.600 --> 0:04:50.159
<v Speaker 1>in this situation. How did we get to a situation

0:04:50.720 --> 0:04:53.719
<v Speaker 1>where we have this debt ceiling and oh my god,

0:04:53.760 --> 0:04:57.320
<v Speaker 1>there's this saga or oh god, it's just a Washington ritual.

0:04:57.760 --> 0:05:00.880
<v Speaker 1>I mean, many countries in Europe don't go through this.

0:05:01.520 --> 0:05:05.120
<v Speaker 1>Canada doesn't go through this. Why US, you know, and

0:05:05.400 --> 0:05:09.040
<v Speaker 1>initially started back um under Woodrow Wilson with the war

0:05:09.279 --> 0:05:11.799
<v Speaker 1>and you know, you had to authorize all this spending,

0:05:11.880 --> 0:05:14.279
<v Speaker 1>so they impose this debt ceiling in order to keep

0:05:14.320 --> 0:05:17.440
<v Speaker 1>the costs under control. And I think then you just

0:05:17.480 --> 0:05:20.880
<v Speaker 1>have this history of politicians believing that this is the

0:05:20.880 --> 0:05:23.120
<v Speaker 1>way to help keep deficits in check, to keep our

0:05:23.160 --> 0:05:27.240
<v Speaker 1>spending in check. Unfortunately, now it just seems like it's

0:05:27.279 --> 0:05:31.320
<v Speaker 1>come down to this you know, biennial song and dance

0:05:31.320 --> 0:05:34.599
<v Speaker 1>from Washington, where they posture about it and they gripe

0:05:34.640 --> 0:05:37.720
<v Speaker 1>about the deficits exploding and then they raise it anyways.

0:05:37.839 --> 0:05:40.359
<v Speaker 1>So um, you know, it's one of those pieces of

0:05:40.360 --> 0:05:43.840
<v Speaker 1>our history that we can't seem to abolish, even though

0:05:44.560 --> 0:05:48.240
<v Speaker 1>former Treasury Secretary jacklou issued a paper earlier this year,

0:05:48.640 --> 0:05:52.680
<v Speaker 1>you know, advocating for the elimination of the debt ceiling altogether.

0:05:53.160 --> 0:05:56.600
<v Speaker 1>So what a market's telling us about what's going to

0:05:56.720 --> 0:06:00.880
<v Speaker 1>happen this time? Same old, same hold or is it white?

0:06:00.920 --> 0:06:04.720
<v Speaker 1>Actually this time it could be different. You know, we're

0:06:04.800 --> 0:06:07.760
<v Speaker 1>actually starting to see a little bit of miss pricing

0:06:08.000 --> 0:06:12.520
<v Speaker 1>in treasury bill markets, and what we're seeing is you know,

0:06:12.600 --> 0:06:16.080
<v Speaker 1>investors do not want to hold Treasury bills that are

0:06:16.160 --> 0:06:20.520
<v Speaker 1>maturing in October because they feel like if Congress can't

0:06:20.560 --> 0:06:24.200
<v Speaker 1>get a deal done, that's when you might see Treasury

0:06:24.279 --> 0:06:28.000
<v Speaker 1>say we can't we can't pay, we can't pay out,

0:06:28.120 --> 0:06:31.279
<v Speaker 1>we can't retire that debt, we can't pay principle. And

0:06:32.400 --> 0:06:36.200
<v Speaker 1>you know, so everyone's leaving those Treasury bills. They prefer

0:06:36.240 --> 0:06:39.440
<v Speaker 1>to hold securities maybe you know that mature in November,

0:06:39.720 --> 0:06:42.400
<v Speaker 1>mature in September because they just don't want to be

0:06:42.480 --> 0:06:46.120
<v Speaker 1>vulnerable to any sort of default on our debt. And

0:06:46.400 --> 0:06:49.720
<v Speaker 1>because of all the dysfunction we've seen in Washington, these

0:06:49.760 --> 0:06:54.320
<v Speaker 1>concerns have sort of appeared earlier than normal. Usually what

0:06:54.400 --> 0:06:57.040
<v Speaker 1>you'll see is the bill market and investors start to

0:06:57.080 --> 0:07:00.120
<v Speaker 1>get nervous around middle the middle of September. It's at

0:07:00.120 --> 0:07:03.200
<v Speaker 1>the end of September, and now we're starting to see

0:07:03.200 --> 0:07:07.159
<v Speaker 1>in July because after that Healthcare um vote, people just

0:07:07.680 --> 0:07:11.400
<v Speaker 1>don't trust Washington. And it's the idea being that if

0:07:11.440 --> 0:07:15.520
<v Speaker 1>the White House and Congress controlled by the same party,

0:07:15.560 --> 0:07:18.920
<v Speaker 1>then legislation ought to be a slam dunk exactly. And

0:07:18.960 --> 0:07:21.800
<v Speaker 1>you know, when I spoke with people, you know, after

0:07:21.880 --> 0:07:24.800
<v Speaker 1>Donald Trump was elected last November, and then before the

0:07:24.880 --> 0:07:28.520
<v Speaker 1>debt ceiling was reinstated in March of this year, analysts

0:07:28.520 --> 0:07:30.880
<v Speaker 1>on Wall Street said, this is going to be really easy.

0:07:30.960 --> 0:07:34.320
<v Speaker 1>You know, we have Republican controlled Congress, we have Republicans

0:07:34.320 --> 0:07:36.200
<v Speaker 1>in the White House. There's no way they're going to

0:07:36.280 --> 0:07:39.000
<v Speaker 1>fight over this. And now everyone's sort of having a

0:07:39.040 --> 0:07:43.080
<v Speaker 1>rethink about about this attitude, Brian. Has any of this

0:07:43.280 --> 0:07:46.720
<v Speaker 1>ever come to pass? Has the US ever missed a

0:07:46.800 --> 0:07:50.040
<v Speaker 1>payment as a result of the debt ceiling standoff? That's

0:07:50.040 --> 0:07:53.360
<v Speaker 1>a funny story. In nineteen seventy doesn't sound too funny,

0:07:53.400 --> 0:07:56.640
<v Speaker 1>well not to some people. In nineteen seventy nine, the

0:07:56.640 --> 0:08:00.200
<v Speaker 1>federal government did briefly default. They blamed it on a

0:08:00.320 --> 0:08:03.640
<v Speaker 1>technical book keeping glitch and not a true default, but

0:08:03.880 --> 0:08:07.560
<v Speaker 1>technically they did, uh fail to pay interest on some

0:08:07.680 --> 0:08:10.160
<v Speaker 1>of their debt at that point. And then there's also,

0:08:10.600 --> 0:08:15.000
<v Speaker 1>you know, obviously the sort of gold bug wing does

0:08:15.120 --> 0:08:17.960
<v Speaker 1>feel like the US has sort of backed off of

0:08:18.000 --> 0:08:21.080
<v Speaker 1>its obligations several times in the past. When you know,

0:08:21.160 --> 0:08:23.400
<v Speaker 1>we used to have some sort of you know, fixed

0:08:23.440 --> 0:08:26.800
<v Speaker 1>gold to dollar ratio, and you know, generally that was

0:08:26.840 --> 0:08:29.640
<v Speaker 1>abolished over the course of you know, from the thirties

0:08:29.640 --> 0:08:32.520
<v Speaker 1>to the seventies. Now, when you talk about that incident

0:08:32.559 --> 0:08:35.760
<v Speaker 1>in nineteen nine, you might could sound like that was

0:08:36.160 --> 0:08:39.880
<v Speaker 1>distinct from the issue of the ceiling. I mean, it

0:08:40.000 --> 0:08:42.960
<v Speaker 1>was due to a delay in raising the debt ceiling um,

0:08:43.000 --> 0:08:47.319
<v Speaker 1>but they did blame it on word processing problems. And

0:08:47.480 --> 0:08:50.800
<v Speaker 1>uh so these bills maturing in April six, May three,

0:08:50.840 --> 0:08:53.839
<v Speaker 1>and May ten were the ones that were affected by that.

0:08:53.960 --> 0:08:56.040
<v Speaker 1>But you know, there is a concern that that could

0:08:56.040 --> 0:08:57.880
<v Speaker 1>happen again this time, if you know, even if they

0:08:57.920 --> 0:09:00.480
<v Speaker 1>don't raise the debt ceiling by you know, a week,

0:09:00.840 --> 0:09:03.560
<v Speaker 1>it's a big issue for four week bills, even if

0:09:03.600 --> 0:09:06.200
<v Speaker 1>it's delayed, you know, by a week. Could you imagine

0:09:06.240 --> 0:09:09.360
<v Speaker 1>having a four year bond that you get paid after

0:09:09.400 --> 0:09:11.920
<v Speaker 1>five years. I mean, it's basically the same thing. You know,

0:09:12.040 --> 0:09:15.840
<v Speaker 1>days matter for people who are invested in short term debt. Okay,

0:09:15.880 --> 0:09:18.720
<v Speaker 1>now it sounds like the the end of the world

0:09:18.840 --> 0:09:22.680
<v Speaker 1>didn't happen. Most people remember the eighties as a pretty

0:09:22.679 --> 0:09:25.920
<v Speaker 1>good year for financial markets and for the US economy

0:09:26.200 --> 0:09:29.240
<v Speaker 1>in many ways. Yeah, I mean, some people argue that

0:09:29.280 --> 0:09:33.120
<v Speaker 1>borrowing costs did go up after that episode of brief

0:09:33.160 --> 0:09:36.760
<v Speaker 1>technical default. And that's sort of an outstanding question in

0:09:36.760 --> 0:09:40.920
<v Speaker 1>this sort of new macro environment, where there's so much

0:09:40.960 --> 0:09:44.640
<v Speaker 1>more central bank intervention and yields are so low across

0:09:44.679 --> 0:09:47.560
<v Speaker 1>the world, whether borrowing costs will go up. But again,

0:09:47.960 --> 0:09:51.840
<v Speaker 1>that matters for anybody that's living in the US, because

0:09:52.200 --> 0:09:56.120
<v Speaker 1>higher borrowing costs mean ultimately a squeeze on other types

0:09:56.160 --> 0:09:59.240
<v Speaker 1>of social programs. Yeah, I was gonna say to Brian

0:09:59.360 --> 0:10:02.960
<v Speaker 1>talks about nine. But actually, during the two thousand and

0:10:03.000 --> 0:10:07.360
<v Speaker 1>fifteen debt ceiling episode, Treasury actually had to delay its

0:10:07.400 --> 0:10:10.280
<v Speaker 1>two year auction by a week. They were so concerned

0:10:10.320 --> 0:10:12.160
<v Speaker 1>that they weren't going to be able to borrow that

0:10:12.240 --> 0:10:15.080
<v Speaker 1>money that they delayed it just to cover themselves and

0:10:15.120 --> 0:10:18.600
<v Speaker 1>make sure that they were okay. Issues surrounding the debt

0:10:18.679 --> 0:10:23.760
<v Speaker 1>ceiling US sometimes equated with the broader issue of a

0:10:23.840 --> 0:10:27.800
<v Speaker 1>government shutdown. Are they the same thing or do they

0:10:27.880 --> 0:10:32.720
<v Speaker 1>sometimes just coincide? What's the distinction between them? They sometimes

0:10:32.760 --> 0:10:35.520
<v Speaker 1>happened to coincide. The last time we had a government

0:10:35.520 --> 0:10:39.800
<v Speaker 1>shutdown coincide with the debt ceiling issue was in two

0:10:39.840 --> 0:10:43.520
<v Speaker 1>thousand and thirteen. UM. But really what it is is

0:10:43.600 --> 0:10:46.560
<v Speaker 1>the government shutdown is related to the new budget and

0:10:46.640 --> 0:10:51.600
<v Speaker 1>future spending. The debt ceiling is usually related to previous spending.

0:10:51.679 --> 0:10:55.679
<v Speaker 1>I think Treasury Secretary Minution you know, says quite succinctly,

0:10:56.080 --> 0:10:59.559
<v Speaker 1>we're just trying to borrow or payback what we've already spent.

0:11:00.040 --> 0:11:02.400
<v Speaker 1>And and that's really the difference is that it's it's

0:11:02.440 --> 0:11:05.880
<v Speaker 1>the future against past, past spending. Now, one thing you

0:11:05.960 --> 0:11:10.400
<v Speaker 1>often here is when people advocate an increase in the ceiling,

0:11:10.520 --> 0:11:14.840
<v Speaker 1>they say, this doesn't mean we're going to spend more.

0:11:15.400 --> 0:11:20.560
<v Speaker 1>This merely pays full of spending authorizations that Congress has

0:11:20.640 --> 0:11:25.360
<v Speaker 1>already made true or false. Oh, I think that's that's false,

0:11:26.080 --> 0:11:28.600
<v Speaker 1>because what happens in the way these debt ceilings have

0:11:28.679 --> 0:11:31.760
<v Speaker 1>been resolved since in the last few years is they

0:11:31.760 --> 0:11:36.080
<v Speaker 1>go into what's called the debt ceiling suspension, where they say, Okay,

0:11:36.200 --> 0:11:38.760
<v Speaker 1>we're just going to suspend the debt ceiling. We're an

0:11:38.800 --> 0:11:42.440
<v Speaker 1>authorized you know, payments, and you can keep borrowing, but

0:11:42.960 --> 0:11:45.959
<v Speaker 1>at a later date, we're going to reinstate it at

0:11:46.080 --> 0:11:49.760
<v Speaker 1>the level in which we've already continued to spend. So,

0:11:49.880 --> 0:11:53.440
<v Speaker 1>for example, when the debt ceiling was suspended and a

0:11:53.480 --> 0:11:58.160
<v Speaker 1>deal was reached in November early November, I think our

0:11:58.200 --> 0:12:01.920
<v Speaker 1>debt limit was about eighteen point I think we're about

0:12:01.960 --> 0:12:06.360
<v Speaker 1>eighteen point one trillion. When the debt ceiling was reinstated,

0:12:06.600 --> 0:12:10.520
<v Speaker 1>the new limit was nineteen point eight trillion. So they

0:12:10.600 --> 0:12:14.479
<v Speaker 1>keep spending. So you know, that's why I think. You see,

0:12:14.600 --> 0:12:17.000
<v Speaker 1>you know, former Treasury secretaries such as Jack Lewis, and

0:12:17.040 --> 0:12:19.400
<v Speaker 1>this is just a ridiculous exercise at this point because

0:12:19.400 --> 0:12:22.360
<v Speaker 1>we're still spending that money. Again, Brian, to come back

0:12:22.360 --> 0:12:27.040
<v Speaker 1>to something that you mentioned earlier, Congress, under a Republican

0:12:27.080 --> 0:12:31.120
<v Speaker 1>president and with Republican majorities in one or both houses,

0:12:31.640 --> 0:12:36.720
<v Speaker 1>has time and again increased the debt ceiling, no matter

0:12:36.840 --> 0:12:39.080
<v Speaker 1>what they may have said when they were in opposition.

0:12:39.640 --> 0:12:44.560
<v Speaker 1>So again, what's different this time? Does it concern the

0:12:44.640 --> 0:12:47.840
<v Speaker 1>current occupant of the Oval Office? Is that what's different?

0:12:48.120 --> 0:12:49.800
<v Speaker 1>I mean I think it does. I mean, you have

0:12:49.960 --> 0:12:52.600
<v Speaker 1>people who can't get out of their minds. You know,

0:12:52.760 --> 0:12:56.520
<v Speaker 1>hearing Donald Trump say that maybe the US needs a

0:12:56.520 --> 0:12:59.080
<v Speaker 1>good shutdown on Twitter. You know, Alex has just told

0:12:59.160 --> 0:13:02.200
<v Speaker 1>us that's not necessarily the same thing. No, it's not,

0:13:02.280 --> 0:13:04.920
<v Speaker 1>but it sort of gives you a sense of his

0:13:05.120 --> 0:13:09.000
<v Speaker 1>frame of mind. Um, he's willing to you know, throw

0:13:09.080 --> 0:13:13.200
<v Speaker 1>chaos out there and hope that something better comes of it.

0:13:13.320 --> 0:13:17.120
<v Speaker 1>He's also floated, you know, more directly to the debt ceiling.

0:13:17.400 --> 0:13:21.440
<v Speaker 1>You know, he's talked about potentially restructuring debt. He's called

0:13:21.480 --> 0:13:24.360
<v Speaker 1>himself the King of debt, and he said, you know,

0:13:24.440 --> 0:13:28.040
<v Speaker 1>we can get a better deal on our treasuries, which

0:13:28.720 --> 0:13:33.920
<v Speaker 1>is just something that you don't hear ever anywhere in markets.

0:13:33.960 --> 0:13:37.079
<v Speaker 1>So we talked in our intro about how the US

0:13:37.160 --> 0:13:41.720
<v Speaker 1>bond market has the most depth and the most breadth

0:13:41.840 --> 0:13:45.679
<v Speaker 1>and is the most credit worthy of any in the world. Now,

0:13:45.760 --> 0:13:50.160
<v Speaker 1>if that is true, don't people have a few other

0:13:50.240 --> 0:13:54.320
<v Speaker 1>choices where to go? Even if the debt ceiling isn't

0:13:54.400 --> 0:13:58.160
<v Speaker 1>raised in time to avoid the US skipping its obligation

0:13:58.240 --> 0:14:00.480
<v Speaker 1>to be it for a couple of weeks, a couple

0:14:00.480 --> 0:14:03.760
<v Speaker 1>of days, a couple of hours. Ultimately, isn't there nowhere

0:14:03.800 --> 0:14:07.080
<v Speaker 1>else for people to go? I think that's about right.

0:14:07.280 --> 0:14:10.600
<v Speaker 1>And what you hear from investors is that you know,

0:14:10.600 --> 0:14:13.040
<v Speaker 1>and the reason there's such a delayed reaction, or there's

0:14:13.080 --> 0:14:16.199
<v Speaker 1>a what we'd call a non reaction in other parts

0:14:16.200 --> 0:14:20.160
<v Speaker 1>of the treasury market is that, you know, they're confident

0:14:20.280 --> 0:14:23.560
<v Speaker 1>that even if there's the slightest technical to fault, be

0:14:23.720 --> 0:14:26.720
<v Speaker 1>it for a couple of days or a couple of weeks,

0:14:27.080 --> 0:14:28.840
<v Speaker 1>that other parts of the bond market are going to

0:14:28.920 --> 0:14:31.320
<v Speaker 1>be okay, that as long as you know, they receive

0:14:31.400 --> 0:14:34.560
<v Speaker 1>interest payments, you know later they'll be fine, you know.

0:14:34.720 --> 0:14:37.560
<v Speaker 1>So it's there is so much depth to your point

0:14:37.720 --> 0:14:40.240
<v Speaker 1>that they can go elsewhere. And that's also what you're

0:14:40.240 --> 0:14:43.200
<v Speaker 1>seeing from money market managers who are saying, well, we

0:14:43.280 --> 0:14:45.600
<v Speaker 1>don't have to be in October treasury bills. And in

0:14:45.640 --> 0:14:49.480
<v Speaker 1>fact they're telling clients that they're not in October treasury bills.

0:14:49.760 --> 0:14:52.440
<v Speaker 1>But they said, you know, we have the repo market,

0:14:52.640 --> 0:14:54.800
<v Speaker 1>you know, which is an overnight funding market, and they

0:14:54.840 --> 0:14:58.440
<v Speaker 1>have the Federal Reserve has what's called an overnight reverse

0:14:58.480 --> 0:15:01.960
<v Speaker 1>rebo facilities, So they and go there and they can

0:15:02.000 --> 0:15:05.360
<v Speaker 1>they can borrow and get securities from them as well

0:15:05.440 --> 0:15:08.040
<v Speaker 1>to stay invested in to keep earning that yield for

0:15:08.080 --> 0:15:11.720
<v Speaker 1>their investors. Now, Paul Krugman, in a recent column has

0:15:11.840 --> 0:15:16.920
<v Speaker 1>talked about this stand off potentially illustrating a crisis in

0:15:17.120 --> 0:15:20.760
<v Speaker 1>US governance. And that's ultimately what this is about, not

0:15:20.800 --> 0:15:24.119
<v Speaker 1>whether it ultimately passes or not, and not whether investors

0:15:24.240 --> 0:15:27.120
<v Speaker 1>keep coming into treasuries or not that it could be

0:15:27.200 --> 0:15:31.000
<v Speaker 1>something deeper and more insidious, more corrosive. Yeah, I mean,

0:15:31.040 --> 0:15:35.320
<v Speaker 1>I do think that it's uh fairly open secret that

0:15:35.640 --> 0:15:38.760
<v Speaker 1>compromises sort of a dirt become a dirty word in

0:15:39.200 --> 0:15:42.040
<v Speaker 1>in Washington. And that's sort of why we've seen a

0:15:42.080 --> 0:15:45.440
<v Speaker 1>lot of these, you know, initiatives and sort of promises

0:15:45.480 --> 0:15:48.640
<v Speaker 1>that were made coming into uh the year not really

0:15:48.680 --> 0:15:53.120
<v Speaker 1>come to pass, whether that's tax reform, whether that's healthcare legislation,

0:15:53.200 --> 0:15:56.200
<v Speaker 1>or whether that's infrastructure spending. And that's something that the

0:15:56.240 --> 0:15:59.680
<v Speaker 1>markets have to take notice of because they moved tremendously

0:16:00.040 --> 0:16:03.840
<v Speaker 1>in the back half of on these expectations that this

0:16:03.920 --> 0:16:07.360
<v Speaker 1>time would be different, that with the GOP and control

0:16:07.360 --> 0:16:09.760
<v Speaker 1>of the House, the Senate, and the White House, that

0:16:09.880 --> 0:16:13.360
<v Speaker 1>things would get done. And yet here we are, same old,

0:16:13.400 --> 0:16:16.400
<v Speaker 1>same old, And you know, the debt ceiling is just

0:16:16.440 --> 0:16:20.040
<v Speaker 1>another manifestation of that. What is the current drop dead

0:16:20.120 --> 0:16:23.560
<v Speaker 1>dit the diate by which this absolutely has to happen,

0:16:23.600 --> 0:16:26.600
<v Speaker 1>all the US is at risk of not paying its bills. Well,

0:16:26.640 --> 0:16:29.280
<v Speaker 1>there's actually a little bit of a debate on that um.

0:16:29.320 --> 0:16:32.520
<v Speaker 1>In a letter to Speaker of the House, Paul Ryan

0:16:33.120 --> 0:16:38.280
<v Speaker 1>Uh Treasury Secretary Manustion said, you know, September nine, visit um.

0:16:38.320 --> 0:16:41.040
<v Speaker 1>There was a Congressional Budget Office report published at the

0:16:41.120 --> 0:16:44.360
<v Speaker 1>end of June that says it's probably early to mid October.

0:16:44.800 --> 0:16:47.880
<v Speaker 1>Wall Street analysts have sort of suggested it's going to

0:16:47.880 --> 0:16:50.320
<v Speaker 1>be the second week of October. So the jury is

0:16:50.320 --> 0:16:53.240
<v Speaker 1>still really out on that. And you know, right now

0:16:53.280 --> 0:16:57.240
<v Speaker 1>the bill market is saying it's probably somewhere around October twelve.

0:16:57.520 --> 0:17:00.840
<v Speaker 1>That's where they're concern lies at the moment. Well, if

0:17:00.880 --> 0:17:06.080
<v Speaker 1>this standoff really intensifies and really becomes something critical, we'll

0:17:06.119 --> 0:17:08.160
<v Speaker 1>have you back on the show. I hope you'll forgive

0:17:08.200 --> 0:17:10.119
<v Speaker 1>me for saying I hope we don't have to have

0:17:10.240 --> 0:17:15.360
<v Speaker 1>you back on the show. Benchmark will be back next

0:17:15.440 --> 0:17:17.399
<v Speaker 1>week and until then, you can find us on the

0:17:17.400 --> 0:17:21.399
<v Speaker 1>Bloomberg Terminal, Bloomberg dot Com, our Bloomberg app, as well

0:17:21.440 --> 0:17:25.160
<v Speaker 1>as Apple Podcasts, Pocketcasts, and Stitcher. Why you're there, take

0:17:25.200 --> 0:17:28.400
<v Speaker 1>a minute, rate and review the show so more listeners

0:17:28.440 --> 0:17:30.680
<v Speaker 1>can find us and let us know what you thought

0:17:30.720 --> 0:17:34.280
<v Speaker 1>of it. You can follow me on Twitter at Moss

0:17:34.440 --> 0:17:38.399
<v Speaker 1>Underscore Echo, and you can get Brian at at beach Padder.

0:17:38.640 --> 0:17:41.879
<v Speaker 1>Benchmark is produced by Sarah Pattison. The head of Bloomberg

0:17:41.920 --> 0:18:01.880
<v Speaker 1>Podcast is Alec McCabe. See you next week. Four