Debt Ceiling March 2015

Nobody seems to be talking about the debt ceiling, which was reached on 15 March 2015.

Debt has been rising since the crisis.

And we just reached another ceiling.

Each debt ceiling debate will give a spike in volatility in stock markets and a possible correction. We had 2 debt ceiling debates (2011 and 2013) where the stock market corrected and now will be the third correction, depending on how long this debate will take.

2013: The Rise of Asia

We just had news yesterday that China’s PMI went positive to 50.6, even by the standards of HSBC. This means that the GDP growth per year of China is going to increase. It is estimated that China will have a GDP growth above 8% in 2013.

I think that’s going to be a certainty. We can already see that base metal prices are rising as I pointed out the correlation between China PMI and base metal prices in this article.

I believe the copper price is in break out mode (Chart 1).

Chart 1: Copper Price

The iron ore price is increasing again after one year of downtrending(Chart 2).

Chart 2: Iron Ore Price

Shanghai real estate prices are soaring to new one year highs (Chart 3).

Chart 3: Shanghai Real Estate

Even the Shanghai Composite has made a big shift upwards after a multi year decline (Chart 4).

Chart 4: Shanghai Composite

And all of this is because the U.S. is in big trouble due to the unsterilized buying of bonds through plain money creation out of thin air and expansion of the federal reserve balance sheet. This unsterilized buying is the most inflationary action the federal reserve can take. It is even more inflationary than the ECB’s sterilized Outright Monetary Transactions (O.M.T.) buying of European bonds. That is because the money supply doesn’t increase when you perform sterilized buying, while unsterilized buying increases the money supply. Then we have the fiscal cliff which will be an enormous burden on the middle class citizens in the U.S. It is estimated that the 3% GDP growth will at least slow down to 1% due to the fiscal cliff situation. And don’t forget the debt ceiling, which is already taking its toll on government workers in the Pentagon.

This is why the money is flowing to other assets in this world (Asia) and even into the euro right now.

We need to acknowledge that the U.S. doesn’t have any bullets left at this moment…

Debt Ceiling to Burst Next Week

The debt ceiling is now $16.394 trillion. As of yesterday the debt stands at $16.323 trillion. As we know, the debt always increases a lot at the end of each month. So expect a huge move upwards next week.

Although total public debt is $16.323 trillion, the media is saying treasury debt only stands at $16.270 trillion right now and they try to convince us that they have time till February next year before government shuts down. If we use the total public debt outstanding though, we are already above the debt ceiling next week.

But ultimately we know better, the debt ceiling will be increased the 41th time soon (or even abolished if it were Tim Geithner’s choice) and life will go on.

Chart 1: Debt

Chart 2: Debt Ceiling: $16.394 trillion