Republicans Are Pushing For A “Brief” Default As China Warns US Is “Playing With Fire”
by Tyler Durden
Yesterday Reuters reported that a troubling, yet potentially inevitable development may be imminent: the default of the US, granted, a short-lived one (though we are not sure just how the world’s “reserve” currency will be backed by a national that is technically insolvent). Luckily for the US, everyone else (except China) is just as bankrupt. Yet if there is one thing pushing Lehman into competitive bankruptcy just so that Goldman would have a monopoly in the US fixed income sales and trading market, it is that any such action will have massive downstream consequences, and in the pyramid of “unpredictable downstream effects”, the insolvency of the US is at the very top. And just to make it clear, now that a default is becoming a palpable option, China announced that the United States is “playing with fire” if it opts to briefly default on its debt, which could undermine the dollar, Li Daokui, an adviser to China’s central bank said on Wednesday. Yet the statement could very well backfire after Li, speaking on the sidelines of a forum, said China needs to dissuade the United States from defaulting on its debt, but he believed China may hang on to its investment in U.S. Treasuries in any case. This is precisely the case made by Stanley Druckenmiller: in fact, should there be a technical default, US bonds will become a true safe haven investment as America will for the first time take a step to indicate that it believes the relentless abuse of its fiscal situation is coming to an end.
In the meantime, here is why the soap opera in DC may take a big turn for the worse: