The best solution for solving the debt ceiling is Wall Street’s least favorite: Morning Brief

The best solution for solving the debt ceiling is Wall Street's least favorite: Morning Brief


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Wall Street appears to be sleeping through Washington’s latest debt ceiling crisis. It should wake up.

As Josh Schafer of Yahoo Finance reported On Tuesday, more than 70% of respondents in Bank of America’s latest survey of fund managers said they expect resolution before the so-called X-date — and an unthinkable first-ever government debt default.

That is despite an increasing somber mood from both President Joe Biden and House Speaker Kevin McCarthy — though the latest round of talks on Tuesday appeared to be making some headway.

It’s also in light of increasingly dire warnings from Treasury Secretary Janet Yellen, who appears to be sending out a letter every other week noting she’s super serious, that X-date really could be June 1st.

That’s in two weeks.

It’s not hard to see why Wall Street is yawning again. This “crisis” is entirely Washington’s own making, it comes from a silly system in the first place, and it happens about every two years until they finally figure it out.

But if one veteran observer and chronicler of many of these battles, this one worries me more than at least since 2013 – if not 2011, which ended with a credit downgrade of the US. The problem is that McCarthy has no good way of getting his increasingly irrational conference to come to an agreement. And Biden doesn’t want to nip this recurring threat in the bud for nothing — forever.

There is a way Biden can do that, although as with anything, it requires a bit of risk. A one-sided option that has gained popularity in recent weeks – from no less than Biden himself – is the 14th Amendment to the United States Constitution.

The essence is that this Civil War-era amendment, introduced as a way to prevent Confederate states from defaulting on their debts, invalidates a concept like the debt ceiling.

U.S. President Joe Biden speaks onstage at Emily's List annual We Are Emily National Gala at The Anthem in Washington, DC, May 16, 2023. This year, House Speaker Emerita Nancy Pelosi will be honored along with a celebration of Democratic pro-elect women who bringing change to their communities and the world in elected office, and future elected women who will secure and restore women's rights.  (Photo by OLIVIER DOULIERY / AFP) (Photo by OLIVIER DOULIERY/AFP via Getty Images)
U.S. President Joe Biden speaks on stage at Emily’s List’s annual We Are Emily National Gala at The Anthem in Washington, DC, May 16, 2023. (Photo by OLIVIER DOULIERY/AFP) (Photo by OLIVIER DOULIERY/AFP via Getty Images )

The risk, of course, is the unknown – it’s never been tried before and it would likely face a legal challenge that could go all the way to the Supreme Court.

But might it be the best option for everyone? Bloomberg interrogated possible public response to Biden using another one-sided solution – minting a trillion dollar coin – and found that half the country has yet to be convinced anyway.

That’s where Biden can come in and say he stepped in to protect the full trust and honor of the United States (and everyone’s retirement accounts). The country would win, avoid a possible default, and castrate that nuclear option forever. Even Republicans would win, because they could castigate the president and not face baloney from their constituents for giving in to their raw demands.

Liam Donovan, a GOP strategist, has been on this idea that everyone wins. Since the Republicans passed a bill as a starting point, the threat of going it alone is perhaps Biden’s biggest lever.

The wild card, of course, is what happens afterwards. Here’s why Donovan still thinks unilateral action is unlikely: The White House likely determined that the uncertainty surrounding the final outcome would spook markets.

Think how any presumption projecting how the Supreme Court might rule would cause daily market swings.

So the question for Biden is whether it’s a more pleasant option than probably having to deal with this for the rest of his tenure. And whether it’s tastier than the other option that shouldn’t be turned down: default, which is sure to startle Wall Street.

If Greg ValliereUS chief strategist at AGF Investments, told Yahoo Finance: “Yes, the stock market might take that as a gimmick, and maybe a market sell-off would take a few days (or a few hours). (But) I think the market would would. get over it quickly.”

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