BarroMetrics Views: The US Debt Crisis III

In the current debate on possible US Default, I have not heard anyone mention the US Constitution.

Now I am not a Constitutional expert so I could well be wrong on this issue but as I see it, if there is a deadlock in Congress, the President has the power to declare Congress’ deadlock unconstitutional and use his Executive power to order Treasury to raise the funds necessary to pay the outstanding debts.  The Executive Power seems to be fairly wide ranging so I can’t see that such as being unconstitutional.

If the President can use his Executive power, then why the fuss?

I’d say it’s because what’s important is the market’s response to the events.

Until yesterday, the S&P had been holding up surprisingly well. But as Figure 1 shows, the decline seems to have started in earnest. The danger is the growing perception  that the US$ ought not be the reserve currency of the world. And if the unthinkable happens, and the US debt rating is downgraded, then my scenario - a 1966 to 1982 type stagflation is being repeated today - is likely to be proven incorrect.  If so, the depression scenario will become my preferred scenario.

Time will tell - for now 1249, basis cash is still my critical level  For the 1966 scenario to be correct, I need to see the 1249 level to hold.

FIGURE 1 S&P Normalised Volume

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