Tag: us default

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Why Is Warren Buffett So Upset?

Reuters Writes: Buffett calls threat to not raise U.S. debt limit a ‘political weapon of mass destruction

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NEW YORK (Reuters) – Warren Buffett, chairman and chief executive of Berkshire Hathaway (NYS:BRK-A – News), said Wednesday that the threat of not raising the U.S. debt ceiling is a political weapon.

The idea that Congress could fail to raise the $16.7 trillion U.S. borrowing limit is a “political weapon of mass destruction,” Buffett told cable television network CNBC.

Buffett said Berkshire Hathaway owns short-term Treasury bills and is “not worried” about the bills being paid, despite concerns about the U.S. debt ceiling.

Of course Mr. Buffett is correct. What happened in Washington over the last couple of weeks is nothing short of a disaster. An absolute disaster. What Mr. Buffett forgot to mention is that this “political weapon of mass destruction” has already gone off.

Surely, the US will not default on its debt. In my previous posts I have clearly stated that neither the market nor should you care about that. The damage has already been done and will be eventually felt on a different front.  This front has to do with our creditors.  I bet you my left leg that this situation was very closely watched and analyzed by both Japan and China (two of our biggest creditors). 

Their conclusion will be very simple. Washington is being run by idiots who have no problem putting the wealth and the future of our countries at risk. Therefore, we should diversify.  I bet you my right leg that these countries will start to lessen their US Debt exposure (if they haven’t started already) as soon as possible. Interest rates will go up and that will cause a significant slow down in the US Economy and a substantial DROP in the financial markets.

BOOM. Thank you Washington.  


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Buffett Agrees…..How US Politicians Just Destroyed America

Reuters Writes: Buffett calls threat to not raise U.S. debt limit a ‘political weapon of mass destruction

Nuclear_explosion_investwithalex

NEW YORK (Reuters) – Warren Buffett, chairman and chief executive of Berkshire Hathaway (NYS:BRK-A – News), said Wednesday that the threat of not raising the U.S. debt ceiling is a political weapon.

The idea that Congress could fail to raise the $16.7 trillion U.S. borrowing limit is a “political weapon of mass destruction,” Buffett told cable television network CNBC.

Buffett said Berkshire Hathaway owns short-term Treasury bills and is “not worried” about the bills being paid, despite concerns about the U.S. debt ceiling.

Of course Mr. Buffett is correct. What happened in Washington over the last couple of weeks is nothing short of a disaster. An absolute disaster. What Mr. Buffett forgot to mention is that this “political weapon of mass destruction” has already gone off.

Surely, the US will not default on its debt. In my previous posts I have clearly stated that neither the market nor should you care about that. The damage has already been done and will be eventually felt on a different front.  This front has to do with our creditors.  I bet you my left leg that this situation was very closely watched and analyzed by both Japan and China (two of our biggest creditors). 

Their conclusion will be very simple. Washington is being run by idiots who have no problem putting the wealth and the future of our countries at risk. Therefore, we should diversify.  I bet you my right leg that these countries will start to lessen their US Debt exposure (if they haven’t started already) as soon as possible. Interest rates will go up and that will cause a significant slow down in the US Economy and a substantial DROP in the financial markets.

BOOM. Thank you Washington.  

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Hello Beijing, Washington Here. Listen, Do We Have Your Permission To Shut Down Our Government?

Reuters Writes: Analysis: Default or not, Asia a hostage to U.S. debt

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SEOUL/BEIJING (Reuters) – Unless the U.S. Congress settles a political showdown to raise the country’s debt ceiling in coming weeks, it will be left on the edge of an unprecedented default. But America’s main creditors in Asia may be the least of its worries.

The creditors – China, Japan and other Asian governments – have a hoard of U.S. Treasuries in their $5 trillion cache of foreign exchange reserves, the equivalent of almost a third of U.S. gross domestic product.

Despite having so much at stake as bond prices lurch violently, they are not about to do anything more than minor tweaking of their portfolios.

“But the expected returns from bond investment will fall greatly in the future,” Choo said. “How to deal with this structural change in investment environment is what all the central banks are agonizing over.”

U.S. bond yields have already risen more than 100 basis points since May, when the Fed first indicated it is going to cut back on its $85 billion per month asset purchases.

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With a lot of theatrics going on in Washington, I do not believe Asian countries debt holders should worry about any sort of a default. At the end of the day, the US Government will pay on all of its obligations.

The biggest story here is not the shut down or the potential default, but the eroding confidence in the US Economic and political system.  The US politicians are acting like a bunch of 5 year olds on the playground (I guess no surprise there) while the rest of the world is watching. Why is this important? Very simple.

Not a good idea when you OWN $16.5 TRILLION 

If Asian creditors see this continue, they could (well, they should) in theory start reducing their US Debt exposure.  As that happens, yields would spike leading to a significant stock market and the US Economic decline. So, as the US Politicians aimlessly point fingers at each other while scarring the rest of the American people with Economic Armageddon,  our creditors are watching very closely. That’s what we should be really worried about. 

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