There will be no default. It was never going to happen. The reality is there is 12 times cash coming in as needed to pay debt service. There was never any chance the US would default on Treasuries. If we did it would be solely Obama's fault since the cash is there and the damage to the world economy and financial system would be devastating. Obama would have to order Lew to not pay so it would be solely his call.
So all the talk about default is pure BS. In fact there is enough cash coming in to pay 70% of all the bills currently. They could use the crisis to look at who is on furlough now due to the shut down and say we did not miss this useless agency, or that useless subsidy, or this group of excess employees. Sequester has worked. Not well, but it showed there really was not the disaster Obama claimed. The world moved on. Defense is overly impacted but that could easily be fixed if Reid and Obama wanted to do that. It was all just like when we had welfare reform in 1995 and the left claimed 1 million children would be on the street and starving. The reality ZERO.
Politicians, and especially Obama, are great at exaggerating disaster where good management would solve the problem. If the debt ceiling is not changed, then Treasury would have to do what companies do- allocate resources and cut the fat, and delay some payments. They could easily just not pay some bills for 90 days or do what California did, issue script of some type. Does anyone think that once the circus is over that the government will not pay past due bills? Of course they will. The damage is more psychological than real. Sure there would be a hit to GDP in the quarter, and some overpaid government workers would have to get by until they collected their back pay, big deal. So instead they choose not to pay for families to get to Dover or to get their death benefits. Turns out that decision was made by administration lawyers-stupid ones. Closing open air parks like the WWII memorial is likewise idiotic. Which simply shows how mindless people in DC are. Let's inflict pain instead of solving problems.
It is now clear that Ted Cruz, Rand Paul and their band of bozos never understood how to negotiate, and never understood relative positions, and what was doable. Had they shut up, the media would be reporting how Obamacare is not working because the websites crash. The media would be reporting that while the administration claims it does not know how many signed up the insurance companies have the numbers and it is tiny. Nobody knows yet what will happen when the sites are working, but even if they get 7 million signed and enough young people, the overall program does not make economic sense for the country. The administration would be on defense instead of offense.
The Republicans blew their chance and Boehner proved to be weak and an ineffective leader. On the other side the left has gotten control of the Dems and that is how Reid and Pelosi are the leaders. They both had fathers who were important people in the unions. The real left wing is as bad as the hard right wing and Rand Paul libertarians. There is almost nobody left in the middle anymore. What we are witnessing is a battle of extremes for the cultural direction of the country. On the left we have tax the rich and redistribute to the rest. A product of the sixties and seventies except now those kids are in power in Washington. On the other side is the no government crowd in reaction.
We used to be a centrist country, but it is unclear what happened to the middle- Nixon's silent majority. Part of the problem is that 47% who get some type of government benefits and the now 45% who pay no tax. Romney was right. Those people don't want to give up what they view as free money. There is no such thing as free lunch, but they don't understand that. We are in for many more years of this idiocy in Washington, unless there is a major change in 2016. The Tea Party has nobody but itself to blame for Harry Reid. They elected him by running an idiot who nearly won but for the casino unions busing people to the polls. Just imagine of the Republicans had run a real candidate n Nevada. Harry would have lost big.
It is interesting. In NYC the wealthier are deciding Obamacare is great because they can unload their twenty something kids onto NY State exchanges and have them covered for catastrophic costs at little cost to the parent who had the kid on nothing or on an individual policy if not covered by a company. So the parents pay maybe three hundred a month on the exchange to get the kid covered under the platinum plans. Outside of well to do New Yorkers, it will be a very different scenario for the average family.
So hold your equities. The market long term will still pay off even if there are these short term dips. Nothing has changed. Stay with the big, well run well capitalized dividend paying companies, and over 5 years you will make good 7%-8% returns. This year it will be 15%-18% most likely. That is better than the hedge funds and better than most private equity funds. Ands far less risk and total liquidity. Bonds are still risky long term. Yellen will keep rates low much longer than Bernanke would have, but eventually rates will rise and bonds will lose money while equities make good returns. The old 60-40 stock to bonds in my view is a bad portfolio mix to have and a losing bias over the long term. When rates rise sell the interest rate sensitive stocks like utilities and go for more growth, but be in equities. Making 7% a year is just fine. In ten years you double your money. And there are sometimes when it may be more than 7% and sometimes a losing year, but when times get bad just switch back to more utilities and dividend payers. With Yellen In charge we have another several months of no taper, and maybe a year or more of continuing QE. Maybe two years.
It is now certain DeBlasio will be mayor. An absolute disaster for NYC. He is already pushing a “fair wage” plan, which will substantially raise wage costs and he wants any building or any company that gets any subsidy form the city to be forced to pay higher wages. It will materially harm real estate values. You can expect Ray Kelly to leave and some of his top people to take retirement. The new police commissioner will very likely be a black guy who is much more in line with DeBlasio and then crime will rise because we will go back to Dinkins days when cops will be afraid to arrest minority criminals because they will run a high risk of being accused of profiling or other trumped up charges. The good news is taxes can only be raised by the state legislature and that may hold back what he has in mind.
NY is the microcosm of my comments above. The mass of people who get government money and promises of money for little work, will vote for people like DeBlasio. They think guys like me got our wealth by magic and so we should give it to them. Watch NY and CA and see where we are headed in Washington. The Tea Party is simply the reaction to the left wing excesses of redistribution, political correct speech, over regulation, and all that goes with that political left philosophy. Now we even have a school banning Halloween because someone may be religiously offended. Another banned tag and dodge ball because some kid might actually get a scratch. Yikes. Whatever happened to being a kid and having kid fun. Just extrapolate where all that goes. George Orwell here we come, just 30 years late.
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