Wall Street Breakfast: Trillion-Dollar Gimmick

Trillion-dollar gimmick - As the debt ceiling crisis escalates on Capitol Hill, a once far-fetched solution to the dilemma has been gaining steam. Talk of a trillion-dollar platinum coin - which would be deposited at the Federal Reserve as an asset swap - could result in an extra $1T to cover a big portion of Washington's bill. In fact, the coin could be minted "within hours of the Treasury Secretary's decision to do so," said Philip Diehl, former director of the U.S. Mint under the Clinton administration. Backdrop: The concept of a trillion-dollar coin dates back to 1992, when populist presidential candidate Bo Gritz suggested the idea during his second White House run. The idea resurfaced during the debt ceiling crisis of 2013 and the Obama administration even explored the possibility before the impasse came to an end with a continuing resolution. The method results in the U.S. minting more money to pay for its obligations, rather than borrowing through Treasuries (or the collection of taxes).Can the Fed print as much money as it wants? While the trillion-dollar coin is not illegal, the accounting ploy has been frowned upon as it could threaten the checks and balances of Congress and open a Pandora's box about all of public finance. It's based on a loophole from a 1996 bill that discusses commemorative coins. According to Law 31 U.S.C. 5112 (k): "The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations and inscriptions as Secretary, in the Secretary's discretion, may prescribe from time to time." Outlook: "I'm opposed to it and I don't believe that we should consider it seriously. It's really a gimmick," Treasury Secretary Janet Yellen told CNBC on Tuesday. The Biden administration has also insisted that the debt ceiling should be raised through bipartisan action, but with a deadline looming for when the government will run out of money, desperate times may call for desperate measures. If the debt ceiling is not resolved by Oct. 18, Yellen has warned that a default would "likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency, as well as triggering a spike in interest rates, a steep drop in stock prices and other financial turmoil." (14 comments)

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Top News Trillion-dollar gimmick Shutterstock As the debt ceiling crisis escalates on Capitol Hill, a once far-fetched solution to the dilemma has been gaining steam. Talk of a trillion-dollar platinum coin - which would be deposited at the Federal Reserve as an asset swap - could result in an extra $1T to cover a big portion of Washington's bill. In fact, the coin could be minted "within hours of the Treasury Secretary's decision to do so," said Philip Diehl, former director of the U.S. Mint under the Clinton administration. Backdrop: The concept of a trillion-dollar coin dates back to 1992, when populist presidential candidate Bo Gritz suggested the idea during his second White House run. The idea resurfaced during the debt ceiling crisis of 2013 and the Obama administration even explored the possibility before the impasse came to an end with a continuing resolution. The method results in the U.S. minting more money to pay for its obligations, rather than borrowing through Treasuries (or the collection of taxes). Can the Fed print as much money as it wants? While the trillion-dollar coin is not illegal, the accounting ploy has been frowned upon as it could threaten the checks and balances of Congress and open a Pandora's box about all of public finance. It's based on a loophole from a 1996 bill that discusses commemorative coins. According to Law 31 U.S.C. 5112 (k): "The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations and inscriptions as Secretary, in the Secretary's discretion, may prescribe from time to time." Outlook: "I'm opposed to it and I don't believe that we should consider it seriously. It's really a gimmick," Treasury Secretary Janet Yellen told CNBC on Tuesday. The Biden administration has also insisted that the debt ceiling should be raised through bipartisan action, but with a deadline looming for when the government will run out of money, desperate times may call for desperate measures. If the debt ceiling is not resolved by Oct. 18, Yellen has warned that a default would "likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency, as well as triggering a spike in interest rates, a steep drop in stock prices and other financial turmoil." (14 comments)       Stocks Red lights flashing? Warnings of a stock market downturn continue to surface amid fears of inflation, slowing growth and rising interest rates. According to a new survey by Allianz Life, 54% of American investors are worried that a big market crash is on the horizon. More than two-thirds of the 1,005 respondents also said they were protecting their money from losses by keeping some of it out of the market as strategists sound the alarm over the current investing environment. "I think we've ultra-accommodative monetary policy for a long time. Anybody that's managed to put risk on the page in the last 13 years, but more specifically in the last 18 months, has been well rewarded," said Jonathan Pollock, Elliott co-chief executive officer. "Now, I think the cycle is evolving. I'm not saying that the market's going to go down 20% tomorrow, but I am saying that there is sensitivity." "Everybody on Wall Street, and like you say, an awful lot of people on Main Street, are focused on markets at a top or markets past the top or just about to the top. I think when you get that kind of mentality or that kind of a narrative out there, that's so popular, you know, you're probably not there," added David Hunter, chief macro strategist at Contrarian Macro Advisors. But once the Fed begins to cut back its balance sheet and taper its asset purchases, "we're going to see more wealth destruction [next year], I think - once we get past this last move - than we've ever seen." "U.S. stocks may be on the verge of starting the biggest bear market since the Great Depression," declared Jon Wolfenbarger, CEO of BullAndBearProfits.com and former equity analyst at Allianz Global Investors. "Now with the Fed talking about tapering and money supply growth slowing significantly from 39% Y/Y in February to only 8% Y/Y in August, perhaps that is enough of a 'tight monetary policy' to change investor psychology to a more bearish mood? We will see." (13 comments)       Trending Un-anchored Norwegian Cruise Line (NCLH) will begin sailing its full fleet of 28 ships by April 1 of next year, according to CEO Frank Del Rio, marking a big milestone for the company since the pandemic slammed its business. The cruise line currently has 8 vessels in operation and hopes 75% of its ships will hit the seas by the end of the year. Quote: "If anything, the world is opening up, more people are getting vaccinated," he told CNBC. "Pent-up demand continues to be very, very strong for the sailings we've operated thus far. Everything has been going to plan and on-board spending is at an all-time high." Norwegian requires its travelers to be fully vaccinated before boarding, but the cruise line is not yet mandating boosters (customers are asking). Del Rio also believes that the current vaccine mandate is a "competitive advantage," despite the possibility of missing out on some customers. "When we came out with our vaccine mandates in early April, it was heresy back then, we were the oddball, but today everyone has followed suit because of the necessity to protect our society." Go deeper: Over the summer, Miami-based Norwegian sparred with Florida Gov. Ron DeSantis over the state's law banning businesses from demanding proof of customer vaccination. However, the cruise line said on Aug. 8 that a federal judge issued a temporary injunction to preserve its proof of vaccination requirement. (13 comments)       Cryptocurrency Sigh of relief The U.S. will not ban cryptocurrencies like China, SEC Chairman Gary Gensler said at a House hearing on Tuesday, though the agency will focus on ensuring that the industry is fairly regulated. "Our approach is really quite different," he declared, adding that any ban would probably have to be legislated by Congress. The stance is a boon for the crypto world, after Gensler last month said the industry was "rife with fraud, scams, and abuse." Bigger picture: Jerome Powell seems to agree with Gensler as the Fed boss recently said he has no intention of banning cryptos, but stablecoins need more regulatory oversight. In contrast, China recently declared crypto transactions illegal, but it also seeks to launch its own central bank digital currency dubbed the digital yuan. In September, Beijing issued a sweeping ultimatum against crypto trading, stating all transactions were illegal and aggressively moved to root out token mining. Speaking of crypto, Bitcoin (BTC-USD) has broken above $50K and is now approaching $52K just a week after the digital token bounced off $41K. How would a ban work anyway? Bringing forth such a measure could be legally difficult for the U.S. government, but even if would go through, enforcing the ban would be the harder part of the equation. Unless the government would exert strict control over the internet, individuals could download Bitcoin wallet software, run a node and complete transactions. That may make the currency out of the realm of widespread adoption, but could also increase its demand for the exact same reason. Over the last decade, Bitcoin has also made inroads in the U.S. financial system, where it is treated as a commodity, so a ban could face other barriers like stymieing innovation and closing down institutions overseeing billions of dollars in crypto assets. (97 comments)

     

Today's Markets

In Asia, Japan -1.1%. Hong Kong -0.6%. China closed. India -0.9%.
In Europe, at midday, London -1.8%. Paris -2.3%. Frankfurt -2.4%.
Futures at 6:20, Dow -1.1%. S&P -1.3%. Nasdaq -1.5%. Crude -0.5% at $78.53. Gold -0.7% at $1749. Bitcoin +2.6% at $51312.
Ten-year Treasury Yield +2 bps to 1.55%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:00 Fed's Bostic: "Rural Economics"
10:30 EIA Petroleum Inventories
11:30 Fed's Bostic: "Public Leadership"

Companies reporting earnings today »

What else is happening...

Pepsi (NASDAQ:PEP) CFO expects more price hikes in early 2022.

Charlie Munger doubled down on Alibaba (NYSE:BABA) as shares dropped.

Visa (NYSE:V) drafts plan to reduce some fees banks pay to Apple (NASDAQ:AAPL).

Both sides of the aisle agree on regulating social networks.

Palantir (NYSE:PLTR) surges after U.S. Army selects for intelligence data fabric.

Johnson & Johnson (NYSE:JNJ) seeks U.S. regulatory nod for COVID booster shot.

Delivery capabilities? Home Depot (NYSE:HD) teams up with Walmart's (NYSE:WMT) GoLocal.

Oprah Winfrey-backed Oatly's (NASDAQ:OTLY) stock price sinks to post-IPO low.

Burger King (NYSE:QSR) to sell plant-based chicken nuggets in three-city test.

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