The Fate Of the U.S. Economy? A Platinum Coin Toss

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There were no new inductees into Baseball's Hall of Fame this week, as the strict criteria surrounding the steroid controversy restricted more than a dozen of the game's most talented players of our generation from this coveted designation. Their remarkable stats, tainted by the impact of chemical intervention that artificially enhanced their natural athletic abilities, created a false chain of events that irreversibly changed the course of sports history, and that robbed them of immortality.

Our federal government and the Obama administration largely running it do not share this strict criteria about the "artificial enhancement" of the U.S. economy, and continue with their infinite abuse of debt financing strategies resulting in habitual fiscal irresponsibility. Jay Carney, White House Press Secretary, clearly stated without reservation on Wednesday that; "Deficit reduction is not a worthy goal in and of itself".

The next phase of comedic legislation would commence when a technical loophole is exploited to circumvent the debt ceiling discussion with a proposal to mint a platinum coin valued at a trillion dollars that can be deposited at Treasury. Such a move would empower the Administration to skip negotiations, after which the U.S. would continue on its reckless path of unlimited spending encumbered by little in the way of oversight and/or constitutional guidelines that the current administration apparently deems trivial.

The U.S., in its dominant position as global economic leader navigating the world's largest economy, would be confronted with its greatest test of confidence and credibility if it carries out this dangerous and highly irresponsible demonstration of economic problem solving. The notion of minting and depositing a coin with a predetermined, but phantom value as a means to satisfy the fiscal void and monetize our indebtedness is a blatant mocking of our capital markets and financial system. What comfort would that bring the Chinese and other buyers of U.S. debt if it were to arrogantly suggest that it can be repaid with the "loose change" in our pockets; change we conveniently produced out of thin air? What example would that present the European economies searching for viable solutions to survive the next decade intact as unified monetary partners?

This crisis in confidence would quickly infect the U.S. dollar and other dollar denominated assets, and accelerate the greenback's discount well beyond any reasonable parameters of acceptable currency debasement. U.S. Treasury securities would have a diminished perception for capital preservation and money flows would be much less likely to find U.S. shores as the haven of choice, and would gradually settle for less leveraged and more attractive suitors in the emerging markets of Asia and Latin America. Market volatility from sudden and uneven outflows would cause further currency imbalances as some economies would not be prepared for the overwhelming inflows, trade disruptions and the unanticipated asset bubbles and inflationary pockets that can be created in real estate, commodities and various product scarcities.

The idea and suggestion by this Administration is not arbitrary, but a deliberate measure to marginalize political opposition and constitutional relevance with the provisions in place for a cap on spending. It achieves the ideological goal of U.S. disengagement not only by deemphasizing the role and economic influence America has globally, but also by redefining the methods we employ to legislate fiscal issues that redistribute wealth and political power between the branches of government, with the executive branch being the new consolidator.

These prescribed notions do not go unnoticed and without consequence, as the probability of repayment to the Chinese and other buyers of our debt should not be determined by a flip of a coin, but by the integrity of U.S. leadership and the soundness of policies that insure our stability. How else will the U.S. investor regain the confidence to invest and stay invested when the only options for achieving financial goals is accompanied by the nausea of hypervolatility and no means to protect against risk in a Treasury market that incurs principle loss?

Like the dozen or so of the baseball elites who overlooked the consequences of their risky methods that enhanced their performance, circumvented the rules, and tainted the integrity of the sport, this Administration too, at the expense of fiscal prudence and economic stability, will eventually have to account for its risky methods that presume but elude immortality.


Joseph Sabbagh is chief executive officer of JVS Capital Managment, LLC. Previously he was managing director at Nine Thirty Capital, executive director at Morgan Stanley, and a vice president at Goldman Sachs for tens years during which he worked in the investment bank's fixed income and wealth management divisions.  

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