My Investing Muse

  (Update as of 04 Apr 2023 - about US default. More details in the following section) Following the various banking issues, there is an interesting thread from Twitter user Mr David Sacks. When the Fed spiked interest rates from ~0 to ~5% over the past year, it had 3 main effects:  1. Undercut value of bonds, especially long-dated bonds.  2. Made lending more expensive, particularly for large purchases like real estate that have to be financed. 3. Increased government borrowing costs.  These effects are just math and have to play out through the financial system. I think they will roughly correspond to the 3 stages of the financial crisis we’re in:  1. Small/regional bank crisis precipitated by unrealized losses on long-dated bonds.  2. Commercial Real Estate (CRE) crisis precipitated by credit markets seizing up for new loans and impairment of existing CRE loan portfolios (which are also unrealized losses).  3. Government debt crisis precipitated by ...

  US Debt Ceiling The debt ceiling is a legal limit on the amount of money that the United States government can borrow. If the debt ceiling is not raised, the government will not be able to borrow any more money and will eventually run out of cash to pay its bills. This could have a number of negative consequences, including: A government shutdown: If the government runs out of money, it will not be able to pay its employees or continue essential services. This could lead to a government shutdown, which would have a significant impact on the economy. A default on U.S. debt: If the government cannot borrow any more money, it may be forced to default on its debt. This would have a devastating impact on the economy and could lead to a global financial crisis. A loss of confidence in the U.S. government: If the government defaults on its debt, it will lose the confidence of investors around the world. This could make it more difficult for the government to borrow money in the future a...