Control Panel: Debt ceiling crisis resolved?

The debt ceiling crisis-du-jour has the potential of causing a financial catastrophe but may have been resolved. An agreement has been worked out “in principle” but it won’t go into effect unless passed by both houses of Congress and signed by the president. It’s not a sure thing because extremists on both sides of the aisle are unhappy so it may not get the votes to pass. If it doesn’t pass it’s back to Square One and the government will default on June 6, per Treasury Secretary Janet Yellen.

How a Debt-Ceiling Deal That Neither Side Wanted Cracked the Logjam in Washington

House Republicans coalesced around a spending bill, eroding the White House’s leverage

By Lindsay Wise and Annie Linskey, The Wall Street Journal, May 28, 2023

The nascent accord, reached Saturday evening by the president and the speaker, must still be ratified by both chambers of Congress, a tortuous process that will rely on centrists in both parties. McCarthy’s margin for error is small and lawmakers in his conference might still rebel, requiring negotiators to go back to the table, costing him his job or sending the country into a default that could rattle the global financial system and stain America’s creditworthy reputation. … [end quote]

If it passes, the agreement will raise the debt ceiling for 2 years so the next crisis will occur after the 2024 presidential election. That assumes that Congress will fail to do the sensible thing which would be to repeal the absurd debt ceiling entirely. (Which Janet Yellen asked Congress to do in 2022.)

The deal holds nonmilitary spending roughly flat for the 2024 fiscal year from this year, after factoring in some appropriations adjustments. The deal sets a 1% cap on spending increases for the 2025 fiscal year. The Macro impact would be to constrain inflation since fiscal stimulus goes directly into consumer pockets.

The deal doesn’t touch Social Security and Medicare, which represent 60% of government spending and are adjusted for inflation. I don’t see how spending increases can be constrained to 1% unless the deal exempts the inflationary growth in the big entitlement programs.

If not for the debt ceiling crisis, the news that core PCE inflation did not decline (4.7%) would have had top billing. The Federal Reserve has said many times that it will not reduce the fed funds rate until inflation has declined to its target of 2% and stayed there for an extended period of time. The Fed may hold the fed funds rate steady or perhaps raise it in June but certainly won’t cut. The market is giving a 2/3 probability that the Fed will raise 0.25%.

Given the debt ceiling crisis and inflation news, the stock market has held pretty steady. A few tech stocks have popped, driving the SPX and NAZ higher. The DJIA remains in the channel established in 11/2022. VIX is low. The percent of SP100 stocks above their 200 day MA is in a similar channel and similarly dropping at this time. I’m uneasy because the rising segment is very narrow and bullish percent is falling. The stocks that have risen are tech stocks with a volatile history.

The entire Treasury yield curve is rising. This will put pressure on banks which hold long-term Treasuries. Corporate bond yield spreads are somewhat elevated for both investment-grade and junk bonds, pressuring companies which will need to roll over debts from ultra-low 2020 borrowing.

The Fear & Greed Index is in Greed. The trade is risk-on as SPX and junk bonds are rising relative to Treasuries. (The price of bonds fall when yields rise.)

Gold, silver, copper, and oil are falling. The USD and natgas are rising.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 1.9 percent on May 26, down from 2.9 percent on May 17.

The Conference Board Leading Economic Index® (LEI) for theU.S. declined 0.6 percent in April 2023 to 107.5 (2016=100), following a decline of 1.2 percent in March. The LEI is down 4.4 percent over the six-month period between October 2022 and April 2023—a steeper rate of decline than its 3.8 percent contraction over the previous six months (April–October 2022). The LEI for the US declined for the thirteenth consecutive month in April, signaling a worsening economic outlook and weak GDP growth ahead.

The METAR for next week is very uncertain. If Congress passes and the president signs the debt ceiling raise before June 6, the METAR will be sunny and the stock market will pop. However, this isn’t a sure thing. If they fail there could be a full-blown economic crisis.

Aside from that, the economy is slowing as the Federal Reserve intends. But this effect will be swamped by the debt ceiling crisis.



I am not sure about the pop. It could be buy on the rumor sell on the fact.

Plus summer is on.

We will see, I am looking to buy, but holding off for a dip.



Me, too. But I plan to follow the “mungofitch 99 day rule” to avoid whipsaws…hopefully.


They are only really talking discretionary spending of $1.6 tr roughly. The rest such as interest payments etc are not in this deal. The Pentagon is in the deal.

The main show is a little other thing in this deal. Both sides want a new law to allow federal power for installing components of a smart grid nationally. The currently laws and IRA do not have the teeth to get that done. The cost there can get high. The offsets in the rest of the deal are for that. The $10 b from the IRS is part of it for instance.

Both sides are convinced we need the IRA etc and a factory build out for economies of scale. Neither have raised cutting that spending. The mix of the IRA and a better grid are for a green energy build out. Both sides win regardless of what the extremes say. We all win.

We wont do much with this deal to cut inflation. The deal is too small. Comments about it by the press or politicos are lipstick on a pig.

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That no longer applies. Anyone working with a say, meaning even the slightly degree of management position, is wired up to work anywhere any time and all the time.

Friday night in the club house bar talking to a neighbor I did not know. He works for a major insurer in purchasing. He is a director age 63. He was texting a counterpart at Oracle. It was 8 PM. He was insisting on closing $16 M deal before May 31 the close of Oracle’s budget year? Something like that. The counter part depends on the deal for his bonus. Meanwhile my new friend is killing him…sure…texting the counter part is claiming he has had two martinis and is out with his family. Both went to work. I asked him how often he looks at his portfolio. He responded three times a day. He does not trade at all. It is all with Fisher Investments.

Friend age 33 wants to get elsewhere to another insurance company into management position in control of sales in this state. A major change of job for him if he gets it. He knows how to sell and supervises others now. He even has worked for the company he is applying for but he was thinking it is vacation time do not push them. I let him know that none of them now adays are vacationing. He was smiling. I think he will go after the job.


He was texting a counterpart at Oracle. It was 8 PM. He was insisting on closing $16 M deal before May 31 the close of Oracle’s budget year? Something like that. The counter part depends on the deal for his bonus. Meanwhile my new friend is killing him…sure…texting the counter part is claiming he has had two martinis and is out with his family.

Some things never change. With apologies to anyone who might work or have worked for Oracle in the present or past, this is standard modus operandi for Oracle sales teams. Oracle was in a dead heat with SAP for being the worst company to deal with for both sales and support of “enterprise software.” In my last job, I worked for three months with my Procurement, Legal and internal IT teams to negotiate a renewal of roughly $39M in existing licensing while expanding another component by roughly $12M. All as Oracle tried to squeeze us saying if they missed this fiscal quarter or fiscal year cutoff, the revenue meant nothing in the following quarter so discounts would be withdrawn, etc. The classic “exploding cigar” deal terms offer.

A deal was eventually struck, I happened to be the stuck-ee not working over the winter holiday and had to sign the internal paperwork delegated for my SVP and EVP. Once the deal closed, the team that sold the expanded licensing worth $12M all QUIT Oracle within a WEEK of the check clearing. When that project got started up two months later in earnest, Oracle sent out engineers to attend an all-day design kickoff with our teams. Within 45 minutes of that first meeting, the engineers sent to us told us, “oh, yea, none of those adapters you bought in that deal (for a couple of million, based on revenue through the system) are actually going to be used in this solution. We are re-architecting the back end and are deprecating all that stuff.”

From that odious start, the project went on for THREE YEARS and burned probably an additional $5-10M in consulting hours and they were unable to deliver ANY solution that worked – with their “deprecated” architecture or their “new architecture” which turned out to be vapor ware as well.

Not that I’m bitter or anything. LOL

Like global thermonuclear war, the only way to win with some vendors is to not play at all.




That was the thing my new friend, he is a great guy, is only the director. Yes he has some power but no he is not a VP etc. As you can see.

He is three years older than me. But his nerves, his gut, his health…he wants out and badly. His guts were twisted. He was a nervous mess.

But it was not Oracle putting it to him on Friday night. He was putting it to Oracle. He thought he was putting terms to Oracle that were a low ball offer.

My guess? Or so he thought. $16 million for software that was already paid for is not saving anyone money. Not when thousands of pencil pushers employed decades ago were already long gone laid off.

What is the signal you waiting for? It has been over 99 days since the bottom in October. We have also had new 99-day highs.



AT&T still has some Oracle and SAP software running. It has been up and running for 20 years. The usability and reliably was surpassed by Amazon and other portals over 10 years ago, yet there it is, wasting time and resources year after year after year.

You would think that AT&T being large international company would be able to schedule a high school competition and get better software out of Nigeria, or if they really wanted to spend money, a scholarship competition in India. The total cost would be less than we pay in server time to keep these Yugos of the software world running.

Or they could sponsor the teen aged children or grand children of all 200,000 or so employees to take CS50 at EDx and them organize a hack - a - thon with runners up getting a ride on the corporate jet to Dallas headquarters for the final. It would still be cheaper than the lost man hours trying to use the user hostile interfaces.



You make a good point.

However, I have finally learned not to fight the Fed. I expect the market to make a new bottom because the Fed has plainly said that they expect “pain” from their campaign to quell inflation, which means a recession to come. I have no reason to take risks so I plan to enjoy the higher interest rates on cash until the later stock market plunge.



Ahh, every time someone mentions Mungofitch, an alert goes off and I check his site and the forums.

Unfortunately, no new information from the market legend. I agree about holding cash, but also letting the 99-day rule work in your favor by going long strength in a portion of your portfolio. I have ITM calls in the QQQ’s since October and have been cashing them out at every 5% point increase in the index. I only have 10% of my initial position left.


I think the agreement has a good chance of passage in Congress. No tax increases for the “JCs”, and the “JCs” benefit from more forced labor by way of increased work requirement for SNAP recipients. Only fly is, apparently, Medicaid recipients are not required to work more hours. A Medicaide work requirement may pass in one chamber, and send the bill to conference. What is better than more forced labor? Even more forced labor.


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@steve203 the work requirement is targeted at childless working-age adults and exempts homeless people and veterans who often have trouble finding work. You have repeatedly called a work requirement “forced labor.” I approve of the work requirement because I don’t think that able-bodied working-age adults should be supported to sit on their butts when jobs are available. You may not like the jobs but that’s too bad – nasty jobs have been the way of the world since time began.

Is this forced labor? Why should society feed people who could work but won’t?



I partially agree but there is another layer to this. Why should society shortchange as many people as possible? It is not the job…when the job wont pay you enough to survive. It is people who are damned cheap. Why? Because those people who grabbed control in 1981 wanted to use 80% of the country in a totally unreasonable way.

There are plenty of innocent people who supported supply side economics. A goodly portion of them were suckers.

Those who wanted only their efforts to matter were often laid off as a thanks.

It is interesting when we are a “society” and when we aren’t a “society”. Supply siders have long complained that social decisions should not exist. That never stopped them from grouping together and declaring social decisions.

In the global shell game that is capitalism all of that was necessary. The US took one for the team. It is not at all necessary going forward.


Yes, that argument is popular. Keep in mind, there has been a work requirement for SNAP for 25 years.

When the previous administration launched a “pilot program” to impose work requirements for Medicaid, advocates in Michigan openly said it was not about saving money, as it would cost more to enforce eligibility requirements that it would save. The move was entirely about forcing more people into the job market to fill the lousy jobs at lousy pay, that “JCs” were whining they could not fill, and that was before the plague. I expect the same thing at work now. “JCs” can’t get enough people to take their lousy jobs at lousy pay, so they use the government to force the poor to work more hours to keep their assistance. That is forced labor.

A similar move in Arkansas to impose a work requirement for Medicaid was overturned by a Federal Court as “arbitrary and capricious”.


The Fed‘s M1 and M2 charts are quite the sight - there has never been a meaningful decline for at least half a century - until now, that is. Will the Fed continue without mercy? More trouble in the financial industry to come?

Elsewhere, Germany has officially entered recession now - although the DAX just made a new ATH, go figure.

US stocks are not that far away from new highs either.

So my outlook is an unambiguous ‚beats me‘.



Thanks for that chart. Very interesting. The reduction in the money supply opens up an opportunity more responsibly use fiscal policy. That of course is not quantified by me but is cooking in the pot between the federal government and the FED.

The federal minimum wage is $7.25 per hour.

People are trying to hurt other people.

Some people are trying to help other people.

Those are two absolute decisions. There has been no middle ground in the states that resist honest pay.

Even here in CT with $15 soon the living wage needs to be $22 per hour in reality.

As long as good people hurt other people we need to care in many ways for them.

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absolutely NO SURPRISE,
in this deal
Law and Order and Fighting Deficit are subordinated to
emotional horse pucky:
Ax has been taken to funding for the IRS
intended to pull in a lot more money through
auditing and enforcement of The Law.

Idiot drooling children are taking over the ship, and
they like the candy handed out by rich folk…

david fb


I’ve never seen the Fed say this, but maybe I am being too particular and literal. However, the Fed is very careful in their wording and they are careful in a very intentional way.

Can you provide a link to a quote from the Fed or from Powell that conveys what I have bolded above?

My point is the Fed has never said that inflation needs to get to a specific number (y%) before the Fed will take a specific action (raise, pause, cut). Although maybe I missed it.