The Stock Market Crash Will Occur Right After the Debt Ceiling Vote

On April 26, 2021, we predicted the current inflation before it began. Now we are predicting an upcoming stock market crash, and we even know the date that it will take place. Interviewer Margaret Brennan and European Central Bank President Christine LaGarde gave the date away during their conversation on "Face the Nation" on April 16:

MARGARET BRENNAN: I want to ask you about the US. And it’s not a political question, it’s an economic one. But there are predictions that the US could default in its national debt as soon as June, some say September, and we have a political standoff in this country, virtually no negotiation happening on how to resolve this. Does that undermine your confidence in the United States? And what message does that send to the world?

MADAME LAGARDE: I have huge confidence in the United States. You know, ever since my year in this country, and this city in ’73, ’74, I have had confidence in this country and I just cannot believe that they would let such a major, major disaster happen of the United States defaulting on its debt….

The Democrats have scheduled the stock market crash to take place the day that House Republicans vote to not raise the debt ceiling. Right afterwards, the Biden Administration will declare a temporary “default” on the U.S. Debt, the stock market and bond market will immediately crash, and Republicans will be blamed.

Conservative commentator Lou Dobbs has been advising Republicans to vote to raise the debt ceiling. In an interview with Steve Bannon on his March 21 podcast, Bannon and Dobbs both agreed that an economic crash was coming, but they didn’t know when it would occur. Bannon predicted that it would occur before the debt ceiling vote. Dobbs simply argued that refusing to vote for the debt ceiling would be a huge political mistake, one that could deal a “fatal blow to the Republican Party because Democrats will beat them to death.”

According to Dobbs, the government spending horse had already left the barn as most of the excess government spending under the current budget had already occurred. According to Dobbs:

I’ve always considered [the debt ceiling vote to be] too late to have the discussion about spending. It’s about authorization, and the result, if they don’t do it, will be another brutal beatdown by the Marxist Dems of the Republican Party just as they are emerging as a power force, a countervailing power against these destructive and anti-American Marxist Dems.

Democrats are incompetent at managing the economy, but they are experts at blaming Republicans, and they have the mainstream media as their Greek chorus. If Republicans refuse to raise the debt ceiling, the Biden administration will say that it was forced to default, and the media will ensure that Republicans will get blamed for the stock market and bond market crash that will immediately ensue.

Democrats intentionally did not increase the debt limit when they could have late last year. Perhaps this was to set up what they thought would be a politically useful showdown with Republicans. So eager is Biden to blame Republicans that he has repeatedly resorted to making up a negotiating position for Republicans that he can attack, all the while refusing himself to negotiate.

But if Republicans can avoid taking the blame for Biden’s economic crash, they could win big in 2024 and for years after that. Biden has bungled U.S. domestic and foreign policy, setting the U.S. up for an unprecedented domestic and international crisis. In Hungary, Viktor Orbán’s Fidesz party has held supermajorities in the Hungarian parliament since 2010 for a variety of reasons, but a key reason is that the socialist government mismanaged the economy and government so badly that they created a crisis that required an IMF rescue package. In the U.S., Republicans were out of power for decades after they took the blame for the Great Depression.

The symptoms of the coming stock market crash are evident to the economists of the Democrat Party. For example, Larry Summers, one of President Obama’s former Treasury Secretaries, argued on "Wall Street Week" on April 14 (at the 41:15 mark) that real interest rates are being driven up by:

• “Huge Volumes of Government Debt.” According to economic statistics published by the St. Louis Fed, the interest being paid on the U.S. government debt went up from an annual rate of $550 billion in the first quarter of 2021 to $853 billion during the fourth quarter of 2022. Nearly one in every four dollars collected in revenue by the Federal government now must go out in interest payments. And with huge budget deficits combined with a stagnating economy (another Summers prediction), and high interest rates while the Fed continues to struggle to slow the inflation set-off in part by Biden’s suppression of U.S. oil and gas drilling, those huge payments are likely to continue to grow.
• “Very Large Flow Deficits.” The huge budget deficits passed by Biden when the Democrats controlled both houses of Congress are forcing the U.S. government to borrow money by selling Treasury Bonds. And the Fed can’t just buy those bonds and send the interest payments back to the government. It is in the red itself as it pays higher and higher interest to the banks on the reserves that they park at the Fed.
• “The Renewable Energy Transition.” The Democrats passed the Green New Deal, which they facetiously called the Inflation Reduction Act, so that the government would subsidize lots of green energy projects. They passed this expensive plan, even though it had already failed in Germany. If they actually believed that carbon dioxide in the air was a serious problem, they would be eliminating the regulations that prevent the building of carbon-free and reliable nuclear power plants.

When real interest rates go up, the prices of stocks and long-term bonds go down. And Summers wasn’t even mentioning the possibility of a dollar collapse which would make the real interest rate rise and the corresponding stock market crash even worse. (For an excellent discussion of the effects of a dollar collapse, see “What if the Dollar Falls?” by Peter St. Onge, an economist at the Mises Institute.) The BRICS countries led by China are making a major push to eliminate the dollar’s status as the primary international currency, and any success they achieve will lead to reduced demand for dollars and U.S. government debt, bringing about a crash in the exchange rate of the dollar.

Republicans should combine a debt ceiling increase with legislation empowering the president to exercise discretion concerning what to pay the next time the U.S. runs up against the debt ceiling. That way, in future, presidents will be unable to blame Congress for a default on U.S. bonds, and the debt ceiling will become a more potent negotiating leverage point for those who want to restore fiscal sanity to Washington. Congress also must reform its budgeting process: the current process was created in the 1970s and has, with rare exceptions, fueled massive deficits.

If House Republicans vote to raise the debt ceiling, they will have their chance to cut government spending when they pass a budget, appropriate funds, and authorize spending. In the meantime, Democrats will have taken the blame for the inflation and stock market crash that was caused by their reckless economic policies. (read more)