The former Chairman of the Federal Reserve warned markets and officials of the dangers of the national debt in a Wall Street Journal op-ed Friday. Greenspan said that even with debt soaring almost $3 trillion in the last 18 months, investors and the administration seem curiously unconcerned with the danger of borrowing.
Greenspan compared the U.S. to Greece, saying “the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response. That response needs to recognize that the range of error of long-term U.S. budget forecasts is, in historic perspective, exceptionally wide. Our economy cannot afford a major mistake.”
The comments of the former Fed chairman could have real implications across many sectors, as U.S. Treasuries bankroll or impact huge swathes of the economy. A concerted effort to cut back on spending will probably lead to a sharp shock to stock index futures and commodities futures, particularly oil and base metals. Although many investors cite U.S. borrowing as a macro-economic risk, even the slightest hints of austerity have shaken markets in Asia, Latin America and Europe.
On the other hand, continuing full-throttle down the borrowing path will probably undercut bond market futures as markets start to process the threat of inflationary fiscal policy and rising interest rates, which will have to come up for the U.S. to keep issuing T-bills. Gold futures and crude oil will likely rise in that scenario, as investors hedge inflation, and for a period of time, at least, stock index futures would follow, buoyed by public-sector spending.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.