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Pro Perspectives 5/16/23

Pro Perspectives 5/16/23

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May 16, 2023
 
The financial media bangs the drum daily about things that could go wrong.  Risks.  Threats.  Bad news.  Recessions signals.  
 
While the list is a bit longer than usual, it's important to know that we've had a lot of bad news, risks and threats for the better part of the past fifteen year.
 
And stocks have a pretty good record of climbing a "wall of worry."
 
Remember, a little more than a decade ago, we had a sovereign debt crisis in Europe (exposed by the global financial crisis) that should have unraveled the European monetary union (the euro).  It was game over for the second most widely-held reserve currency in the world. 
 
It didn't happen because the world stepped in to save it, with a coordinated policy response from major global central banks (the ECB, the Fed, BOE and the BOJ).  And China played a large role.  They came in as buyers of euros, and of (insolvent) European sovereign debt and European state-owned assets (namely Greek islands).
 
With that in mind, what the media doesn't spend much time talking about are the global consequences of a potential technical default of U.S. debt.  The trouble would be far bigger outside of the U.S.
 
With that, the G7 Finance Ministers met over the weekend to prep for a scheduled G7 leaders meeting this coming weekend.  Remember, this is a group that has a very consistent history (of the past fifteen years) of coordinating and collaborating to ensure global financial market and economic stability.  In fact, they used those words (coordinate and collaborate) 18 times in their recent post-meeting communique. 
 
The history of U.S. debt ceiling adjustments (including suspensions) and the more recent history of coordination and shared interests of major global governments (and central banks), should make it a safe bet that there is a contingency plan for the Treasury to meet U.S. debt obligations, if the two political parties can't find agreement by June 1. 
 
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