Massive money manager PIMCO compares approving a debt ceiling deal to approving a kidney stone: “We’re in a painful period right now”

Massive money manager PIMCO compares approving a debt ceiling deal to approving a kidney stone: “We’re in a painful period right now”
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Investors are concerned about the debt ceiling debate in Washington. Stocks wobbled throughout the week, halting their recent AI-induced rally, and yields on one-month Treasury bills, which mature around the date the government could default on its debts in June, topped 5 .6% on Wednesday, the highest level since before Global. Financial crisis in 2007.

It’s a sign that traders are avoiding government bonds amid serious concerns about a potential US debt default. Treasury Secretary Janet Yellen warned that as early as June 1, the call On date X, the US government could run out of money and an economic “catastrophe” could follow. But Libby Cantrill, PIMCO’s managing director and head of public policy, still believes lawmakers will compromise and avoid the worst-case scenario.

“Our view, with great conviction, is that the recent on-and-off and now-on-again negotiations will result in a debt ceiling agreement prior to the US Treasury ‘X-date’ of June 1,” he wrote. In an article on Tuesday, the financial times first reported.

Cantrill argued that making concessions for a deal might not be politically advantageous to lawmakers and could lead to a “last minute deal,” but “neither party has any political incentive to renege.” That means that even if there is any last-minute drama, a debt-ceiling deal will eventually pass.

“To use an apt, albeit graphic, analogy: Passing the debt ceiling is like passing a kidney stone: we know it will happen, it’s just a matter of how painful it will be. We would state that we are in a painful period right now,” he wrote.

Cantrill’s view is common on Wall Street and among the world’s leading economists, despite recent signs of investor default fears in the stock and bond markets. Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, even argued in his WisdomTree commentary this week that “there is no chance that the debt problem will not be resolved, although there will be posturing and debate up to the last minute.”

Still, lawmakers are wrangling over a number of issues and haven’t made much progress. On Wednesday, House Speaker Kevin McCarthy told reporters at a news conference that negotiations with the Biden administration had stalled over disagreement over proposed GOP spending cuts.

“I am going to send our negotiating team to the White House to try to finish the negotiations,” he said. “The exit ramp here is to solve the problem: spend less than we did last year. That’s not that hard.

Rep. Garrett Graves, a Louisiana Republican who is a negotiator in the talks, said the White House wants to maintain its current spending levels, but Republicans have “made it clear that that’s impossible.”

Democrats, who had previously opposed pressure from Republicans over work requirements for federal assistance programs, responded after Wednesday’s news conference. House Minority Leader Hakeem Jeffries argued that the GOP spending cuts were “draconian.” Wall Street Journal informed. And White House press secretary Karine Jean-Pierre added that there are multiple “extreme proposals,” including more hidden issues like energy permit reform for traditional and clean energy and changes to how Medicare reimburses. to suppliers, which management feels. it would harm “each and every part of the country.”

Despite the conflict, McCarthy said he still hopes to make progress in negotiations this week, adding: “We’re not going to default.”


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