💰 US debt ceiling: The priciest hostage ever

^{“I don’t have this yet, but I’m going to get it”}

— Tina Turner

👋 Friends, Rallie here. The newsletter that keeps you rollin’ on the crypto, finance and tech river.

On the menu:

• 💰 US debt ceiling: The priciest hostage ever

• 🗞️ Headlines that hit

• 📈 Refresh: Bonds

• 💯 Top tweets

The Rallie Recap

🤒 The US is big trouble, and the market isn’t happy. This week, stocks have been sliding as parties fight to move their political agenda forward before an agreement on the US debt ceiling can be reached.

• The US is negotiating among its two political parties, Democrats and Republicans, to raise its $31.4 trillion debt ceiling. And each party has their own agenda.

• If they don’t find a compromise within a week, the whole nation is at risk to start an international domino effect fuelling more economic chaos than we’ve ever seen!

• So, why is it so hard to agree? With fundamental disagreements on how the country should be run (such as taxing the rich and social security payments), “giving up ground” at this time can lead to massive roadblocks for political agendas.

• Jamaal Bowman, a Democratic House progressive, called the GOP “economic terrorists” and is concerned that Biden will give in to Republican demands for spending cuts.

• With Bob Good, a Republican from Virginia, saying “…rumours that we may have some sort of a deal in place that would raise the debt limit more than what was called for… if that were true, that would absolutely collapse the Republican majority for this debt ceiling increase.”

• Many argue that this shows the need for change in the nation’s decision-making.

• But hitting the debt ceiling is still the worst-case scenario. The US Treasury bonds are seen as the safest investments in the world. If the nation cannot pay bond holders back then it would trigger a downgraded credit rating for the country, making borrowing more expensive for the country and its citizens, driving up interest rates for loans, cutting lines of credit, and affecting international trade due to the value of the US dollar being pivotal as the world reserve currency.

• TLDR: It’s REALLY BAD.

• 🫣 However, there seems to be some agreement among parties about recapturing unspent pandemic funds to ease some of the financial pressure. But, that potential agreement is nowhere near enough to release the tension. 

• Fitch Ratings has threatened the US economy with a downgrade of its AAA status, believing that the debt ceiling will not be resolved and default will occur. Optimism for this situation is fragile at its very best.

• With government funds decreasing and global mistrust rising, if (and how) the US will come out of this hostage situation is yet to be seen.

Headlines That Hit

• 🌐 Google’s AI pact. Alphabet gets ahead of regulations with international collaborations among AI actors for the responsible development of AI.

• 🔒 Locked down! The US crackdowns on crypto wallets tied to funding North Korean weapon programs.

• 😔 US falling behind. Founder of ARK Invest, Cathie Wood claims that the States are losing ground in the crypto world because of lagging regulatory systems.

• 😎 Elon Musk’s guest house causing waves. The billionaire’s 50K home is now being used by a REIT (real estate investment trust) to build affordable housing communities.

• 💸 Meta’s financial and workforce loss. The company has sold GIPHY at a loss of $347 million while its recent round of layoffs targets thousands in its business teams.

• 😳 You got served. Shaq dealt lawsuit documents (seeking monetary relief) during a NBA game for his heavy involvement and promotion of the Astrals NFT Project.

Rallie Refresh: Bonds

Tuesday we talked about corporate bankruptcy, but what about bonds from companies and countries? Today, we break all that down and more.

💵 What are bonds?

• A bond is an investment that gives investors a certain rate of return regularly but has an end date where all the original amount of money lent also gets returned.

• They are used by companies, cities, states, provinces and countries to fund projects and operations. 

• The maturity date of a bond is when the money given must be paid back. A coupon rate is the set interest rate for regular bond payments. The face value of a bond is the total amount paid back at the end of the investment’s maturity. Issue price is the price the bond is originally sold at.

• A bond’s market price depends on issuer credit quality, how long the bond period is and coupon rate relative to the interest environment at the time. 

• You are not stuck with a bond until it matures, you can sell it to other investors and sometimes the company it is issued for.

📈 The bond rollercoaster 📉

• When interest rates go up, bond prices go down.

• When interest rates go down, bond prices go up.

• When stocks go up, bond prices drop.

• When bond yields spike, bond prices become sharply lower.

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DISCLAIMER: This is not financial or legal advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisionsT