Muchin: "Unfortunate" Market Got Mixed Messages; CFIUS Won't Target China Specifically

Confirming that the Trump administration was clearly spooked by the market's Monday drop, following news that Trump "blinked" on the escalating trade war, and had decided against creating a new regime to review Chinese investment in the US and will instead rely on the existing CFIUS approach to protect US technology, Treasury Secretary Steven Mnuchin told CNBC that it was "unfortunate" the market got mixed messages and that all Trump advisors were unanimous on this decision.

"If there are mixed messages, that's something that is unfortunate," Mnuchin told CNBC's "Squawk Box." "What happened over the weekend there were leaks saying that president had made a decision had been made. It was completely not true."

"When the president and I discussed this, he suggested I tweet on behalf of him to clarify that a decision had not been made," Treasury secretary added. "Those leaks were not helpful to the markets or not helpful to the process."

Mnuchin blamed White House trade advisor Peter Navarro for sending mixed signals Monday about the Chinese investment restrictions.

* * *

Earlier on Wednesday, the White House announced that it won't be looking to block companies with 25 percent or more of Chinese ownership from buying certain U.S. tech-related companies. Instead, the government will rely on the newly-strengthened Committee on Foreign Investment in the United States, or CFIUS, to deal with concerns.

In explaining the move, Mnuching told reporters that the move to use CFIUS to protect U.S. technology was "not intended to target China," and added that CFIUS was able to respond appropriately to different threats on different technologies posed by different entities from different countries.

Mnuchin also said that if Congress fails to pass Firrma, the administration will look at new executive branch tools.

Separately, Trump made the following comment on his pivot:  "I urge Congress to send me a strong bill as soon as possible and look forward to implementing it" to protect U.S. security and prosperity, President Trump says about the Foreign Investment Risk Review Modernization Act, known as FIRRMA.

"Upon enactment of FIRRMA legislation, I will direct my Administration to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation"

"Should Congress fail to pass strong FIRRMA legislation that better protects the crown jewels of American technology and intellectual property from transfers and acquisitions that threaten our national security - and future economic prosperity- I will direct my Administration to deploy new tools, developed under existing authorities, that will do so globally."

For now the market is taking the news in stride, seeing it as Trump walking back from "irreversible" escalations, and not only recovered all pre-market losses, but was modestly in the green.

Leaked Note By Chinese Think Tank Warns Of Potential "Financial Panic"

It's not just Trump who is concerned about the level of the S&P as a result of escalating trade war with China: it appears that China is growing worried as well, and for good reason - as we noted earlier, the Shanghai Composite already tumbled to a bear market from its highs 6 months ago, a drop which comes at a very precarious time for China whose economy is slowing amid an aggressive deleveraging campaign, corporate defaults are rising, and the all important credit impulse is waning.

Confirming as much, this morning Bloomberg reported of a leaked report from a Chinese government-backed think tank which warned of a potential "financial panic" in the world's second-largest economy, "a sign that some members of the nation's policy elite are growing concerned as market turbulence and trade tensions increase."

According to a study by the National Institution for Finance & Development that was seen by Bloomberg News, bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington. The think tank also warned that leveraged purchases of shares - i.e. stocks bought with margin loans - have reached levels last seen in 2015, when a market crash erased $5 trillion of value.

"We think China is currently very likely to see a financial panic," NIFD said in the study, which appeared briefly on the Internet on Monday, before being removed. "Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years."

As Bloomberg adds, te study provides "another indicator that China is growing concerned about the knock-on effects of trade tensions with the U.S."

In recent weeks, prominent academics have begun to question if the country's slowing, trade-dependent economy can withstand a sustained dispute, which has already started to weigh on stock prices and the yuan.

In other words, while Trump may be worried how much of a drop in the market the US can sustain before it impairs midterm election chances, China is just as worried, with the NIFD warning that China had failed to address the issue of leveraged stock purchases, a major contributor to the market collapse three years ago. Such bet reached about 5 trillion yuan ($760 billion), a similar level to 2015, according to the NIFD report.

"We failed to clean up the leveraged funds after the 2015 market rout; they have staged a comeback in a new guise," NIFD said.

As we noted over the weekend, last week UBS said that it sees a growing risk in China's stock pledges; the bank calculated that the market cap of pledged stocks that have fallen below levels triggering liquidation amounts to 440 billion yuan with some 500 billion yuan below warning line, which translates to ~1% and 1.1% of China's entire market value of $6.8 trillion. A separate analysis by TF Securities, as of Jun 19th, stock prices of 619 companies were close to levels where margin calls will be triggered.

The think tank concluded that China's State Council should be ready to implement any market support measures in coordination with the central bank and other regulators, key government ministries, and even the police: it was unclear if that implies arresting short sellers as happened shortly after China's bubble popped in 2015.

Robert Kiyosaki: After Printing All This Fake Money There’s No Solution And Nothing Will Get Fixed

Robert says all the fiat currencies are going to fail, and only God's money, gold and silver, will remain standing. Here's more…

Josh Sigurdson and John Sneisen sit down once again with Robert Kiyosaki of Rich Dad, Poor Dad to talk about a whole host of issues in the news!

Starting it off, we go into collateralized debt obligations, mortgage backed securities, reverse mortgages and other concerning factors that we've seen before in the markets before the 2007 crash. Robert Kiyosaki tells us he is selling real estate for the first time which we believe is breaking news!

Kiyosaki goes into how central banking and the fiat system creates vast numbers of problems and why he protects himself with gold and silver.

Another issue he touches on is the unfunded liabilities and how dramatically bad the pension system is. With that, he goes into the dependence of millennials vs the independence of successful people and how it's creating the perfect storm.

Futures Spike After Trump Blinks, Decides Against Harshest Measures On China Investment

Confirming yesterday's report that Trump was ready to offer China an "olive branch" following the sharp market drop following reports that the US would crack down on Chinese investment, moments ago Trump administration officials said that the White House would push Congress to strengthen the CFIUS inter-agency panel that it will employ as its main tool to curb Chinese investments in sensitive U.S. technologies.

This means that contrary to earlier reports, the White House won't be look to block companies with 25% or more of Chinese ownership from buying certain U.S. tech-related companies. Instead, the government will rely on the newly strengthened Committee on Foreign Investment in the United States to deal with concerns about foreign purchase of sensitive domestic technologies.

As Bloomberg notes, this strategy is a less confrontational approach toward China than many had expected. As the FT and WSJ reported on Sunday night, the administration had considered employing a little-used national emergency law called the International Emergency Economic Powers Act of 1977 to curb prospective investments.

Instead, the White House wants Congress to empower CFIUS, so it can prevent Chinese companies from violating intellectual-property rights of American companies.

Trump's choice shows that he is favoring a more measured approach that requires coordination with Congress, rather than working through the executive branch. While the House and Senate companion bills on CFIUS modernization need to be worked out, there is interest from Senator John Cornyn, the No. 2 Republican, in creating a list of countries of special concern. The House proposal includes that, proposing China, Russia, Iran, Venezuela and North Korea among a group of countries whose companies would undergo extra scrutiny.

Specifically, Bloomberg reports that the CFIUS legislation passed in the House would expand investigations by CFIUS to include minority investments in "critical technology" or "critical infrastructure" and joint ventures where technology companies contribute intellectual property, according to a copy of the proposal seen by Bloomberg. While CFIUS reviews are technically voluntary, the bill would require foreign investors that are at least 25 percent owned by foreign governments to go through CFIUS when they are acquiring at least a 25 percent stake in a U.S. business.

However, just as it seemed Navarro was getting the upper hand in The White House, the decision to use CFIUS represents a blow to China hawks in the administration who had publicly called for establishing a new regime to review Chinese investment. But administration officials insisted on Wednesday that it would not represent any softening in their approach to China.

"We believe that we will have a very tough approach," one senior official said.

Detente? Or are we simply back to the Trump Trade Put?

Following the news US equities spiked, erasing all losses, the dollar pared gains and 10Y yields rose 2bps to 2.86% on hopes that Trump may be stepping back from all out trade war with China.

Trump's words have provided a temporary pause in the plunge of the Yuan.

On the week, however, US equities remain in the red.

Is China Part Of The “Emerging Market Crisis”?

Being huge, consequential and technologically advanced, China isn't normally lumped into the "emerging" category with Brazil and Argentina. To most observers they've already left the kids table and are now seated with the developed-world adults.

But that might be premature. A big part of China's economic ascendance was purchased with borrowed money – including a lot of US dollars – and came at the perceived expense of US well-being. And the US now wants to redress what it sees as unfair terms of trade in the most abrupt way possible.

This leaves China with huge debts to service and – possibly – a declining trade surplus with which to do it. Here's how today's Wall Street Journal summarizes the situation:

Has the Big Yuan Short Finally Arrived?

Chinese markets are in trouble once again.

China's currency is down nearly 1% from Friday's close, wiping out the yuan's gains for the year, after the People's Bank of China cut reserve requirements for banks over the weekend. Slowing growth and rising trade tensions are pummeling Chinese shares, with the Shanghai Composite entering a bear market Tuesday. And rising defaults are testing the country's gargantuan debt market.

To investors with a long memory, this may sound uncomfortably familiar. The last big yuan selloff, beginning in mid-2015, was heralded by a historic stock-market collapse, a rash of corporate bond defaults and Chinese monetary easing.

As in 2015, the U.S. and Chinese central banks are moving in opposite directions, making yuan assets less attractive. Investors owning Chinese rather than U.S. 10-year government bonds pocketed a measly 0.6 percentage-point yield premium in May, the smallest since late 2016.

China is now gradually easing monetary policy, while the Federal Reserve is tightening. Trade tensions are rising, and China posted its first current-account deficit since 2001 in the first quarter. Growth will probably slow further in the second half.

Panic or no panic, a weaker Chinese currency in the months ahead still seems likely.

It's logical for China to respond to US trade sanctions by weakening its currency, allowing its export industries to cut prices to offset the higher tariffs. And a lot of people seem to expect an explicit devaluation as the dance progresses. From CNBC a few days ago:

China's sudden currency slide sparks rumors of an anti-Trump policy move

China's currency has slipped markedly in the last week, to the point where it's trading at December lows against the dollar, and that's prompting speculation that China would be willing to use a weakened currency to fight U.S. tariffs and trade threats.

China has often been accused by the U.S. government of intentionally keeping its currency depressed to cheapen its goods in the world market, making them more attractive than those from countries with stronger currencies. The Trump administration this year stopped short of calling China a 'currency manipulator,' and China's currency has actually been fairly steady for most of the year.

"It looked like they were impeding the dollar's rise against the remnimbi, in line with what you normally expect given the general strength of the dollar. That caught up last week," said Robert Sinche, the chief global strategist at Amherst Pierpont. "They weren't letting the currency weaken as much as it should have, so the trade-weighted remnimbi was actually rising in that environment. I think they might have said, 'The U.S. is not going to play nice, we'll let the remnimbi trade as it should.'"

Nonetheless, rumors circulated that China could go further and actually become aggressive in forcing a decline in the remnimbi, also known as the yuan.

"The yuan is controlled. They allow it to trade in a band. In order to make sure they don't have a runaway trade. What you're seeing is the [speculators] took it by the upper limit of its band," said Boris Schlossberg, managing director at BK Asset Management. "I think the market is anticipating something, or they feel it's going to be a natural policy response if this keeps up."

But there's another side – the emerging market side – to a Chinese devaluation: All those dollars that Chinese companies and local governments have borrowed would – with a rising dollar – become a lot harder to pay off. The following chart illustrates the magnitude of China's dollar obligations relative to other emerging countries. $100 billion isn't unmanageable for a several-trillion-dollar economy, but it's definitely a problem in a world of many other problems.

To sum up, a Chinese devaluation helps with trade but hurts with debt repayment. And it's not clear which side of that equation outweighs the other – or whether this kind of currency war escalation might get out of hand.

The Fed’s “Inflation Target” is Impoverishing American Workers

Redefined Terms and Absurd Targets

 

At one time, the Federal Reserve's sole mandate was to maintain stable prices and to "fight inflation."  To the Fed, the financial press, and most everyone else "inflation" means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.

 

Fed Chair Jerome Powell apparently does not see the pernicious effects of inflation (at least he seems to be looking around)

Photo credit: Andrew Harrer / Bloomberg

Naturally, the Fed and all other central bankers prefer the definition of inflation as a rise in prices which insidiously hides the fact that they, being the issuers of currency, are the real culprit for increased prices.

Be that as it may, the common understanding of inflation as rising prices has always been seen as pernicious and destructive to an economy and living standards.  In the perverted world of modern economics, however, the idea of inflation as an intrinsic evil has been turned on its head and monetary authorities the world over now have "inflation targets" which they hope to attain.

America's central bank is right in line with this lunacy. According to the Fed's "May minutes", it wants

"[A] temporary period of inflation modestly above 2 percent [which] would be consistent with the Committee's symmetric inflation objective."*

Translated into understandable verbiage, the Fed wants everyone to pay at least 2% higher prices p.a. for the goods they buy.

Yes, by some crazed thinking US monetary officials believe that consumers paying higher prices is somehow good for economic activity and standards of living!  Of course, anyone with a modicum of sense can see that this is absurd and that those who espouse such policy should be laughed at and summarily locked up in an asylum!  Yet, this is now standard policy, not just with the Fed, but with the ECU and other central banks.

 

US true broad money supply TMS-2 since 1986. The domestic US money supply has increased by a stunning USD 7.85 trillion since 2008, or more than 150%. This was the by far largest ten-year surge in the US money supply of the entire post WW2 era. Naturally, there have been enormous effects on prices, they have just not shown up in CPI yet. This is in the nature of the process: new money always enters the economy at discrete points and propagates from there. One can certainly see the effects on asset prices, from stocks to real estate (the bubble in RE prices has in the meantime also been resurrected in its entirety). When and to what extent CPI statistics will be affected is not preordained. Experience shows that this tends to happen with a considerable lag. Note also: while money does clearly have a purchasing power that is diminished by money printing,  the "general level of prices" is actually a fiction. It cannot be "measured" or "calculated", as that would require a constant with which to measure it. Since both the supply of and demand for money and the supply of and demand for goods and services fluctuate, no such constant exists in the real world.  [PT]

 

 

Economic Quackery

The baneful consequence of this economic quackery is being felt by American workers as admitted by the Labor Department.  Instead of spurring expansion, inflation is eating into and depressing wages:

 

"For workers in production and non-supervisory positions, the value of the average paycheck has actually declined in the past year.  For those workers, average real wages – a measure of pay that takes inflation into account fell – from $22.62 in May 2017 to $22.59 in May of 2018."**

 

While the decline in nominal wages is not significant, the manner in which the government now calculates inflation has been skewed to understate its impact.  Under the previous calculation, the current US inflation rate is probably closer to 5%. [ed note: different baskets of goods and services are relevant for different people; the "average" of CPI is essentially relevant for no-one. The de facto impossible calculation was frequently altered in the past several decades, with the aim of lowering the government's COLA expenses – i.e., inflation adjustments to various non-discretionary entitlement spending items – PT]

 

Wage stagnation is not new.  Average real wages peaked more than 40 years ago and have fallen in real terms ever since.  Not surprisingly, the drop in wages in real terms began soon after the US went off the last vestiges of the gold standard in 1971.

 

Real wages – left: weekly wages of production and non-supervisory workers deflated by CPI; right: hourly wages of the same group of workers deflated by gold prices. Note: weekly earnings are also adjusted by hours worked per week, which have decreased from 38.8 hours in 1965 to 33.8 hours today. Nevertheless, hourly wages deflated by CPI also remain well below the peak attained in the late 1960s. The stark reality is probably better illustrated by deflating wages by gold prices, as this is a market-based indicator. If one uses the true money supply as the deflator, the decline is even larger. [PT]

 

As sound theory has long ago demonstrated, the idea of economic growth through money printing is absurd.  Increases in living standards and real wages can only come about through savings, investment, and capital accumulation.

 

Workers who have superior tools and equipment are obviously more productive than those that do not. Yet, capital goods have to be produced and production takes place over time.  Savings allow for funding the production process.

 

The level of wages is also closely linked to savings.  The greater the savings in an economy, the easier it is for entrepreneurs to bid for workers and increase wage rates.  This is how wages rise – competition for labor among businessmen pushes up wage rates. The more savings entrepreneurs have, the higher they can bid for employees.

 

How and why wage rates rise and how employment is created had been understood by economists of yesteryear.  Today, however, the profession is dominated by "inflationists" and monetary cranks who believe that nearly every economic problem can be solved by the printing press.  Anyone who holds such ideas cannot be taken seriously.

 

While the Federal Reserve may think an inflation target will create prosperity, the reality for real wages is quite the opposite.  The laws of economic science have not been repealed.  An inflation target will lead to the impoverishment of not just workers, but lower living standards for all.

 

References:

* FOMC, minutes of the May meeting (PDF)

**Jeff Stein and Andrew van Dam, "For the Biggest Group of American Workers, Wages Aren't Just Flat.  They're Falling."  The Washington Post.  16 June 2018 A10.

IMF Sounds The Alarm Over Junk Bonds

Ever since the start of 2018, an odd divergence has emerged in credit markets, where Investment Grade bonds have seen their spreads leak progressively wider, hitting levels not seen in 2 years, while the bid for higher yielding, and much more risky, junk bond debt has been seemingly relentless, with high yield spreads near all time lows.

To be sure, many reasons have been offered, with Bank of America suggesting that IG weakness is "due to supply pressures in an environment of reduced demand that began in March and extended through last week, plus the Italian situation, which is about systemic risks running through the global IG financial system." Meanwhile, it believes the strength in HY is mostly due to the lack of supply of higher yielding paper.

Whatever the suggested reasons, however, the underlying causes are two: an environment of artificially low interest rates created by central banks, and unyielding, pardon the pun, investor euphoria. In other words: a multi-year credit boom.

And while the Fed's "macroprudential regulation team" appears to have zero problems with what is going on in the world of junk bonds, the IMF has sounded the alarm on the troubling developments in junk bond land in particular, and capital markets in general.

In its The Chart of the Week, the IMF Blog shows the impact of a bad credit boom - one which the fund defines as followed by slower economic growth or even a recession - on economic growth in the years that follow. But first, it ask a basic question: what makes for a bad boom? The IMF's answer:

it is fueled by excessive optimism among investors. When the economy is doing well and everybody seems to be making money, some investors assume that the good times will never end. They take on more risk than they can reasonably expect to handle.

Ok, but how can one tell when risk-taking is getting out of hand? After all the Fed is notoriously bad at being unable to time just when to pull the punch bowl away, and instead lurches from one bubble boom-bust cycle, to another, greater one instead.  According to the IMF, one way to make the distinction is to look at the riskiness of credit allocation, adding that firms where debt expands faster become increasingly risky in relation to those with the slowest debt expansions, posing downside risks to growth down the road. This is obviously common sense.

The second method is more directly linked to the issue at hand, namely the glut in junk bonds. Here is the IMF on how to spot euphoric risk-taking:

Another method is to look at the bond market to see how much of the money companies and governments are borrowing consists of high-yield debt, also known as junk bonds. (These are bonds that offer higher yields to make up for the greater risk of default by the borrower.) The larger the proportion of high-yield debt, the higher the level of risk in the financial system.

Next, in calculating the impact of bad booms on growth, the IMF looked at data on debt issued by governments and non-financial companies in 25 advanced economies, and defined a boom as a period of faster-than-normal growth in credit relative to GDP.Finally, it looked at how much of the credit growth consisted of high-yield debt.

And, judging by the current conditions, the IMF found that the world effectively finds itself in just such a "bad boom" phase.

So what then? 

The IMF concluded that credit booms marked by a rising share of junk bonds were followed by lower economic growth over the following three to four years.

When the high yield share of debt rises by one standard deviation—a statistical measure of how much one number differs from the average in a set of numbers—GDP growth over the next three years is lower by 2 percentage points.

This is shown in the chart below which reveals that junk bond driven credit booms are followed by sharp economic slowdowns in the following "three to four years."

The IMF concludes that this result suggests that "when credit is growing quickly, policymakers should pay attention to how much of that growth is allocated to riskier firms, such as those that issue high-yield debt."  Well, not only is junk debt growing quickly, it has never been greater.

The IMF's solution on how to avoid a credit bust recession?

Steps to fix the problem may include higher capital requirements and other measures to restrain credit growth and tighten lending standards more broadly.

Needless to say, not only are no regulators actively seeking to restrain credit growth, but lending standards have never been easier, which is to be expected when none other than the ECB is actively buying corporate bonds.

Source: IMF

In "Catastrophic" Scenario, CBO Projects US Debt/GDP Hitting 247%

The CBO released its latest long-term budget outlook today, and found that America's financial situation continues to deteriorate. While there were not many notable variations from the last forecast, there were some notable differences.

A quick summary of the latest financial situation:

At 78% of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would approach 100 percent of GDP by the end of the next decade and 152% by 2048 (by comparison, in its March 2017 forecast, public debt was estimated at 113% of GDP in 2017 rising to 150% by 2047). That amount would be the highest in the nation's history by far. 

Moreover, if lawmakers changed current law to maintain certain policies now in place— for example preventing a significant increase in individual income taxes in 2026 as Trump has been suggesting — the result would be even larger increases in debt.

A breakdown of projected spending and revenue over the next 30 years is shown below.

This is how the breakdown by key spending and revenue components would change from 2018 to 2048.

On the GDP side, the CBO forecasts average annual growth of 1.9% for the 2018-2048 period, an increase from the 1.4% average over the past decade.

The CBO also forecasts inflation of 2.4% and unemployment of 4.6% for the 2018-48 period.

More troubling is the CBO's projection of interest rates which will rise from their currently low levels and as debt accumulates, putting increasing pressure on government finances and push interest payments to record levels in the coming decades.

Specifically, the rising levels of federal debt would push debt payments from 1.6% of the gross domestic product in 2018 to 3.1% in 2028 and 6.3% in 2048, which would be the highest level ever. At that point, interest payments would equal spending on Social Security.  Those payments would help put overall federal spending to 29% of GDP for the first time since World War II.

What was perhaps most notable is that as part of its admission that there is no way of accurately predicting the true state of the US economy in 30 years, the CBO noted that in order to illustrate the uncertainty of its projections, the Budget Office examined the extent to which federal debt as a percentage of GDP would differ from the amounts in its extended baseline if the agency varied four key factors in its analysis.

• The labor force participation rate
• The growth rate of total factor productivity,
• Interest rates on federal debt held by the public, and
• Excess cost growth for Medicare and Medicaid spending.

Where it gets interesting is in the CBO's admission that if CBO varied one factor at a time, federal debt held by the public after 30 years would range from 42 percentage points of GDP below the agency's central estimate—152 percent of GDP—to 60 percentage points above it.

And here is the worst case outcome: If all four factors were varied simultaneously such that projected deficits increased, federal debt held by the public in 2048 would be about 96% of GDP above CBO's central estimate.

Or, in other words, the CBO admits that if everything went wrong, US debt/GDP in 2048 would be a catastrophic 247%, a number that would make even Japan blush.

What would the soaring debt burden do to the US?

Large and growing federal debt over the coming decades would hurt the economy and constrain future budget policy. The amount of debt that is projected under the extended baseline would reduce national saving and income in the long term; increase the government's interest costs, putting more pressure on the rest of the budget; limit lawmakers' ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis.

And here is the CBO's sullen admission of how the hyperinflationary endgame would look like:

In that event, investors would become unwilling to finance the government's borrowing unless they were compensated with very high interest rates.

The CBO's parting words are hardly a source of comfort:

Those calculations do not cover the full range of possible outcomes, and they do not address other sources of uncertainty in the budget projections, such as the risk of an economic depression or a major war or catastrophe, or the possibility of unexpected changes in rates of birth, immigration, or mortality. Nonetheless, they show that the main implications of this report apply under a wide range of possible values for some key factors that influence federal spending and revenues. In 30 years, if current laws remained generally unchanged, federal debt— which is already high by historical standards—would probably be at least as high as it is today and would most likely be much higher.

Policymakers could take that uncertainty into account in various ways as they make choices for fiscal policy. For example, they might design policies that reduced the budgetary implications of certain unexpected events. Or they might decide to provide a buffer against events with negative budgetary implications by aiming for lower debt than they would in the absence of such uncertainty.

Policymakers could take that uncertainty into account, but they won't, and instead what is much more likely is that when the next perfect storm hits the US economy, whoever is in charge will do what the US has done every time there was a crisis: issue even more debt, and bring the financial system that much closer to failure. Then again, in 30 years even if the "catastrophic" scenario for the US were to come true, one can only wonder what shape the rest of the world would be in...