Congress Can Stop Fretting Over the Debt Ceiling, The US Has Already Defaulted

"In our opinion, the United States has already been defaulting," said Guan Jianzhong, the president of Dagong Global Credit Rating Co. (a Chinese ratings agency), the Straits Times reported. I guess this means congress can stop wasting their time trying to resolve the debt ceiling. Jianzhong bases his assessment on the fact that Washington has been repaying its debt using depreciated dollars. The value of the U.S. dollar has fallen as the dollar has depreciated against other world currencies. That is the benefit of a country having its debt denominated in its own currency—it can simply print the money to cover the payments. In the U.S., the printing of money is handled by the Federal Reserve. The Fed has purchased U.S. treasuries en masse through its programs of quantitative easing. That may have led to a depreciation of the dollar against other currencies. Many have alleged that the Fed's purchases have led to an increase in the price of many commodities seen in the past year. The Fed's Chairman, Ben Bernanke, denied that the actions of the Fed have been responsible for the rise of commodity prices in a speech on Tuesday. Action Items Bullish: Traders who believe that Dagong is being alarmist and unrealistic in its assessment might want to consider the following trades:

• Buy PowerShares DB US Dollar Bullish Index UUP. UUP is a long play on the U.S. dollar and may rally if the dollar appreciates.
• Buy ProShares Ultra Dow 30 DDM. DDM is a long play on the Dow Jones and the broader U.S. economy.

Bearish: Traders who believe that Jianzhong's statement is true may consider taking positions in the following:

• SPDR Gold Trust GLD. GLD is a long play on gold, and gold may rally if the world comes to the conclusion that the U.S. government is in effective default.
• PowerShares DB US Dollar Bearish Index UDN is a short play on the U.S. dollar. If the U.S. is effectively bankrupt, the U.S. dollar may depreciate even more in value.

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