Ron Paul, a Republican representative from Texas, published a piece this weekend titled the following: "Default Now, or Suffer a More Expensive Crisis Later."
It blows my mind that he 1.) equates a defacto default with a real default and 2.) he's will to risk a complete market meltdown / financial depression in the fear of inflation over time.
This is nuts.
Ron Paul link
Strategy
If they don't make progress over the weekend, I'm seriously considering taking all the cash I have (which is predominately in money market funds either holding treasuries or backed by government obligations - e.g. repurchase agreements collateralized by U.S. government obligations) and shorting the SPY (S&P ETF), while offsetting this with an equal amount of in-the-money, August call options.
If the tail risk plays out and the U.S. defaults, my money doesn't drop in value overnight (you really think Chinese treasury holders will not sell paper that is not paying them?). If anything, I stand the chance to actually make money if the S&P completely collapses. The call option would be worthless but the short position would make more.
If the tail risk doesn't play out and congress gets their act together, I lose on the premium of the call option, sell it, and cover my short.
Upside (if default & S&P declines 20%): 10-15%
Downside (no default / raise debt ceiling): negative 0.2-0.5%
From a probability weighted perspective, if the odds of default are greater than ~3% it's worthwhile to do the trade.
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