Debt ceiling negotiations were shut down by House Majority Leader Rep. Eric Cantor (R-Va.) last week. This raised renewed fears that the U.S. is on the verge of total credit default, and it raised a question as to whether Cantor – the GOP’s key operative in debt ceiling talks – has a “glaring” conflict of interest. According to Salon, Cantor may be fighting against government credit default in Congress, but he’s personally invested in a mutual fund that will “skyrocket” should default occur.
Wall Street Journal profiled Eric Cantor’s investment
Last summer, the Wall Street Journal ran a story that revealed Eric Cantor had as much as $15,000 invested in ProShares Trust Ultrashort 20-plus Year Treasury ETF. As the name implies, this mutual fund “aggressively shorts” long-term U.S. Treasury bonds. That means when the U.S. debt load is at its worst, the ProShares EFT produces maximum ROI.
Rep. Cantor’s financial records, which are publicly available via sources like OpenSecrets.org, indicate that he still has as much as $15,000 invested in the ProShares fund. According to government insiders, if the U.S. government is unable to raise the debt ceiling by Aug. 2, the nation will begin to default on its debt payments to creditors. According to Bloomberg, this will also force a government shutdown that will furlough 800,000 federal workers.
“If the debt ceiling isn’t raised, investors would start fleeing U.S. Treasuries,” Matt Koppenheffer of Motley Fool told Salon. “Yields would rise, prices would fall, and the ProShares ETF should do very well. It would spike.”
Understanding the debt ceiling
The debt ceiling is a cap Congress sets on how much debt the U.S. government can legally take on. It’s ostensibly a government spending control. The cap includes public debt (money owed on U.S. bonds), as well as outgoing Social Security and Medicare obligations. The level of the cap flexes, depending upon whether lawmakers vote for a spending hike or tax cut. Currently, the U.S. debt ceiling is set at about $14.3 trillion.
What happens if Congress fails to raise the debt ceiling in time? The Wall Street Journal sees two difficult scenarios. The first would require spending cuts or tax increases amounting to several hundred billion dollars, and that would only keep government running through Sept. 30, the end of the fiscal year. The other option would be to admit defeat and exclaim to the world that the U.S. cannot meet its financial obligations. Experts believe that would send world markets into a nosedive.
Balancing the portfolio
Eric Cantor’s spokesman, Brad Dayspring, told Salon that the ProShares ETF was merely an attempt on the House Majority Leader’s part to diversify his stock portfolio. While it may only be a small portion of his total investment package, financial media sources believe it speaks volumes about Cantor’s commitment to saving the U.S. economy.
House Majority Leader Eric Cantor on the debt limit
CNN Money: http://money.cnn.com/2011/05/16/news/economy/debt_ceiling_deadline/index.htm
Wall Street Journal: http://blogs.wsj.com/washwire/2010/06/18/eric-cantors-investment/
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