Is there light at the end of the debt ceiling tunnel?
Having written about this subject very recently, this may seem a little redundant. But I just wanted to give a brief update on the ongoing debt ceiling saga as we head into the weekend.
After months in and out of the headlines, the issues surrounding the debt ceiling have come into sharp focus, as the U.S. could become unable to pay its bills as soon as June 1. There’s nothing like an impending deadline to force action. However, as I have previously stated, I do not see us defaulting on our debt. There is too much risk on both sides of the political isle for them to not get a deal done. Never say never, but I just do not see it happening.
What is the debt ceiling?
The debt ceiling is the amount of money the U.S. is authorized to borrow to pay its bills. Since the U.S. runs a budget deficit, the government is forced to borrow to make up the difference. Since Congress has the “power of the purse,” it sets spending limits and must approve any increase.
Why is this an issue?
A debt ceiling “crisis” is nothing new. Historically, Congress has always suspended or raised the debt limit to ensure the U.S. avoided default. But as happens frequently with divided government, Washington D.C. is currently at an impasse. Republicans in the House passed a bill that would raise the debt limit in exchange for spending cuts. Democrats, on the other hand, are looking for a bill without conditions. A deal will need to be reached where both sides make concessions.
What if a deal is not reached?
The U.S. failing to pay its bills in full and on time would have serious economic repercussions. In theory, a default could result in delayed payments of federal benefits, job losses, higher borrowing costs as U.S. debt is downgraded, and a global recession. The ramifications would be hard-hitting and unprecedented, which is why it hasn’t happened before, and probably won’t this time.
Debt Ceiling Increases Since 1959
Since 1959, the debt ceiling has been increased 89 times beginning with Dwight D. Eisenhower’s presidency. Over the past 60 years, the debt ceiling has gone up 53 times under Republican presidents and 36 times under Democratic ones. Simply put, it’s become a regular occurrence.
Where do we stand now?
Stocks are trending higher this week after President Biden expressed optimism about debt ceiling talks, and both he and Speaker McCarthy expressed confidence that a default will be avoided. The situation is fluid and new developments are happening by the minute – but there are signs that, despite the harsh rhetoric from both sides, a deal will get done.
We know the markets don’t like uncertainty, so getting the debt ceiling issues behind us will be one less thing for markets to worry about. As your financial advisory team, we’re here to help handle whatever is thrown at you and keep you focused on your financial goals.
If you have questions, we’re a phone call or email away.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Debt Ceiling Brief
Is there light at the end of the debt ceiling tunnel?
Having written about this subject very recently, this may seem a little redundant. But I just wanted to give a brief update on the ongoing debt ceiling saga as we head into the weekend.
After months in and out of the headlines, the issues surrounding the debt ceiling have come into sharp focus, as the U.S. could become unable to pay its bills as soon as June 1. There’s nothing like an impending deadline to force action. However, as I have previously stated, I do not see us defaulting on our debt. There is too much risk on both sides of the political isle for them to not get a deal done. Never say never, but I just do not see it happening.
What is the debt ceiling?
The debt ceiling is the amount of money the U.S. is authorized to borrow to pay its bills. Since the U.S. runs a budget deficit, the government is forced to borrow to make up the difference. Since Congress has the “power of the purse,” it sets spending limits and must approve any increase.
Why is this an issue?
A debt ceiling “crisis” is nothing new. Historically, Congress has always suspended or raised the debt limit to ensure the U.S. avoided default. But as happens frequently with divided government, Washington D.C. is currently at an impasse. Republicans in the House passed a bill that would raise the debt limit in exchange for spending cuts. Democrats, on the other hand, are looking for a bill without conditions. A deal will need to be reached where both sides make concessions.
What if a deal is not reached?
The U.S. failing to pay its bills in full and on time would have serious economic repercussions. In theory, a default could result in delayed payments of federal benefits, job losses, higher borrowing costs as U.S. debt is downgraded, and a global recession. The ramifications would be hard-hitting and unprecedented, which is why it hasn’t happened before, and probably won’t this time.
Debt Ceiling Increases Since 1959
Since 1959, the debt ceiling has been increased 89 times beginning with Dwight D. Eisenhower’s presidency. Over the past 60 years, the debt ceiling has gone up 53 times under Republican presidents and 36 times under Democratic ones. Simply put, it’s become a regular occurrence.
Where do we stand now?
Stocks are trending higher this week after President Biden expressed optimism about debt ceiling talks, and both he and Speaker McCarthy expressed confidence that a default will be avoided. The situation is fluid and new developments are happening by the minute – but there are signs that, despite the harsh rhetoric from both sides, a deal will get done.
We know the markets don’t like uncertainty, so getting the debt ceiling issues behind us will be one less thing for markets to worry about. As your financial advisory team, we’re here to help handle whatever is thrown at you and keep you focused on your financial goals.
If you have questions, we’re a phone call or email away.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
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