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Waiting Game of the Debt Ceiling Deal

July 26, 2011

For the past month the top headline on the major television networks has focused on our national lawmakers trying to reach a deal on the nation’s debt ceiling by an August 2nd deadline.
Many of us probably never heard the term “debt ceiling” prior to the debate in Washington D.C this summer. However, if an increase in the limit is not given to Congress then borrowed funds would not be there to pay bills potentially causing the United States to default on its debit obligations.
The debt ceiling deals with what is the legal limit of money the federal government can borrow in order to pay its bills. Currently the federal government debt limit is estimated to be around $14.3 trillion, an amount both sides of the political aisle understand is not sustainable.
The big question people are asking is what will actually happen if the debt ceiling isn’t raised and at this point no one is certain what will happen.
Lawmakers, Democrat or Republican, agree that the limit needs to be raised, but they disagree on the details of what deficit-reduction measures should be attached to a debt limit deal to try to start bringing down the amount of money the United States owes. Republicans want trillions in spending cuts in exchange for supporting a debt limit increase, while Democrats have called for closing tax code loopholes and looking into raising the tax rate in various areas. There are more details into what each side is wanting but it’s these basic contrasting views on how to solve the issue that is keeping the party leaders on both sides from reaching an agreement.
In looking at the ongoing debate in Washington D.C. and its potential effects to the economy, Borger Economic Development Corporation CEO Dan Redd commented, “I think the politicians are using this as a political football to scare the electorate on both sides, both conservative and liberal. I would hate to see them do something that is going to hurt the stock market but it looks like that is inevitable if they don’t get their act together in DC.” Redd added, “I can’t see us surviving very well as a nation, state, business or family if something isn’t done about the size of our debt. Whatever is done is going to be a hard pill to swallow for nearly all areas of our economy.”
With the uncertainty, there is no question individuals are starting to wonder what kind of effect it could have in their own portfolios.
In response to some of the questions customers may have on the effects in reaching or not reaching a debt ceiling deal, various financial institutions are starting to provide information to try to guide people in what they need to do to protect themselves.
The Borger News Herald was provided with information by the local Edward Jones office of Gary A. Schneck. There are a couple of things investors need to consider and expect.
First don’t panic. Even if a deal is not reached by the August 2nd deadline, the United States is expected to find ways to make payments on its debt for awhile.
Second, regardless of whether or not, a deal is done there is the expectation that interest rates will rise because lenders do not like uncertainty in the market.
The rise in interest rates is something Redd also sees happening, saying, “I anticipate rising interest rates for business and personal loans and for low interest on investments. That will not be good on any front for the individuals and small companies.”
With such an undesirable result, there is the expectation that such a distress could likely cause Congress to take quick action in addressing the debt ceiling.
This last suggestion is to refuse to allow debts and deficits drive your investment decisions. Even after the debt ceiling issue is resolved, there will continue be concerns about the country’s debt and deficit issues.
The decisions an investor makes should be based more on personal goals, risk tolerance and timeline instead of the level of debt being taken on by the government.
With less than a week away from the August 2nd deadline, time is ticking and will reveal if our lawmakers will finally come together to put together a debt ceiling deal.

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