The Looming Debt Ceiling

May 18, 2023


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The Looming Debt Ceiling

You may have heard that back on January 19th that the U.S. hit its $31.4 trillion debt ceiling, and since then, the U.S. Treasury has been using "extraordinary measures" to keep paying its bills.1 It sounds ominous, but how concerned should you be?

Deficit spending is nothing new. The U.S. has run annual deficits for most of its history. The last time the nation brought in more money than it spent was in 2001. In the wake of the pandemic, the national debt has increased by more than $8 trillion since late January 2020.1

As in the past, the debt ceiling has become a political issue. Republicans, now in the majority in the House, are pushing for spending cuts as part of any agreement to raise the debt ceiling. President Biden and Democrats in the Senate have vowed to fight major spending cuts. In the meantime, the extraordinary measures being taken to keep paying the government's bills could run out before July.

It's important to remember that in past partisan fights, Congress had consistently raised the debt limit when push came to shove. In fact, since 1960, Congress has acted to raise, extend, or revise the debt limit 78 times. 2  If you do the math we are still batting 1000 as we are 78-78 up to this point on getting a deal done!

What would happen if the debt limit wasn't raised?

Failing to increase the debt limit would cause the government to default on its obligations. This has never happened before and is unlikely to happen this time.

The closest the U.S. ever came to defaulting was in 2011 when Congress eventually reached a compromise. This current drama will likely play out over the next few weeks, so be prepared for more headlines on the subject. Ultimately, Democrats and Republicans know that a default would have repercussions across the global financial markets, so while we cannot predict the future, we can be confident that Washington will go to great lengths to reach an agreement.3

Markets don't like uncertainty.

Financial markets don't like uncertainty, and the debt ceiling joins the list of other dynamics that can affect the markets, such as the economy, inflation, and interest rates. As a result, we may see continued volatility.

As your financial professionals, we're here to handle whatever the markets throw at us. If you have questions, we’re a phone call or email away.

1, February 15, 2023

2, 2023

3, February 26, 2023


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