Debt Ceiling Debacle
To be completely honest, this is not what I wanted to discuss in this month’s blog, but it feels like the elephant in the room, so here we go! I will make it short and sweet, I promise. I will also strive to keep politics out of it, although I can be an equal political party basher. As of this writing, the new deadline to raise the debt ceiling is June 5th (originally June 1st).
A Brief History
Raising or suspending the debt ceiling becomes necessary when the government needs to borrow money to pay its debts. While this was not much of a problem during the first 90 years of its existence, over the last decade or so, Congress has gone on a spending spree, making it a contentious topic every year it seems.
Since 2009, the U.S. debt has nearly tripled. Voting on raising the debt limit is a way for Congress to keep their spending in check. When there is disagreement among political parties, rumors of a global economic meltdown start filling the media. In all instances so far, a deal was eventually reached; many times, in the eleventh hour. In a few cases, the government shut down. The most recent was for 35 days in 2018 (longest in history).
Is it different this time? Republicans and Democrats are not on the same page, but that is certainly nothing new. Most experts believe a deal will be reached in time. However, the U.S. credit rating is on watch… yet again.
What Should You Do?
Turn off the news. I’m only partly kidding, however, the real question is, what should you do with your investments if there is a market crash or a recession? My general guidance has always been that investing comes with risk and you should invest based on your timeframe, tolerance for risk, and your goals, not politics or socioeconomic events.
In addition, these are events in time that may or may not cause a catastrophe. If they do and you time it correctly by going to cash at the right time (e.g., account does not go down in value), chances are you will not know the right time to get back in, thus losing a potential big market uptick. In the event of a recession and as a general rule, it’s always a good idea to have a healthy savings account and some cash on hand to avoid borrowing or overusing credit in tough times.
It is natural to be worried. The media is great at keeping us on edge, especially with things that are seemingly out of our control. The good news is, if you are invested for the long-term and contributing to your investments regularly, if there is a market drop, you are buying at a discount.
Full disclosure: I do not know what will happen, but I am not making any changes to my portfolio. These events will continue to occur, so it will be important to either “ignore the hype”, re-evaluate your investment philosophy, or talk with a trusted financial advisor about your concerns. God bless America.