Here We Go Again…The Debt Ceiling Debate

Personally, I got my fill of this stuff during the fiscal cliff drama. I heard it non-stop. And here we go again. Once again we’ll hear the partisan bickering instead of taking care of what are the country’s most pressing problems.

Enter….the debt ceiling.

The Debt Ceiling Dispute
Keep in mind that the fiscal cliff debate affected the majority of Americans. I really don’t think many will tune in for this most recent round of political boxing. However, this could have a much greater impact on the nation’s credit rating, and in turn could adversely impact the economy.

What we’re talking about here is raising the limit of debt in order to pay bills for goods and services we’ve already purchased. If we don’t, many worry this will be the next full-blown economic crisis. If we don’t and the United States credit rating drops, causing interest rates to rise, which in turn will increase our borrowing costs.

As we’ve seen, Democrats do not want to cut spending, and Republicans have not been willing to raise taxes. So this will be another long bitter debate. The parties may not come to any agreements at all.

Possible Debt Ceiling Dumb Solutions
Here are a few options that are being discussed.

Option one would be an IOU. When I was a kid, I used to ask my parents to loan me the money to buy something, and I would write an IOU to pay them back. The government option is very similar. If the feds owed you money, they would issue an IOU and you would be paid later, with interest of course.

The second option I recently heard was the President could invoke the 14th Amendment. The Amendment was written during the Civil War to guarantee pay for soldiers and their beneficiaries. President Obama could literally side-step Congress and raise the debt limit himself. The President said he would not consider this option.

Finally, the dumbest idea is the $1 trillion coin. I’m having trouble describing this because it defies reason. Essentially what the government would do is issue a $1 trillion coin, over and over agin, as if by magic from David Copperfield, we would have enough money to cover our debts without raising the debt ceiling. Heck, why not just issue 16 or so and pay off the whole thing?

My Conclusion
If I go out and buy something, I have to pay the bill just like you. I’m not allowed to make up some arbitrary value and not pay for it. I have to use real money. I can’t go out and issue checks that bounce over and over and expect no consequences. I wish the United States would start to do the same.

The fun has just begun….again.

How will the debt ceiling affect your investments and market volatility? Give me a call at  (859) 225-2596, or shoot me an email at david@lexwealth.com.