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The Debt Ceiling: An Economic or Political Debate? |
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Given all of the media attention to the Debt Ceiling debate, should investors do something different with their money?
Here is what we are telling our clients:
As long as your investments are properly allocated and you have sufficient cash to meet your immediate needs, do nothing.
Here's why:
The debate is political not economic. The U.S. is not Greece or Italy. The world knows that we can pay our bills. For proof, look no further than the yield on the 10 Year Treasury Note which has dropped from 3.6% in April to under 3%. In other words, despite all of the political rhetoric, there is a strong global appetite to own our debt.
What does raising the debt limit mean? It's like calling your credit card company and asking them to raise your credit limit because you spent more than you made. You explain to them that you have never been late on a payment and you are making more money than you did last year. The credit card company knows your income, your credit history, and your assets so they know you can afford to pay.
However, given the unsustainable fiscal path that the U.S. is on, most people agree that the time to address the federal deficit is now while we still have the ability to fix it. Congress is using the need to increase the debt limit as an opportunity to force the issue about reforming our bad financial habits.
The argument is about how to fix the problem. One side wants to cut expenses by reducing programs and entitlements. The other side wants to raise revenues by increasing taxes. The unfortunate truth is we need to do both but we have not shown the political will to make it happen.
Are you sure...you investments are properly allocated? This is the single most important question that we focus on with our clients. It should be every investor's highest priority. If you are not sure, contact us so that we can do a quick and easy "Allocation Check-Up".
Bottom line: As voters we have to demand that Congress put partisan politics aside and reach an agreement that puts our financial house in order. This will be more difficult than merely saying "no new taxes" or "no entitlement cuts". For the sake of our grandchildren, we need to accept that these financial problems will require sacrifice from everyone.
If you'd like to educate yourself further, we recommend that you read The Moment of Truth by the National Commission on Fiscal Responsibility and Reform. It is surprisingly easy to read and understand. |
