Article

What Happens if the Debt Ceiling is Not Raised?

What Happens if the Debt Ceiling is Not Raised?

The latest mess out of Washington is the fight to increase the federal debt ceiling. If this isn’t resolved, some fear catastrophe for the markets. Long-term financial success dictates that we learn to manage headline generated waves in the market and recognize which ones truly matter and which ones are just ripples under our boat. There’s info in this article that explains the concerns and might help you relax.

October 5, 2021
What Happens if the Debt Ceiling is Not Raised?
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

The latest mess out of Washington is the fight to increase the federal debt ceiling. If this isn’t resolved, some fear catastrophe for the markets. Relax. Stocks may dip at first, but a market debacle won’t happen.

The debt ceiling fiasco will come and go, market volatility will likely increase and we have to manage our emotions and follow our investment discipline. There will always be drama in D.C. or unexpected announcements on Wall Street.

Headline Generated Waves

Long-term financial success dictates that we learn to manage headline generated waves in the market and recognize which ones truly matter and which are just ripples under our boat.  Remember, some ripples even offer potential opportunities.

The politicians in D.C. seem to generate drama regarding just about everything these days. While many of the laws that state legislatures and Congress pass are in fact important, let’s take a closer look at the debt ceiling, which is a special situation.

For the past few months, discussions of the debt ceiling have slowly crowded out other stories on the newswires. That is a serious issue, and we certainly have opinions about it, but this article is devoted to helping you understand the market more than politics.

The Debt Ceiling Explained

First things first, the debt ceiling does not give Congress the ability to spend more money. It does not hand over a blank check for them to do whatever they please.

So, if the debt ceiling does not allow Congress to spend more money, then what does it do? In the simplest terms, it approves the check to be written to pay for the spending that lawmakers already approved.

Imagine if you receive a credit card with a limit of $5,000, and then charge $5,000 on it. When the bill comes in the mail, you decide if you’ll pay it off or not. That’s essentially what Congress is doing, determining: whether they will pay the bill to cover the spending that the House, Senate and president already signed off on.

Seems fairly simple doesn’t it? Well, like most things that happen in Washington, both parties attempt to latch special spending items to bills that raise the debt ceiling. The important discussion of how much the U.S. government spends should ideally occur when voting on the actual budget. Without an agreement on this question, we could see a government shutdown.

22 Times Since 1976

Here is a very important thing to remember: if the debt ceiling is not raised and the government does shut down, it wouldn’t be the first time. In fact, it wouldn’t even be the twentieth time.

Since 1976 the government has been shut down 22 times, the last being between December 22, 2018 until January 25, 2019 (35 days). If this happens, then yes, the stock market will likely react negatively.

But we will survive and there will be a light at the end of the tunnel, the question is how long it takes to reach there.

Other content you may like

  • Planning Your Exercise & Your Financial Fitness

    Planning Your Exercise & Financial Fitness

    June 28, 2022
    Most people don’t prepare to invest and that’s a big mistake. Using the analogy of getting physically fit, this article explores ways that you can prepare for financial uncertainty in much the same way you spend your energy to prepare your body for the stress of a fitness goal or staying active and healthy into your golden years. Preparation matters.
    Read this Article
  • Pumpkin Spice Latte in a Plain Vanilla Portfolio?

    Pumpkin Spice Latte in a Plain Vanilla Portfolio?

    September 29, 2024
    In the world of investing, it’s easy to get distracted by trends. But the reliable kinds of investments are those that can help you build wealth in a steady, sustainable way. One of the keys to making good investments is looking at long-term, such as thinking of your portfolio as “pumpkin-spiced” rather than “candy-coated.”
    Read this Article
  • Two Steps Forward and One Step Back

    Two Steps Forward and One Step Back

    March 3, 2023
    With a recap from Mid-November to Mid-February, it’s good to see numbers in the green as our Strong Valley advisor team discusses stock performance and bonds. Answering the top three questions from clients: Why doesn’t my banker call me about higher rates? How to best set up banking and investment accounts to work together? and the big one – What about the recession? the team gives insight into preparing for the 2023 recession. We wrap up with predictions for the coming quarter and how the market as a leading indicator plays an important role.
    Read this Article
  • A Welcome Market Rally

    November 4, 2022
    October was the welcome reversal of a difficult September. Strong Valley team members, Adam and Chris, recap the month of October and talk about key factors that caused the Market to rally, plus a discussion on the silver lining to rising rates.
    Read this Article
  • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    phone-handset