EasyJuly 24, 2019 -
Categorized in: IAG News
One of the potential risks for financial markets this fall had been the potential political firestorm over raising the federal government’s debt limit. In the past the suspenseful debate over the debt limit led to tension in the financial markets.
On Monday the President and Congressional leaders announced a deal that appears to reduce that risk with the announcement of a bipartisan agreement that could be signed into law in the coming weeks.
How did such a contentious issue get resolved so peacefully in such a highly polarized political environment?
Easy! Give everybody everything they want.
Democrats prioritized additional spending on social programs. It’s in the deal.
Republicans prioritized additional spending on the military. It’s in the deal.
The federal government needs to borrow more because it reached the debt limit in March. It’s in the deal.
Governing is so easy when everybody wins! Or do they?
It is very easy for today’s political leaders to promise additional spending and less taxes when the bill for those decisions will not come due for a generation or two. Very few of today’s voters will be alive when the very real impact of today’s decisions will be felt.
Our country is currently $22,023,119,533,123.43 in debt and we are adding about $1,000,000,000,000 per year to it. The easy bipartisan debt ceiling deal practically ensures an acceleration in debt growth over the next two years by suspending the debt limit for two years and cancelling current spending limitations.
Debt is a powerful tool and a vicious master. It is impossible for our political leaders to know when it will flip from one to the other. However, as they continue to get more and more comfortable with using the power of debt to further their goals, the turning point – while likely a generation away – continues to gradually creep closer and closer.
The good news is that this easy budget deal reduces one risk for the financial markets this fall. The bad news is that today’s easy deals are tomorrow’s vicious masters.
Quote of the week: Cicero (55 BC): “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.”
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Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.
Source for U.S. debt: U.S. Treasury