This is a post I really really hoped I wasn't going to have to make. After narrowly averting a debt default in October I had hoped the month and a half they funded the government would be used quickly to address this issue long term. For those who are unfamiliar with this whole idea of a debt ceiling and why it's important here's a quick primer
By law, Congress has to set a borrowing limit for the government. Raising the debt ceiling doesn’t authorize new spending but rather allows the government to meet existing obligations, such as sending Social Security checks and making payments on the debt. If Congress doesn’t raise the debt ceiling, the government would have to suspend payments to beneficiaries or delay interest payments, which would constitute a government default. This would wreak havoc on the entire global financial system which is built with US Treasuries as a cornerstone.
The new line in the sand for when the government either raises the ceiling or defaults has been listed as December 3. The federal government ran a $165 billion deficit during October, a smaller gap when compared with a year earlier, as the government took in higher revenue from taxes and other receipts and pulled back on spending. Government receipts for the month rose by 19% from a year earlier to $284 billion, not adjusting for calendar differences. This has perhaps bought us a little more time on the debt ceiling but it's not the only major issue with a Dec 3 deadline.
The US government funding bill was also punted slightly down the road in October. This means that if a longer term bill isn't passed by December 3, the government will shutdown on December 4. But wait, that's not all. Also expiring December 3 is the National Defense Authorization Act. Approved back in September by the House, the NDAA is an annual bill which funds the military. The bill received, as it always does, wide bipartisan support (passed 316-113). The Senate has yet to take up the legislation however, leaving them only weeks to pass a version then confer with the House for final legislation.
So for those keeping score at home if nothing happens before then on December 4 the US Government will shutdown, default, and no longer have a funded military. No big deal right?
The deadline on the debt ceiling is a bit of a false line however. Two of the three biggest credit ratings agencies on Earth have both stated that bringing this issue down to the wire again would likely result in the United States credit rating being downgrade. Think this is unlikely? Well it happened once before in 2011 as a similarly overly politicized national debate led to a credit rating downgrade DESPITE them passing a ceiling raise narrowly avoiding default.
I was very vocal about the seriousness of this issue in October. If you'll take a look back the market struggled significantly the closer we came to the deadline. Once the raise was passed the market had a significant run that lasted until the last week. President Biden has enlisted the heads of several large corporations including Jaime Dimon, CEO of JP Morgan, to try and push through the debt ceiling raise. The fact is that Republicans have once again vowed they will unanimously oppose any raise of the debt ceiling. That leaves the Democrats with only one option to pass it which is a convoluted process known as budget reconciliation. This process takes WEEKS. The Democrats, unwilling to pass a raise alone, have yet to even begin this process. They're rapidly running out of time. I know politics is just a toxic issue right now but if you want to know what's driving the market I can absolutely guarantee you that the 3 looming issues I discussed are going to increasingly become the only thing the market is focusing on. With that it's important to pay attention to when making any investment decisions in the time between now and 12/3.
Sources
https://www.wsj.com/articles/yellen-says-debt-limit-deal-will-keep-government-funded-through-dec-3-11634589787?mod=article_inline
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https://www.nytimes.com/2021/09/27/us/politics/us-debt-ceiling.html?unlocked_article_code=AAAAAAAAAAAAAAAACEIPuonUktbfqohkQVUZBCbIRp8_qRmHmfnE2_shnTryISKJDD1PzuAUBYfG-1vIYeArQeoP6AmhZY0LNq4zFrs1x_VDPkdpRk73qJbckphecmBu9oviGz49h8iIDLtprXqwNjS0dusgye3v4U7MeCK9DvykpH4lJQ9hqJVicUj7miBbg_eYTZMmn4V2zvwjBZhlRT8fZCbsv_LgCRt2Ot_ufQiLo0BtGLkfAWeP6Ibav7EQcwxSCUbFTGd-4As_69BdPtAWOcXvPuXo2IcF8R0Fpp5mgpfWQjQ&smid=url-share
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https://www.washingtonpost.com/us-policy/2021/11/01/yellen-debt-ceiling-biden/
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https://www.politico.com/news/2021/11/02/congress-standstill-shutdown-debt-518567
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https://www.politico.com/news/2021/11/02/defense-bill-delay-bipartisan-anger-schumer-518597
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#debtceiling #tcardizzle #congress
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If you want to keep up with this and many other stories driving the market I can assure you, we're tracking them in the discord group
https://discord.gg/emntYaQkDu
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Thanks for the info & synthesis! I am impressed with the breadth of your sources.
It's frustrating that legislators are so oppositional. Twitter feedback to them accomplishes nothing, but it helps me feel better.
Yes you have called it. I am pretty risk adverse. I have a good portion of funds in silver, gold, & platinum; but not enough.
I know nothing about finance...
What would it do to bo…See more
As it's never happened before in history I can only really speculate. I would imagine yields would skyrocket as bond price and demand fell. The Fed has a "break glass in case of emergency" plan that would see them step in as the buyer for treasuries which would temporarily float us until eventually everyone would sell to the Fed due to their infinitely deep pockets. This plan is only meant to buy…See more
Im intrigued. What can we do now?
Ugh. Time to clean the portfolio 🤷♀️
Can we stop living through historical events every freaking month please?
HS
Heidi Schultz@shackles2garlands
Only throwing this in, because my friend works as an Accountant for the Department of Defense in Columbus, OH.
The budget for the military is approved at least a year in advance. So while it is possible people might not receive their pay or benefits, it is very unlikely.
Also, finance when it comes to the military and the USPS is more diverse. It's too much to get into here, however the whole m…See more
I don’t understand 💀
As always, your posts are 🙌
SK
Thank you for this information! Totally appreciate it!
If we default. We go from a Super Power amongst the global market to a third world country over night. All of the USD backed securities become worthless. Everyone that we owe will want to collect and forget a market reset. It'll make the great depression look like a fond memory. The depressing thing is our elected leaders are playing chicken with the future of America and we the people are power…See more
I’ve said for years they needed to stop raising this debt ceiling and actually rebalance the budget. The new bill introduces more tax hikes on the middle class. The Biden admin is currently getting ready to shut down another pipeline while trying to get opec to increase production (duh). Border is still wide open, racism seems to be a pushed hot topic, the mask mandates / vaccine mandates ar…See more
You're amazing thanks for the info and thanks for breaking it down
@Demona3 just totally inaccurate. Unless you count people who are billionaires as middle class. Border apprehensions at an all time high but sure, open. People worried about losing their jobs can always get a vaccine. No one seems concerned with the employees who are vaccinated being forced to be around a horde of the unvaccinated. It all comes down to choices. You choose not to get vaccinated it's…See more
@mgb184 I never suggested we'd sink to mad max levels of bad. I'm just adding my thoughts to the post. You don't have to agree with me. But telling me to censor myself because others have it worse. Pfft that's cute.
I would think that this could be a bad time to sell (should they fail to pass a budget) but a great time to buy. Much like the financial crisis of 2008, this would see major stocks dip to new lows, making it a great time to invest. This also means, however. That anyone invested short term would see themselves loosing money. Will the value of stocks come back? Most likely, considering they came bac…See more
Thanks for the info 👍
BD
I love the insight and the references from the facts. You speak so all can understand. Thank you.
I bet them morons are giving themselves another raise in 5he bill too like always
Terrell Fisher@fishandwife
I THINK YOU ARE RIGHT ON POINT!
Jennifer Ward@jennjenn63
My tip: get ready for President Trump to be back. It's happening sooner than we think. Have a blessed day!!!
Jennifer Ward@jennjenn63
@todd actually hospitals are full with the vaccinated. Do research, it was always the plan.
Josh Javage@dragonsbait
Thank you for the info. I noticed the discord mentioned a pump and dump going on in Bitcoin - which affects all other markets. So I sold, and took the valuation loss. But am still up overall. Converted back to USDC where I will put it in a crypto savings account to earn 10% APR.
