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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. If you're wondering why the official signing of the infrastructure bill hasn't really moved the needle in the market I would say this issue is why. If the debt ceiling isn't raised then infrastructure passing is irrelevant. They won't have the funds. So until that is resolved I expect any gains from the infrastructure bill to not only be muted but perhaps even start pulling back as it becomes increasingly likely that funding won't exist. Sources https://www.wsj.com/articles/yellen-says-debt-limit-deal-will-keep-government-funded-through-dec-3-11634589787?mod=article_inline ////// 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 ///// https://www.washingtonpost.com/us-policy/2021/11/01/yellen-debt-ceiling-biden/ ///// https://www.politico.com/news/2021/11/02/congress-standstill-shutdown-debt-518567 //// https://www.politico.com/news/2021/11/02/defense-bill-delay-bipartisan-anger-schumer-518597 /// #debtceiling #tcardizzle #congress /// 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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