The debt ceiling debate is dominating the headlines. In a nutshell, the debt ceiling is a limit that is set by the U.S. Congress on the total amount of debt that the Federal government is legally allowed to borrow. Since the 1960’s, the debt ceiling has been raised a total of 78 times.
There have been several instances throughout history where a decision to increase the debt ceiling wasn’t made until merely days before the U.S. Treasury was unable to pay its immediate bills. Unfortunately, politicians frequently use the debt ceiling and the urgency to increase it as a means to further political agendas. Most agree that it would not be beneficial to anyone for the U.S. to default.
As investors, we encourage you to remember that markets are forward-looking. The prices that we see today reflect the collective wisdom of investors from all over the world; thus, the likelihood of a U.S. default is already priced into current market prices. Despite the universal understanding of the negative consequences of a U.S. default situation, we do not know if the debt ceiling will ultimately be raised. Furthermore, we do not know how investors will react if it is raised, or if it is not.
At Core Wealth Management, we have never made investment decisions based on “guessing” what will happen, and this time is no different.
We encourage you to read this article, Mind over Matter: Perspective for Investors on the US Debt Ceiling, from Dimensional Fund Advisors for additional insight on the debt ceiling debate.