Debt Ceiling Must Be Raised By August
On May 24, 2017, Treasury Secretary Mnuchin warned the House Ways & Means Committee that the Debt Ceiling must be raised by August, before Congress goes on Summer Break. What does this mean to you, your investments and your future?
5 Things the Powers That Be Aren’t Telling You About Our Economy
Here are the details, and how these issues affect you now and in the years to come.
1. Congress must raise the Debt Ceiling by August, Before the Summer Break. May 24, 2017, just a few days before Memorial Day, Treasury Secretary Steven Mnuchin testified before the House Ways and Means Committee. At least two different times, he emphasized that the Debt Ceiling should be raised before Congress leaves for the summer break. He said, “It is absolutely important that this is passed before the August recess. As far as I’m concerned, the sooner, the better.” The same day, White House Budget Director Mick Mulvaney told the House Budget Committee that “The [tax] receipts are coming in slower than expected.”
What does this mean for you? Not a whole lot in the near term, if Congress raises the Debt Ceiling in June. If the process is drawn out or gets to close to X date (the date when the Treasury Department can’t make payments to Treasury Bill holders, government employees and/or Social Security recipients), then the U.S. risks a credit downgrade from both Fitch and Moody’s. If that happens, it could be a serious problem, with pandemic economic consequences, beginning as early as August.
Other world currencies are gaining strength on the IMF Currency Composition of Foreign Exchange Reserves. The Chinese renminbi was added to the SDR basket of currencies in 2016. The Australian and Canadian dollars are increasing as global FOREX reserve holdings. The U.S. dollar currently makes up 46.8% of the total FOREX reserves (according to the IMF). (The IMF data grossly misrepresents the power of the Chinese renminbi, and the trade exchanges that are going on between Russia and China directly, in their own currencies.) As the U.S. debt continues to balloon, this will continue to force pressure on the buying power of the dollar. Basic supply and demand tells you that a weaker dollar translates into more dollars needed to purchase the same thing. That would put even more pressure on the debt, which will start experiencing larger interest payments in the years to come (no matter what). Switching from the dominance of the U.S. dollar to a basket of world currency is happening incrementally. The Powers That Be are trying to prevent it from becoming a snow ball.
The Bottom Line: Cash, though safer than bonds and Money Market Funds, is losing buying power. Safe, income-producing hard assets that you purchase for a good price are a better idea. That’s why we spend a full day on this topic at the Investor Educational Retreat. (Call 310-430-2397 or email Heather @ NataliePace.com to learn more.)
2. Social Security has been cash negative since 2010, and is predicted to run dry in 2034 (in 17 years). Disability Insurance is borrowing from Social Security because it dried up in 2016. $5.5 trillion of the current $20 trillion in debt is social security debt (and climbing). What is a little distressing about these facts is that they are not part of the public debate. In fact, Representative Kevin Brady, the Republican chairman of the House Ways and Means Committee, noted that Medicare and Social Security are the biggest drivers of our debt, yet were absent from Treasury Secretary Mnuchin’s statement dated May 24, 2017, as was any mention of the urgency of raising the Debt Ceiling as soon as possible.
3. GDP Growth is Predicted to Be 2.1-2.3% in 2017 and 2.1-2.6% in 2018, not 3%. Most predictions have the growth under 2% in the years thereafter. (No one ever predicts a recession, until after it has happened.) Meanwhile, The White House Administration and Treasury Department are using 3% GDP growth as rationale for making their tax cuts work. Here’s what Fitch Ratings’ Charles Seville had to say about this (in an email to the press dated May 24, 2017), “The President’s Budget’s proposal to eliminate the federal deficit and reduce the debt/GDP ratio over 10 years rest on an optimistic long-run growth assumption of 3%, which is unlikely to be realized given slowing growth in the labor force.” Mr. Seville is senior director and lead analyst on the U.S. sovereign rating.
The GDP growth in the 1st quarter of 2017 was 1.2%. The prediction for the 2nd quarter is currently 3.8%! (Woo hoo! If those predictions hold true.) We will get new projections from the Federal Reserve Board on June 14, 2017, when they have their next meeting.
We all want a robust economy, strong jobs and less taxes. The basis of a strong economy is innovation and inventing/building the products of tomorrow that the world can’t live without.
4. The Current Administration’s Tax Cuts Help (A Little) in the Short Term, but are predicted to hurt in the Medium and Long Term. And they aren’t expected to get us to 3% GDP growth. Who doesn’t like lower taxes? People and companies all benefit. The problem is that with $20 trillion in debt, when the government cuts its income (with the tax breaks), it can’t pay off its debt. More military spending also equates with more disability and medical claims from young men. Up to 35% of Iraq/Afghanistan Veterans suffer from PTSD, and over one million veterans from those wars were injured. (The VA stopped publishing data on injured veterans in 2013.) The disability insurance went broke in 2016, and is borrowing from Social Security. Tax cuts mean even more borrowing to try and make ends meet – a recipe for disaster. When cutting taxes and increasing military spending is prioritized at the expense of education and investments that fuel desirable, new industries, then GDP growth is held back by the inability to pay what we already owe and increased social and financing costs.
5. Cash is not the safest investment in today’s Debt World, though it is better than bonds and money market funds.
Bonds have lost money over the last decade and are vulnerable in the years to come. Credit risk (bankruptcies and restructurings, ala Detroit, Puerto Rico and the retail stores going belly-up) and interest rate risk are both concerns. Money market funds now have redemption gates and liquidity fees. When currency moves happen, cash can lose buying power overnight. We saw this in the fall of the euro and the British pound in the wake of BREXIT, when both currencies lost 15% or more overnight after the vote.
So, what’s safe? Safe, income-producing hard assets that you purchase for a good price. Every word in that sentence is key, particularly now when real estate is higher than it was in 2007, before the Great Recession. Fortunately, our team has identified some great investments that meet these criteria. The annual savings for most people is in the thousands, and for many can add up to tens of thousands in annual cost benefits. That’s the best ROI in today’s world, and also the lowest risk!
In short, if you’re getting your news from the mainstream media and your budgeting and investing strategy from salesmen and debt collectors, you’re as vulnerable today as you were in 2007. In the Great Recession, stocks lost 55%, 7 million Americans lost their homes and most of the banks, brokerages and insurance companies were bailed out.
Wisdom is the cure. Call 310-430-2397 to get access to budgeting and investing strategies that have worked since 1999 – earning gains in both of the last two (devastating) recessions and outperforming the bull markets in between. If you want to be sure to implement these strategies before August, then attend the June 10-12, 2017 Financial Empowerment Retreat in Cocoa Beach, Florida.
About Natalie Pace
Natalie Wynne Pace is the co-creator of the Earth Gratitude project and the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical).
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.