The U.S. is Using Extraordinary Means to Pay Bills. Again.

On March 1, 2019, today, the U.S. hits the Debt Ceiling. That means that Treasury Secretary Steven Mnuchin must use “extraordinary means” to pay the bills of the United States, including Social Security, Veteran’s benefits and interest on our colossal debt. The Debt Ceiling must be raised in order to pay bills. As the Congressional Budget Office pointed out in their February 2019 report, “If the Debt Limit remains unchanged… the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on debt obligations, or both.” That would result in a credit downgrade by Fitch Ratings.
 
The last credit downgrade that occurred was on August 5, 2011, when Standard and Poor’s downgraded the U.S. credit from AAA to AA+. Gold soared to an all-time high of $1895/ounce. Stocks sank. Of course, since then, stocks have been on a tear, and gold has retreated to its current price of $1307/ounce.

The SPDR Gold Trust (symbol: GLD), in green
compared to the Dow Jones Industrial Average, in orange
January 1, 2011 - January 1, 2012

Source: Morningstar.com. (c) Morningstar 2019. Used with permission.

Most of us won’t hear much about the Debt Limit until we get close to the “X Date,” when Secretary Mnuchin gets dangerously close to missing a payment. April tax revenue should float us through September 30, 2019, according to the CBO. Some analysts are saying that the tax cuts have reduced revenue, putting the X date earlier – in mid-August. If the White House cuts a deal with the Democrats, like it did during the last Debt Ceiling debacle, then it will be presented as a win to the American public. That’s the best scenario, and clearly the current Administration is aware of this.
 
However, the Debt Ceiling is not the only headwind in today’s economy. On February 28, 2019, the Bureau of Economic Analysis revealed that 2018 GDP growth had come in at 2.9%. While Larry Kudlow went on CNBC claiming 3% GDP growth would continue in 2019, 2020 and beyond, the Federal Reserve projects a slowing down to 2.3% growth this year, 2.0% in 2020 and 1.8% thereafter. 2/3rds of economists surveyed by Bloomberg a few months ago predicted that 2020 will host a recession, with a minority believing the recession will start this year.
 
The last time the U.S. hit the Debt Ceiling, in 2018, Secretary Mnuchin said it felt like running the government like a piggy bank. The current circus of Congressional bipartisanship and across-the-aisle fighting feels like a zoo. The hope is that our Congressional leaders don’t make monkeys of us all by defaulting on our debt. There needs to be a strategy for dealing with the ballooning $22 trillion public debt. Over two trillion has been added to the debt since the current President took office.  
 
Hope isn’t a good strategy. As John F. Kennedy said, “The time to fix the roof is while the sun is shining.” While the future of our country lies in the hands of our elected officials, each one of us has a lot more control over our personal future and wealth than we might realize. Most people are riding the Wall Street Rollercoaster, losing more than half of their wealth every 8-10 years. Are you sure you’re safe? Blind faith, anxiety and fear, which would have you trusting your future to someone else, who might not have the same interests or incentives you have, and might even have a conflict of interest, is not a good strategy. Wisdom is the cure. It’s time to be the boss of your money and your future.
 

Make sure that your financial house is secure enough to withstand the economic storms that are on the horizon. Call 310-430-2397 to learn easy, time-proven strategies that earned gains in the last two recessions and have outperformed the bull markets in between.Join No. 1 stock picker Natalie Pace at a 3-day Investor Educational Retreat. Register for the Colorado Retreat in April 2019 now. 

 

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