Will Congress Raise the Debt Ceiling Before the Summer Recess? How will this affect the U.S. economy, and your income and nest egg?
The House Freedom Caucus will not approve a clean debt ceiling, according to their press release, issued on May 24, 2017. Here are the demands of the Freedom Caucus, which is chaired by Representative Mark Meadows (R: North Carolina).
We oppose any clean raising of the debt ceiling, we call for the debt ceiling to be addressed by Congress prior to the August Recess, and we demand that any increase of the debt ceiling be paired with policy that addresses Washington’s unsustainable spending by cutting where necessary, capping where able, and working to balance in the near future.
This puts the far right in opposition to Democrats, who have called for a clean debt ceiling bill. Treasury Secretary Mnuchin requested for politics to be put aside for now to get the Debt Ceiling passed before Congress breaks for summer. Twice Secretary Mnuchin was pressed to support a clean Debt Ceiling bill, and twice he iterated that was his preference.
However, the White House economic team, headed by Gary Cohn and Mick Mulvaney, wants the Debt Ceiling to be accompanied by a debt reduction and spending reform plan. National Economic Council director Cohn and White House budget director Mulvaney, who founded the Freedom Caucus, have both spoken in interviews this past week assuring Americans (and the world) that the Debt Ceiling will get passed and that there will be no default on payments. However, Mulvaney has also made it clear that The White House Administration would “like to see things attached to it that drive certain spending reforms and debt reforms in the future.”
Paul Ryan has little choice, but to go along with the Freedom Caucus. Without their member votes, he will be unable to get the Debt Ceiling raised, unless he writes a bill that caters to the Democrats. Speaker John Boehner went around the Freedom Caucus, and used Democratic support to raise the Debt Ceiling in October of 2015. It cost Speaker Boehner his job. Speaker Ryan could conceivably craft a bill that would get all of the Democrats and a small number of Republicans on his side to get it passed. However, the key number here might not be the roll call. It’s more likely to be Ryan’s age. Speaker John Boehner was 65 when he committed political suicide – a time when he was ready to retire. Speaker Paul Ryan is only 47 years old. Speaker Ryan has been in office since 1999 – for almost two decades. It’s hard to imagine him doing something that would cost him his job.
The Debt Ceiling bill is bound to include concessions that the Democrats will find it tough to swallow. However, there is another massive problem. All of this must be done before Congress breaks for summer. If they get too close to the X date – the date when we run out of money to pay our bills – then the U.S. risks a credit downgrade from both Fitch and Moody’s. The Debt Ceiling was hit on March 15, 2017. Secretary Mnuchin has been using extraordinary means to pay bills since then, but warned that tax receipts were weaker than anticipated. This put X date before the Summer Break, rather than fall.
In August of 2011, when the U.S. credit was downgraded by Standard and Poor’s after coming too close to the X date, gold soared to its all-time high and stocks sank. Stocks did ultimately recover. However, that was the third year in the bull market cycle, and Moody’s and Fitch Ratings did not downgrade the U.S. credit from its AAA rating. 2017 is entering the 9th year of the bull market – a milestone that is very difficult to achieve. The last two times the economy went 8 years without a correction, the losses were catastrophic. The Dow Jones Industrial Average lost 55% in the Great Recession and the NASDAQ Composite Index lost 78% in the Dot Com Recession (and took 15 years to recover).
A political log jam will cause a flood of distress in the world economic system and a downgrade to the U.S. credit by both Moody's and Fitch Ratings. The Powers that Be, both sides of the aisle, understand this. However, the sheer weight of the debt might drown the debate more than investors, and the politicians, are expecting.
One thing is for sure. Protecting what you have is your most important job in 2017, just as it was in 2008 and 2000. That is why I’ve scheduled my Florida Financial Empowerment Retreat for Jun 10-12, 2017 – in plenty of time to get safe before the Debt Ceiling starts dominating the headlines. If you wait until the headlines heat up, it will be too late to protect yourself. Those people who used my Easy-as-a-Pie-Chart Nest Egg Strategies earned gains in the last two recessions, and have outperformed the bull markets in between. These strategies also save thousands in your annual budget! Meaning you can live a richer life today, provide far better for tomorrow and enjoy more bucket list vacations. If you’re employing Buy and Hold, then you are riding the Wall Street rollercoaster, and are as vulnerable today as you were in 2000 and 2008. Call 310-430-2397 to get started on your Debt Ceiling-proof asset protection plan now.
FYI: I first warned that this Debt Ceiling crisis could be problematic, and that the U.S. AAA credit rating was at risk, on March 16, 2017. Click to view that blog. Check out other important updates regularly at http://www.nataliepace.com/blog.
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.