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.
20/6/2017 01:01:50 pm
Treasury Secretary Steven Mnuchin testified before a House Appropriations subcommittee hearing on June 12, 2017. He said,
20/6/2017 01:57:34 pm
“If Congress does not act before August, we do have backup plans to fund the government… However, markets don’t want us to wait. There could be events in the world that make it more difficult for us to borrow.”
26/6/2017 04:27:09 pm
Senate Plans Debt Ceiling Vote in July...
30/6/2017 08:23:28 am
Still no word on the House Plans for a Debt Ceiling vote, as of June 30, 2017. Paul Ryan did say that it is unlikely to be a "clean bill."
5/7/2017 12:01:40 pm
10 Senators are requesting that the Senate works through the Aug. Recess. There are 5 pressing things to get done, according to their letter to Mitch McConnell. The Senators say that addressing the Debt Ceiling must be done by 9.30.17. Rating agencies and Treasury Secretary Mnuchin prefer raising the Debt Ceiling by 7.30.17. Are Congressional leaders playing with fire? Will they come together to raise the Debt Ceiling before the August recess? Your thoughts?
5/7/2017 12:17:18 pm
CBO report on Debt Ceiling & Debt. https://www.cbo.gov/publication/52837
12/7/2017 09:51:47 am
Senate Majority Leader Mitch McConnell is saying that the Senate will try to vote on a Debt Limit Raise before Congress breaks for the August recess.
12/7/2017 10:05:02 am
Senate Republicans need at least 24 Republicans to raise a clean debt limit bill...
23/7/2017 06:53:13 pm
“[Mnuchin is] certainly in the minority in the administration,” said Rep. Mark Meadows (R-N.C.), chairman of the House Freedom Caucus. “The problem is, yes, you could get a clean debt-ceiling, but it would be 180 Democrats in the House with 40 or 50 Republicans, and that’s not a good way to start.”
26/7/2017 09:52:57 am
Treasury Secretary Mnuchin testifying before the Appropriations Committee on 7.26.17. The clip below illustrates just how under-informed Americans are about the debt, oftentimes mistaking the budget deficit for the debt, as the Senator does in this clip. Also, note that though debt is a concern, there is no mention of using extraordinary means to pay bills, of running out of funding at the end of September or sooner and of the urgency of raising the debt limit now.
30/7/2017 04:27:40 pm
Rep. Mark Meadows (Chairman of the Freedom Caucus, conservative block in the House) says, "We're not going to default on our debt." At the same time, he doesn't want a clean debt ceiling. How close will they come to running out of money? The CBO says they have until early Oct., maybe. Sec. Mnuchin wants the debt limit lifted before Congress breaks...
31/7/2017 08:21:06 am
The House representatives left for Summer Recess without raising the Debt Limit -- which is a slap in the face to Secretary of the Treasury Steve Mnuchin, who specifically requested to have the debt limit raised before the summer break. It also means that politicians now have only 12 working days, at most, when they come back from the break after Labor Day to raise the Debt Ceiling.
3/8/2017 08:22:00 am
CBO expects current extraordinary means to dry up in early to mid-October, if the Debt Limit is not raised before then. Here's a link to additional ifnormation.
23/8/2017 08:26:25 am
Reports are emerging that the Senate Majority Leader (R) and the 45th President are not speaking to each other. This makes the Debt Ceiling crisis more troubling...
28/8/2017 11:57:10 am
The White House is saying threatening a government shutdown over the "wall" funding. Speaker of the House Ryan and Senarte Minority Leader Schumer don't want a government shutdown. No one is mentioning that the credit rating is at risk. That concerns me, particularly since the current Administration often likes to be ahead of bad news. If they think the government is going to shut down any way because the Debt Ceiling won't be lifted in time, then #45 has already got his excuse of why that happened lined up as a political victory for himself, instead of a disaster and White House political failure for all of us.
16/9/2017 12:40:40 pm
In the FYI department, and why it is important to be early rather than late, I warned that the US risks a credit downgrade if the Debt Ceiling isn't raised on March 16, 2017 and again on June 1, 2017. The MSM noticed this risk on August 23, 2017. By the time the US credit is downgraded and makes headlines, it is too late to protect yourself... (You might remember this from Aug. 5, 2011, the first time the U.S. credit was downgraded by Standard & Poor's.)
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. 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.