Market Pulse: My first (and last) debt ceiling article

David Vomund / Special to the Tribune
David Vomund

Last week the debt ceiling was temporarily reached. America didn’t default, catastrophes didn’t occur.  Once again, the worst-case outcome didn’t happen. Why? It was in virtually everyone’s interest not to default on our debt. Politicians didn’t and wouldn’t stand by and watch the dollar and worldwide economies go down the tubes.  

A similar scare occurred in 2011 and back then investors were spooked. Stocks plunged 17% in the two weeks leading up to the default deadline. Panic sellers regretted it and that quickly created a tremendous buying opportunity. This go-around sellers weren’t swayed by the scary press headlines. Lesson learned.  

It is important to understand the difference between debt and a deficit. Every year’s deficit is added to the running total of U.S. debt. So even if the deficit is falling, debt is still increasing. Currently U.S. debt is about $31 trillion, a number that no one, including me, can comprehend. Is that more or less than the grains of sand at Sand Harbor?

Congress has already approved the spending so it’s strange to have a debt ceiling at all. In fact, outside of the U.S. the only other developed country to have a debt ceiling is Denmark, and their ceiling is so far above the country’s spending that the limit poses no constraint. The debt ceiling is unique to America and it seems to only create chaos and highlight disfunction. The small benefit isn’t worth the cost.  

Those in favor of debt ceilings can point to Japan. As of last December, Japan’s government debt was 263% of its GDP, double that of the U.S. (123%) and the highest of any developed nation. Some restraint may have been helpful.

Since 1960, congress has raised the debt limit 78 times. It was raised under Trump, Obama, Bush, etc. In 2025 there might be yet another debt ceiling battle. The press will once again feature the catastrophe that would occur after a default. But the U.S. has always made its interest payments on Treasury securities. It must. There has never been a default. Talk of a default is as ridiculous as having a debt ceiling in the first place. Congress determines spending when it passes bills that mandate spending on this and that. The debt ceiling needs to be permanently removed.

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found a or by calling 775-832-8555. Clients hold the positions mentioned in this article.  Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

David Vomund

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