With earnings season dominating the narrative, most people have forgotten that the United States is broke.
Wait, Garrett.
I’ve been told that America is the richest nation in the world.
Well, please define wealth.
Is it defined by assets minus liabilities?
According to USDebtClock.org, the U.S. has an average amount of assets per capita of $558,927…
The average liability per capita is $558,338.
So, the average wealth minus liabilities is… $589.
Nice.
Of course, that’s not the number that is most jarring on the website. It’s this number: $31.69 trillion.
The national debt is about to hit its limit in 60 days.
It’s time to prepare.
The Debt Ceiling Battle Enters a New Phase
On Monday, Republican House Speaker Kevin McCarthy said that the House of Representatives plans to vote on raising the U.S. debt ceiling “in the coming weeks.”
The debt ceiling – which is an arbitrary level set by Congress – will likely be breached otherwise in June.
While that level is arbitrary, it binds the U.S. Treasury Department. The U.S. government can’t issue new debt… it can’t fulfill certain financial obligations… and things can quickly fall apart.
Should Congress not raise the debt ceiling, the U.S. would start to structurally default on some of its debt.
Not only would this undercut the credit stability of the world’s reserve currency, but it could dramatically undermine the confidence in U.S. bonds from large global investors like Japanese citizens and financial institutions.
McCarthy wants to extend the debt ceiling for one year and tie the extension to future spending cuts.
The Biden administration wants a hike with “no strings attached.”
Without deficit reduction and debt containment, the U.S. is on track to reach a national debt of roughly $50 trillion by the early 2030s.
Here Comes the Side Show
The last time the federal government nearly defaulted on its debt came in 2011. At the time, the Tea Party raised hell because the U.S. debt had recently surpassed $15 trillion.
It has more than doubled in 12 years – largely on the back of significant deficit spending. The problem is that U.S. officials tend to wait until the very last minute to reach an agreement – part of a war-game culture that rewards stunts and not advanced negotiation.
McCarthy and President Biden last met to discuss the debt ceiling on February 1. That was 76 days ago.
And each day that passes, the government is closer to hitting the debt ceiling limit – which is allegedly set to strike in June without interruption.
There’s just one problem.
The U.S. Treasury Department is relying on robust tax deposits in April and May to help keep the bills paid. Whether the U.S. can procure enough money from the taxpayers is a big question.
Should it be able to do so, the government expects that it can rely on business taxes later this summer and delayed tax payments to arrive in September.
Default… that timetable is set for October.
2023 Debt Ceiling: What Happens Now?
The threat of default comes at a time that consumer spending is drying up across the country. So too is lending due to the ongoing banking fiasco that hit the economy in March.
Should the U.S. default, Americans will feel the pinch. We’re talking about social security checks not arriving… child tax payments not processing, and tax refunds and government salaries not arriving.
More important, this can have a very dramatic effect for the financial markets. Interest rates would likely sky rocket, equity markets would experience turmoil, and questions would abound about the nation’s ability to restore confidence among investors.
Over the next few days, I’ll put together some of the best investment and trading ideas that you can employ to hedge against and survive what could be a very tumultuous summer.
Tomorrow, we’ll start with momentum – and why it’s relevant to the Debt Ceiling crisis.
To your wealth,
Garrett Baldwin
Market Momentum is Yellow
A low volume burn on Monday’s trading afternoon helped push us back toward nosebleed levels. The market can’t justify current valuations. But momentum is yellow, and that’s enough to make me very cautious about pouring a lot of money into the market. I’m waiting for the S&P 500 to move to overbought levels. Be very cautious, but look for reversions to the upside.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
