US Default Averted: One Concern Has Been Resolved

US Default Averted: One Concern Has Been Resolved

June 16, 2023

A few weeks ago, we wrote about a story that was dominating the headlines and conversations on Wall Street, Main Street, and Washington: Will the US default on its debt? We wrote: “Congress is debating whether to raise the debt ceiling, the maximum amount the U.S. Government can borrow by issuing bonds. If the debt ceiling is not raised, the U.S. Treasury Secretary Janet Yellen estimates the Government would have to default on payments by June 1.”

This was not the first time (and likely not the last) that there was fear of a default on government obligations and the consequences that would cause in financial markets and on everyday Americans. However, the fear felt more real this time because of the thin margins in both houses of Congress, the enormous Government spending in the last 3 years, and slim hopes of a bi-partisan solution.

Thankfully, on June 1 Congress passed legislation called the Fiscal Responsibility Act that avoided this unseemly event. The deal suspended the debt ceiling through January 1, 2025 (after the next presidential election) and instituted relatively minor cuts and spending caps that the Congressional Budget Office estimates will reduce deficits by about $1.5 trillion over the next ten years. The Act did not touch any major programs such as Medicare, Medicaid, and Social Security even though these programs account for a large portion of Government spending.

We ended our recent write up on this topic by suggesting that “selling investments in anticipation of a default is unlikely to be a good choice. Even if a default occurs, details, timing and effects are unknown. Historically, it was better to stay invested during catastrophic events than to try to time the markets.”

Since the deal was passed on June 1, 2023, the S&P 500, Dow Jones, and Nasdaq are all up as of the date of this writing.

The US and global economy are by no means out of the woods. There are still significant concerns including, but not limited to: inflation, economic growth, credit availability, commercial real estate headwinds, and the war in Ukraine. But for now, at least one major economic concern has been resolved.

Disclaimers: 


This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.

Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.

Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.

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