Absolutely no one in the know thinks Congress is not going to increase the debt ceiling this fall to accommodate our nation’s needs to pay its bills.
The debt ceiling is actually celebrating its 100th year of existence. In 1917, the U.S. Congress agreed to allow the government to raise funds through bond issues as long as the country’s total debt did not exceed a certain level, known from then on as the “debt ceiling”. In 1917, the U.S. was trying to raise funds to pay for World War I, but federal economists warned against going too far into debt in the process. The debt ceiling in 1917 was $49 billion. It currently sits at $1.9 trillion. It was raised more than 90 times in the 20th century and has been raised more than a dozen times in the 21st century.
This is a hot topic advisors need to pay close attention to, because any disagreement on this matter could cost investors. The last time this argument reached crisis mode, four years ago, it cost the economy an estimated $24 billion, much of it money lost by investors.
The National Debt is also one of the top national concerns of affluent investors, according to Spectrem research.
The debt ceiling needs to be raised again, and Congress will discuss that move as part of its budgetary process when they reconvene in September. Although no one likes the idea of allowing the government to borrow more money, everybody hates the prospect of shutting down the government to get its financial house in order, comparatively speaking.
It has happened before, most recently for 15 days in October of 2013. From an economic standpoint, nothing much good comes from a government shutdown. Economists estimated the American economy lost $24 billion in the 2013 shutdown, which is not good when the reason for the shutdown is the nation’s overarching debt.
How much of that lost $24 billion came from the portfolios of America’s affluent investors? Probably a whole great big bunch of it.
That’s why advisors must pay attention to this argument as long as it lasts.
It is possible clients may contact their advisors to discuss the personal ramifications of the debt ceiling argument, and you need to be ready to respond. According to Spectrem’s Financial Behaviors and the Investor’s Mindset study, 74 percent of Ultra High Net Worth investors with a net worth between $5 million and $25 million worry about the national debt. It was the most oft-selected response, more than the political environment (73 percent), government gridlock (72 percent) and terrorism (69 percent).
Advisors are accustomed to preparing for the threat of government shutdown. After all, they went through the routine in late April when the government needed to pass a spending bill to keep the government operating. The spending bill eventually passed, and investment professionals actually worried very little that the government would allow a shutdown to occur.
But that was at a time when many investors were confident a health care plan would get passed over the summer and the Trump budget and spending proposals would move forth. When the health care debate was tabled, the Trump expenditures plan suddenly appeared to be up in the air. Many factors have now aligned to create an unfortunate opportunity for significant government financial problems.
While financial providers are certainly discussing among themselves the ramifications of the ongoing debate over spending in Congress, investors need to be advised about the possible scenarios that exist for the next few months and how those scenarios impact their investments. There are investors who pay attention to these issues and can discuss them with their advisor in a knowledgeable way, but there are also investors who have no idea their portfolio can be impacted by the national debt debate, and probably need to be advised that they need to pay attention.
Nobody really wins when the government discusses the possibility of a shutdown over fiscal issues. But it does increase the usefulness of financial advisors to investors who might be impacted.