Depending on how you count it, the federal government has been shut down for the second day. We seem to have lost all sense of discipline in our government, and this has been an unfortunate pattern for quite some time.
The bigger issue is the debt ceiling, and the Treasury Secretary has already indicated they are at the end of “extraordinary measures.” This is a fancy way of saying we’re out of duct tape and bandages, and unable to borrow additional money. This could quickly become a global issue, as it directly impacts the capital markets, i.e. primarily the bond market, which can spillover to the equity markets.
We are not in a good place from a fiscal standpoint in our country. We have now had 4 years of spending $1 Trillion dollars a year more than we have, and our total debt is near $17 Trillion dollars. Imagine if interest rates went back to the mean or average, it would be even worse.
In any event, our clients are understandably concerned about what this all means, and here is what you need to know:
Some key takeaways:
- Expect near-term volatility and concern over the debt ceiling and government shutdown
- Expect the market to make progress over the longer term, given the stronger health of the economy in the U.S. and globally
- Fed “tapering” will likely be on hold for a while longer
- Eventual tapering by the Fed should signal a stronger economy
- The government will likely address the issue of the debt ceiling at the last minute
So far the markets have not seemed to react to the theatrics going on in Washington, D.C. This is likely due to more attention paid to the Federal Reserve actions, which continue to be extremely accommodative. However keep your head up, and be careful out there!
As always, feel free to call us at Financial Freedom Planners to discuss how this all may impact you specifically.