Investments and the Debt Ceiling Debate

You may be concerned about the impact of the debt ceiling on investments. Polls are showing that 70% of Americans do not want the debt ceiling raised. This is interesting, and completely untenable. The US government currently has a structural deficit. It spends more than it takes in each day. Sadly, this is not new. This has been our post WWII practice for the most part in times of recession or expansion.

We cannot afford to default on our debt as this would send interest rates the federal government pays on its debt skyrocketing, making the deficit worse. With the world economy in malaise, the US is currently benefiting from the worldview that we are the safest place for money. This means around the globe investors have been willing to buy US debt at every low interest rates. That is an advantage we want to keep.

The only short term option is to raise the ceiling. Politicians know this. What you are seeing in Washington is political maneuvering to determine who gets the blame and who gets the credit in the next election.

No one is strong, be it governments, companies or individuals, when they continually spend more than they make. The most practical way to reduce our deficit is to cut spending and raise taxes. US income tax rates are at historical lows, and are full of inequitable loopholes or more correctly stated, pot holes.

We have to look to all parts of the budget for cutting and sacrifice. We cannot all have our part of the pie unscathed. This is the price of binging on debt. When individuals do it, they must ultimately tighten their belts and do without until they reduce their debt. The government must to do the same.

The media loves to point out that Social Security is going broke. Yet study after study shows that fixing Social Security is pretty easy. If we eliminated the wage ceiling on taxes and meaningfully raise the retirement age, the Social Security issue would be solved for years to come. The answers are within our grasp. They are unpopular and require Congress to act in ways that may not play well in the next election.

We also need to restore the power of the President to cut pork spending that Congress pads into legislation. Every President, Democrat or Republican needs this power. Congress has proven incapable of compromise that does not include favoring those who put a price on their votes by adding pork for their districts. This must be stopped.

At Mackey Advisors we use a diversified, asset class approach to investing. That means your portfolios are well balanced, holding a variety of asset classes, from large cap US stocks, foreign stocks, real estate, commodities and bonds. Our current bond allocations US Treasury debt, corporate debt, foreign debt and mortgage debt.

Our investment approach is to look for long term trends that add value to certain market sectors and to overweight those sectors. Short term, markets will do what they will, and in times of uncertainly that means volatility. Historically, patient investors are rewarded for being non-reactive to the short term noise. We advocate and encourage this path.

What can you do?

Call or write your Congressman and deliver a clear and concise message that you want to see the debt ceiling raised, along with a bi partisan plan for significant and meaningful debt reduction.