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What Is the Debt Ceiling and Why Should I Care?

Think about the United States debt ceiling as a credit card and the limit that the card is set at is the debt ceiling. In the case of the US government and the current political showmanship going on in Washington, DC, it is a regular battle (78 times) of political brinksmanship, where the ultimate outcome is to temporarily raise the debt ceiling to whatever levels score political points for the respective parties. Crisis averted.

Fiscal irresponsibility continues. Republicans and Democrats are to blame. This is not a political party problem; this is a spending problem. The current task is to move the debt ceiling from $22 trillion to $28.5 trillion (Imagine that credit card). Government bond sales would fund this request. The money would be “printed” to pay for the debt. An increase in our governmental credit card limit is all that is asked. The “need” is real to pay for programs championed by the respective parties. We can always find the money by taking it from the people who have the most. Wille Sutton, the famous bank robber would be so proud. If it were all that simple!

There is an example that I use when I teach about investments and that is a simple balloon. When I push on one end of the balloon to make it smaller, the other side of the balloon grows larger. When I try and increase the size of the balloon altogether, it often pops. Quite an effective tool to teach about cause and effect.

We are starting to see the effects of trying to inflate the balloon too far. Nerves are beginning to fray as to what to do if it pops. When investors get scared they hide, walk away, or want a larger return for the risks they are taking. Larger returns in the bond markets mean higher yields or interest rates. When government officials get scared (as in losing their next election) they spend money to buy votes. People vote for people who give them stuff or don’t ask that they pay for services they may use. They only complain when you take something away, or worse, ask them to pay their fair share. This is fair since only 40% of all taxpayers actually pay any federal income tax. (I am well aware of other taxes that one may pay i.e., property tax, sales tax, gas tax, death tax, city and state tax, unemployment and social security tax, etc.), but since we are talking about the spending done at the Federal level, I will stick to that.

Unless we find a way to deal with the Federal “spend what you do not have the mentality” and just keep kicking the can down the road by increasing the debt ceiling, the balloon will one day pop. We at

The High Net Worth Advisory Group wants you to know that we are watching not only Wall Street and its shenanigans, but also Pennsylvania Avenue and the dangerous games both political parties seem

to enjoy playing at our expense. Our ask of them is simple. Spend only what you have in the bank, save funds for a rainy day or emergency, pay back what you may have needed to borrow, and invest in the future of this great country. We ask this of ourselves, why not our elected officials?

Rest easy knowing that we do not when it comes to your family’s financial affairs. Stay safe and healthy and enjoy each and every day of this journey called life!

All our best,

The High Net Worth Advisory Group LLC

The High Net Worth Advisory Group, LLC is registered as an investment adviser and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. This is not a legal or financial recommendation and should be used for informational purposes only.