The financial press is abuzz again about the debt ceiling deadline and the risks of another government shutdown and perhaps a catastrophic default on U.S. debt if an agreement cannot be reached. The ceiling (currently sitting at $31.4 trillion) is set to be hit on June 1.
The Washington Post is particularly apoplectic,
“Federal workers furloughed. Social Security checks for seniors on hold. Soaring mortgage rates. A global financial system sent reeling…
“Leaders from Congress and the White House are trying to forge an agreement to lift the federal debt ceiling, with only a few weeks before the Treasury Department may no longer be able to avert an unprecedented U.S. default. If they fail, and the government can’t meet its payment obligations, economists and financial experts predict chaos.
“’It would be a lethal combination,’ said Mark Zandi, chief economist at Moody’s. ‘You can see how this thing could really metastasize and take down the entire financial system, which would ultimately take out the economy.’”
Well, that sounds rather bad. So, is this something real estate investors should be concerned about, and if so, how should one prepare?
Let’s first start with a quick overview of what’s going on and how such “fiscal cliffs” have gone in the past.
A Recent History of Debt Ceiling Debates
The debt ceiling is supposed to set a cap on the total amount of money the United States federal government is authorized to borrow. Over recent years, this “ceiling” has, for the most part, been something of a joke.
As the website for the U.S. Treasury Department notes, “Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit.”
I’m not sure what you call something that has been raised more than once a year for over half a century, but a “ceiling” doesn’t seem like quite the right word for it.
Every once in a while,…