June 5, 2023

The U.S. exceeded the current debt ceiling in January. Since then, “extraordinary measures” have been authorized to pay the bills, but they’re supposed to run out this month. That could mean default.

The outcome is predictable. Democrats and Republicans often fight over how to raise the debt ceiling. Liberal leaners typically want unfettered spending while the more conservative usually request restrictions with any debt ceiling increases.

They bicker until the last minute, then compromise to get something done. It’s like a broken record. It happens regardless of who’s in charge.

Investors turn skittish, even though the ultimate outcome is pretty well known. I don’t think this time will be different. Since 1960, Congress has increased the debt ceiling 78 times (most recently in 2021), with 49 of those increases implemented under Republican presidents and 29 under Democratic presidents.

If for some reason Congress does nothing to raise the limit, taxes would need to jump a lot, spending would need to plunge, or a combination of both. But such austerity would be rare.

More likely, Democrats and Republicans will drag their feet until the last minute. Financial markets will likely get nervous and could go down temporarily. However, they’ll be bumps in the road.

There’s been a lot of media noise about this. But at the end of the day, this standoff is not worth getting too worried about.

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