Debt limit looms in shadow of Syria, other issues

2013-09-13T00:00:00Z Debt limit looms in shadow of Syria, other issuesF. Marc Ruiz Times Columnist nwitimes.com
September 13, 2013 12:00 am  • 

So what happens if they close the government and nobody notices? Life goes on and we are vibrantly reminded the Federal government is actually not a proxy for our American society, but rather just an expensive provider of limited civil services?

While the national media and politicos have been obsessing over Syria, an issue of a more pertinent nature has been festering on the back burner.

Remember the debt limit? This is the amount of money the Federal government is legally allowed to borrow to maintain operations and continue entitlement payments. Well, the government has once again tapped out its credit limit and in the next few weeks Congress and the White House will need to develop a plan to fund the government going forward.

The process will not be easy, and the rhetoric is sure to become nasty. At this time the U.S. Treasury owes creditors $16.7 trillion and no longer can issue new debt. To make ends meet, the Treasury has been taking extraordinary measures such as skipping payments into Federal employee pension funds, siphoning interest off of pension balances, selling investments and taking dividends from Freddie Mac and Fannie Mae. Much of these measures are questionable, some of them downright irresponsible.

We will hear talk of “default” on the national debt and we will hear panicked threats of a frightful government shut-down. You know, the-end-of-the-world-as-we-know-it stuff.

Reminds me of the dreaded sequester. These mandatory spending cuts enacted in March were supposed to hurl our nation back into recession. Well I think I heard they cancelled White House tours on Saturdays. Unfortunately, that won’t solve the $600 billion 2013 budget deficit.

So I expect some rancorous debate involving scare tactics and threats of Armageddon. We may even hear talk of additional credit downgrades of U.S. Treasury debt.

Investors will need to avoid being distracted by this circus. The Federal government will not dare default on principal or interest payments on U.S. Treasury securities and even if the government “shuts down,” essential services such as maintaining Social Security and military operations will continue. Let’s not forget the government still takes in about $2.5 trillion in revenue. It can use this spare change to make essential ends meet.

In 2000 the tech stock bubble burst, in 2007 the housing bubble burst and in 2008, the credit bubble. Government itself may be the next bubble. Exercises such as sequester and the debt limit debate help us acclimate to a future in which government is smaller by simple fiscal necessity.

The drama over this issue should not disrupt long-term investment strategies, and it may actually uncover an opportunity or two for those willing to peek out of the bunker.

 

Opinions are solely the writer's. F. Marc Ruiz is a local investment strategist and co-host of "Your Mind on Money" at noon Mondays on WLPR-FM 89.1 The Lakeshore. Reach him at yourmindonmoney@lakeshoreptv.com.

Copyright 2014 nwitimes.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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