Keel Point Insights

Check out our guides, tools and research for expert help on all your
life planning, wealth planning, and familiy management questions!

Articles
& Videos

Awards &
Press Releases

Investment
Bulletins

Keel Point
in the News

Raising the Debt Limit — Rhetoric and Reality

Keel Point
May 9, 2023

The public and political rhetoric around the debt ceiling standoff contains statements that are not fully accurate or well understood. Many of the more disconcerting assertions are made to pressure Congress to increase the debt limit without conditions for spending cuts or other legislative action.

The debt limit was enacted over 100 years ago and has been raised over 100 times, sometimes easily with little fanfare and sometimes with intense debate and threats of default coming down to the wire before delaying program payments was set to begin.

Here are some points to keep in mind during the current discussion:

The U.S. Government’s failure to pay interest and principal on Treasury debt instruments would be catastrophic, having severe economic and financial market consequences in the U.S. and around the world, but it is unlikely to occur for two principal reasons:

  • Although widely under-reported, default on the government’s debt is unconstitutional under the 14th Amendment.  The Supreme Court has ruled essentially that default on the debt is not an option.
  • The U.S. Treasury has adequate revenues to keep the interest and principal payments current, so a default is not an inevitable consequence of not raising the debt limit.

Not paying, or delaying payment, on U.S. programs and operating expenses like salaries, Social Security, Medicare, etc. is not a debt default.  There has been a lot of confusion and conflation on this issue, even by senior Treasury officials.

  • During prior debt limit confrontations, the U.S. Treasury did delay, or announced the delay of, program payments, including Social Security payments, after which the Congress promptly increased the debt ceiling.

All of this will be settled at some point and the debt limit will be raised without a substantive default. 

  • There will be a cost to taxpayers from the repositioning and any delays in government salaries and program payments.  The Treasury may face higher borrowing costs, as the “risk free” status of U.S. debt is called into question, and there will be disruptions in financial markets and in the economy from the uncertainty.
  • In addition, the huge benefit Americans get from the U.S. dollar being the reserve currency of the world is further eroded as those who seek to displace the U.S. dollar’s reserve currency position point to the uncertainty and instability of the U.S. Government’s commitment to the integrity of its public debt.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

Related News & Articles

Market Recap – June 5, 2023

It is sometimes difficult to know what news has the biggest impact on financial markets, but last week the S&P 500 rallied 2.8% from its low point on Wednesday on news of a debt ceiling bill passing a crucial house rules committee vote, comments by the newly...

read more

Market Recap – May 30, 2023

The biggest news affecting financial markets this week is the tentative agreement to  suspend the debt ceiling until January 1, 2025, along with certain limits on spending.  Although legislative wrangling likely will continue through the week, it should be finalized...

read more

Market Recap – May 22, 2023

Positive economic news and a belief that the U.S. will avoid a default on its debt service, as well as program and operating obligations, contributed to positive stock market gains this  past week and even led some Fed officials to indicate that more interest rate...

read more