Much has been made of the 11th hour approval to raise the debt ceiling made by the House of Representatives late yesterday and by the Senate this morning.
Of the underlying problems that led to this point, however, we’ve heard very few genuine solutions. According to the U.S. Treasury, congress has acted 78 times since 1960 to raise, extend or alter the definition of the debt limit. And the idea of creating a statutory limit on federal debt dates all the way back to World War I with the Second Liberty Act of 1917.
Two things made this attempt to raise the debt limit particularly newsworthy: the threat to downgrade the U.S. Credit rating and the realization that we can’t continue in this direction. Currently, our debt burden stands at nearly 100 percent of gross domestic product, according to International Monetary Fund. Clearly something has to be done.
Standard and Poor’s still may downgrade the U.S. credit rating and, even though Moody’s has announced that they will not downgrade the AAA credit rating, they are issuing a negative outlook, meaning there is a risk of a downgrade in the medium term.
People are angry here and they’re even angrier abroad. Countries like Greece, Spain, Italy, Ireland and Portugal are facing negative responses to austerity programs they’ve launched and increasing hostility from their citizens.
The markets don’t like any of this uncertainty, and neither do we. We are waiting for all of the political posturing to settle down and for our government to offer us some real solutions to things like a lackluster job market, a shrinking GDP and the rising costs of Medicare.
Meanwhile, we are maintaining a cautious approach to our investments.
In a way, this crisis has been helpful because it has focused attention on the underlying problems that caused it. But that’s only half the battle. The time has come for solutions.