Solve the Deficit Problem by Cutting Government Spending – You Don’t Stop the Spending by Refusing to Increase the Debt Ceiling

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Jane M. Young, CFP, EA

A few clients and friends have asked me if they should be making changes to their investment allocations based on the uncertainty around raising the debt ceiling. While we don’t want to bury our heads in the sand we should not over react to something that probably won’t come to pass. In my opinion the political stakes are way too high for all parties concerned to allow the U.S. to default on its obligations. At the moment everyone is playing chicken but at the end of the day, neither party can afford the political fallout that would result in a failure to raise the debt ceiling. This does present a great opportunity for the media to get attention with sensationalistic, doomsday headlines to help them sell newspapers or television spots. This is also a great opportunity for political posturing on the part of both Democrats and Republicans. It is my projection that on August 2nd we will still have a huge deficit problem and a higher debt ceiling.

The debt ceiling is an indication of a much bigger problem with federal government spending. The problem is not solved by changing the debt ceiling; the problem was created when congress approved spending resulting in the need to raise the debt ceiling. Failure to raise the debt ceiling is like trying to close the barn door after the horse has gotten out. Refusing to raise the debt ceiling is a meaningless gesture, with regard to our deficit. However, it carries a catastrophic impact on the perceived safety of U.S. debt which would ripple down through all aspects of our financial lives. This is clearly not an acceptable course of action. The real issue is getting a handle on government spending and the deficit which will require major reforms to Social Security and Medicare. Our economy and prosperity are being held back by a looming black cloud caused by fear and uncertainty with regard government spending and the federal deficit.