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Market Brief – February 2023: Let’s Talk About Debt, Baby

February 2023 Market Brief

Let’s Talk About Debt, Baby

“Neither a borrower nor a lender be/ For loan oft loses both itself and friend.” Hamlet (1.3.75-76), William Shakespeare

Groundhog Day is happening again in Washington, where we last played this silly game in 2011. The US Government is currently on track to repeat that disastrous debt ceiling stalemate which cost the USA its AAA credit rating. As a reminder, the debt limit does not authorize new spending or commitments, it is just the US Government financing and paying for existing legal obligations that Congress has already made. The fight over spending and the budget is where we decide how much money to actually spend, raising the debt limit is just allowing the government to pay for what was already agreed to and committed. Not raising the debt limit is akin to not paying your credit card bill or mortgage when it comes due. You already bought something, now you are just refusing to pay for it.

Per the Treasury department, since 1960, Congress has acted 78 separate times to either permanently raise, temporarily extend, or revise the definition of the debt limit. This has occurred under both political parties and has happened 49 times under Republican presidents and 29 times under Democratic presidents. Total national debt as of January 2023 is $31.4 Trillion and has tripled since 2008, including during the COVID rising rapidly from $20T to $30T. With interest rates rising, we are also now seeing debt interest costs increase, growing to $261B in the first four months of this fiscal year a 33% increase over last year. The increase in interest costs on debt has been one of the largest spending increases this year for the US Government. Larger debt load and higher interest rates pressure and widen the current deficit. While we all agree this is a very unsustainable course, the remedy is actually cutting the budget and reducing spending, not the debt ceiling. Now is the time for bipartisan agreement as difficult as it is to find in these divided times. The US people are counting on it.