On the 5th of June, the United States will raise its debt ceiling and make adjustments to its spending methodology.
This is a tricky situation that may affect a number of things in the economy. It may even move the markets violently in either direction.
And this can cause a lot of mixed reactions: panic, upset, and overwhelm. What everyone wants is to come out of this situation safe and with their wealth intact.
So what should you do if you’ve already invested in the stock market?
And what does raising the debt ceiling mean for the future of the United States?
In today’s episode, you’ll learn what moves you should make in the event of the US raising its debt ceiling. You’ll also discover what the probable future holds in store for the US if they falter on debt payment.
Listen now.
Show highlights include:
- The debt ceiling: what it is, and how it could be a problem. ([1:52])
- 3 options you can consider if you’re in the stock markets already (and the most profitable one you can take). ([3:08])
- Why it’s dangerous for you to pay close attention to the news & banter surrounding the debt ceiling. ([4:09])
- Should you sell your stocks and turn your investments to cash? Here are some challenges you might face if you do. ([5:14])
- Why the United States isn’t likely to default on its debt payment (or collapse into an apocalypse). ([8:45])
- Why you should avoid panic-selling before June 5th (and how you can actually profit by staying put). ([11:02])
TRANSCRIPT:
Do you want a wealthy retirement without worrying about money? Welcome to “Retire in Texas”, where you will discover how to enjoy your faith, your family, and your freedom in the State of Texas—and, now, here’s your host, financial advisor, author, and all-around good Texan, Darryl Lyons.
Darryl: Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group, and thanks for tuning in to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information.
Today I want to talk about the debt ceiling and I’ll try to give you high-level information. You probably already can tell that I lay my bias on the table. I have a hard time when people who are journalists suggest that they don’t have bias, and I’m going to lay my bias on the table. [01:02].4]
My attempt here is to provide some clarity in the midst of confusion. I look at life through a Biblical worldview. You may or may not share that view, but just know that’s my bias, and I do lean into hope, so you can contrast a message of hope with whatever else you’re hearing and then you can make an informed decision. That’s kind of the context in which I articulate information, specifically about the economic conditions. I do want to talk about the debt ceiling and you know the filter in which I look through.
It reminds me a little bit, in Six Flags Fiesta Texas in San Antonio, they’ve got this, a thrill ride, or it’s 21 passengers, they lift them up 150 feet in the air, and they let them stay suspended and they’re just facedown, and they know they’re about to drop and they know their hearts are going to go in their throat, but they’re just looking down at the little ants of people down below—and that’s kind of where we’re at right now with the debt ceiling, hoping that when the whole thing, when the roller coaster and the thrill ride drops, everyone is safe and everyone laughs, and everyone gets on the other side of it and it’s just history. [02:04].5]
But that’s where we’re at right now. We’re kind of suspended in air at the Six Flags Fiesta Texas, right, because June 5, the United States bumps up against its debt ceiling limit and you’ve got to raise the limit to keep spending, and, historically, what happens is there’s adjustments to the methodology of spending. Whoever is in Congress right now, the Republicans are requesting changes in the spending, and rightfully so, and then the White House is bargaining there and negotiating there.
Set aside the politics. I get all the politics stuff, but that’s just generally what’s happening right now. We’re all suspended waiting, and over the next month, I assure you, you’re going to hear a lot of noise and there’s going to be people that are going to get you upset.
Now, I’m just letting you know that. Don’t let them get upset. It’s just foolishness, the bantering back and forth. This is going to get resolved. It may not get resolved on June 5. They may extend a little bit longer. If it extends longer, then parks close and people don’t get paychecks, and there’s a lot of upset people. This could happen. [03:09].6]
What do you do if you’re in the markets and you’re invested in the stock market during this time? Just a couple of options to consider. First of all, you may want to sell everything right now. Just put it on the sidelines and just wait until it’s done. That is an option.
The history that you might lean into to substantiate that that is a good idea just to “Hey, just get me out of harm’s way. This is crazy. This is absolutely nuts what they’re talking about. The trillions of debt that we have and the debt ceiling is just nuts. Just get me out of the way. Sell it all.” I’ve gotten so many of those calls over the years, “Sell it all. Sell it. Just get me out of here,” and it’s always with facts, sometimes half-truths, but some Glenn Beck said, “Sell it all. Just get me out of it. This is nuts.” [03:58].3]
You might have some history to guide you on that, because about a month before these debt-ceiling debates take place, there is market volatility, and not only is there market volatility, there’s just a lot of anxious rhetoric, stuff like there was one politician that said the other party just wants to fire all the Border Patrol, just really ridiculous stuff.
So, some of us, some of us, really, that hits you and it just creates anxiety and cortisol, which is kind of what you get when you’re suspended looking down in a roller-coaster ride or thrill ride. There’s cortisol and this cortisol is obviously not good for our bodies, and for those that know my history, I love studying behavioral finance, have for years in a number of very specific programs, and you do study the effects of cortisol on your body and, especially if you’re aging, I mean, it is a death wish. [05:00].0]
So, for those that are listening to this banter over the next month, I do suggest that you turn it off. But if you say, “Get me out of the markets,” look at history. The history leading up to these debt-ceiling debates are volatile. There is risk. So, you could have some, I guess, history on your side saying, “Hey, look, I’ve seen the history, but the month before the debt-ceiling debate, I know it’s going to go down. I know it’s going to be volatile so just get me out.” The challenge is getting back in. That’s a real tricky one, and so let’s just kind of play this out for just a second.
Suppose that you say, “Hey, Darryl,” or whoever your financial advisor is out there, you say, “just get me out. I want to wait till it all gets resolved either June 5 or maybe later,” and just say, “Just get me out. I’m going to go to cash. I’ll get back in.” And so, you get back in and the market has gone up, let’s say, in two days. I’m just making something up. It has shot up and so you call your advisor, you say, “Okay, now it’s time to get back in,” and you get back in. And maybe it takes the next day because it’s after market close or whatever. It maybe takes two or three days to get back in. You get back in and you’re like, I did it, I got out of harm’s way and I got back in. [06:08].0]
But then you look at the numbers—this happens a lot, by the way—and you’re like, I did okay with that move. I probably would have been better off just waiting it out than trying to stress about the timing.
Let me say that again. If you go to cash now and sit on the sidelines, and then you want to get back in—and I’m going to tell you why you probably should want to get back in in just a minute—the decisions that you have to make to get back in, you’ll lose sleep over it and then you look back and you’ll say, “I probably would have been better off just waiting it out with less stress.” I’ve seen that before. I just think the stress associated with trying to time this thing is not worth it. Waiting it out is a better option, and I’m going to tell you why riding this out might actually be a good option. [07:01].6]
But let’s look at the second choice that I’m hearing a lot of now. The first choice would be “Hey, let’s move it to cash.” The second, “Let’s move it to gold.” Now, I did talk about this in a previous podcast, but let’s double-click on it for a second, because not only are you looking at this debt-ceiling debate, but when we talk about this debt-ceiling debate and the banter back and forth, we’re also going to talk about or we’re going to hear from talking heads, Fox News, CNN, wherever, about currency collapsing, debt-to-GDP ratios, Social Security insolvency.
I mean, we’re going to hear a lot about this stuff and it’s going to make us nervous about the future of the world, in general. So, we’re going to say, “Let’s just go to gold because this whole thing is going to collapse anyways.” Again, I made a case in a previous podcast, you can tune into that one on gold. But this one is a case about finding safe havens, because the rhetoric about the United States economic position is going to be so heightened that it’s going to make you very nervous. [08:05].4]
Now, I have no problem with you moving maybe 5% to gold. That’s reasonable. But we’re talking about some people I know moving their entire portfolios to gold, and so they’re talking about an apocalypse, and so I guess in an Apocalypse, they’ll take out their Buck knife and then start shaving slivers of gold off their bars and putting them in little baggies to barter, I guess.
In an apocalyptic scenario, I’m really curious how people might think gold would actually work. I mean, in an apocalypse where the United States crumbles and the world crumbles, I’d probably think shotguns and canned goods. That’s probably a better bet. Liquor will actually probably be the number-one seller for bartering.
But I still think that we have to look at the difference between possibilities and probabilities. Is it possible that the United States collapses and completely defaults? They could and it’s happened before where they were downgraded in their rating by Fitch, in that when you’re downgraded by a third-party rating agency, then the cost of debt goes up so it’s more expensive to service your debt. That downgrade is a possibility. [09:14].5]
A complete default in bankruptcy, I guess that could happen. It happened in Greece. It happened in Sri Lanka. They both completely defaulted on their debt payments. I’m not convinced that the United States is going to default. Right now to service their debt, it takes about 6% of the United States income, so it’s a really considerable good chunk of the United States– The income of the United States’ GDP, so it takes about 6% of their income to service the debt. So, I think we’re still a long way off from defaulting. Now, that’s just interest payment. It doesn’t include some of the other stuff, but I think the probability of default is relatively low, but it is possible. [09:59].0]
Let me say that actually differently. It’s possible that the United States defaults, but it’s not probable, and even if we did, think about Greece and Sri Lanka. They’re still functioning today. It’s not an apocalypse. I mean, not without challenges, not without some riots. Tough, tough stuff. But they’re still around as countries.
I say all that because you’re going to hear a lot of this rhetoric and I just think we have to just go through a logical conclusion and say, “Okay, I’m going to move all my money to gold. Why would I move it to gold as a bartering tool?” I don’t know if that’s a good scenario for a complete apocalyptic scenario.
And then what is the probability of an apocalyptic scenario of the United States completely defaulting? It’s not that high still. It’s possible, but not probable. We know a hundred percent we have to get our act together and I’m going to talk about that in just a second. [10:50].3]
I think the third and most logical conclusion that we could consider is just riding this thing out. We’ve bumped up against this debt ceiling about 75 times since 1960. It’s just that social media just magnifies this thing. And what’s interesting in 2011 and 2013, the 12 months—so get this, hang with me for a second—the 12 months after the debt-ceiling day, D-Day, I guess we call it that, in 2011 and 2013, the S&P 500, which are the 500 largest U.S. stocks, 12 months after this chaos ensued where everyone thought the world was collapsing, in 2011, the S&P 500 went up 28%. In 2013, it went up 21%, so riding it out rewards investors.
The price of admission to this, without the risk of over-analogizing—this is an analogy that I’m overdoing, right?—so at that risk, the price of admission to this theme park is being able to stomach the ups and downs. How do you stomach the ups and downs? It’s within your control. A long time ago, again, a product of the ’80s, you turned the knob of the TV. Today, it’s a remote control. But one considerable measure that you can take to ride this thing out that has historically rewarded long-term investors is turning off the news. [12:17].8]
History is on the side of riding this thing out and working through this. There will be concerns and it may not get resolved until what they consider the eleventh hour. It may not get resolved until afterwards. But hang in there, it will get resolved. The market will be volatile. You will need to come back as a country and address these issues. We can’t continue doing what we’re doing. I’m not discounting that.
Think about anybody that’s in debt. You either have to increase your income to get out of debt or spend less. Increasing income as a government means that you collect more in tax receipts. You can do that if the economy is growing and there’s more businesses and people to take from, or if the economy is not growing, you just take more from the existing group of people. The other way that you could do it, and this is what Greece is dealing with, is austerity measures, meaning, reducing pensions, reducing social security. All of these things have consequences. [13:16].8]
I don’t know how this is going to get resolved. We all know, all of America knows it needs to get resolved. Can the United States completely collapse? I think we lean into the idea that it’s possible, but just not probable.
And I’ll leave you with this. I just got back from a conference in Denver. I was with 1300 CEOs of businesses all across the country. I’ve been to Inc. 5000. PAX made the Inc. 5000 list where you go to conferences across the country and you meet some of the smartest, most innovative business owners in the entire world. I’ve lobbied with the National Federation of Independent Business Owners where I’ve hung out with some of the most innovative business owners that really care about the politics behind the business and we talk with legislative people. I’ve met with many of the congresspeople that you know. [14:01].6]
I say all that, and that’s just not a pat on the back, this is me just saying the reason that I might have a hope that’s a little different is because I see business owners every single day, including myself, grinding it with innovation, hiring people, and doing amazing things.
This country is run on the back of businesses, not politicians, and if you saw what I saw with businesses around the country and the innovations that are taking place, yes, it’s becoming challenges, challenging in a regulatory environment that’s sometimes ridiculous, and then taxes that are being levied. But that’s not going to stop this culture that we’ve created in the United States of business.
So, I see it through that lens, and that’s why I see things and I’m like, Yeah, it’s possible, but it’s not probable. I’m seeing it all the time, people are still taking risks. People still believe in the American dream—and for that reason, I would just encourage you to stay the course. Note this is part of the process, this debt ceiling.
And I just want to remind you, as usual, that you think different when you think long term. Have a great day. [15:04].8]
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References:
The U.S. Dollar as the World’s Dominant Reserve Currency
https://crsreports.congress.gov/product/pdf/IF/IF11707#:~:text=It%20is%20widely%20used%20to,currency%20since%20World%20War%20II.
What Do China’s High Patent Numbers Really Mean?
https://www.cigionline.org/articles/what-do-chinas-high-patent-numbers-really-mean/#:~:text=Instead%20of%20being%20innovation%2Ddriven,as%20national%20high%2Dtech%20enterprises.
Key facts about China’s declining population
https://www.pewresearch.org/fact-tank/2022/12/05/key-facts-about-chinas-declining-population/
What will China’s population drop mean for the world?
https://www.bbc.com/future/article/20230118-is-chinas-population-decline-surprising
Opinion Ignore the naysayers. Dollar dominance is here to stay.
https://www.washingtonpost.com/opinions/2022/03/20/dollar-dominance-currency-markets-here-to-stay-as-global-reserve-currency/
U.S. Debt to China: How Much Is It, and Why?
https://www.thebalancemoney.com/u-s-debt-to-china-how-much-does-it-own-3306355#:~:text=How%20much%20money%20does%20the,prices%20of%20those%20bonds%20change.
A new world order? BRICS nations offer alternative to West
https://www.dw.com/en/a-new-world-order-brics-nations-offer-alternative-to-west/a-65124269#:~:text=BRICS%20nations%20offer%20alternative%20to%20West,-Astrid%20Prange&text=Predictions%20about%20the%20BRICS%20countries,outside%20of%20the%20Western%20mainstream.
How to Lose Reserve Currency Status
https://www.ftportfolios.com/blogs/EconBlog/2023/4/10/how-to-lose-reserve-currency-status#:~:text=Limiting%20government%20spending%2C%20keeping%20tax,monetary%20policy%20are%20our%20suggestions.
BRICS: Who Are They and Why Are They a Threat to the US?
https://www.msn.com/en-us/news/world/brics-who-are-they-and-why-are-they-a-threat-to-the-us/ar-AA115bZ5
China’s Top Trading Partners
https://www.worldstopexports.com/chinas-top-import-partners/
India Is a Natural U.S. Ally in the New Cold War
https://www.wsj.com/articles/india-is-a-natural-u-s-ally-in-the-new-cold-war-11590600011
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