The Debt Ceiling

Hopefully I am wrong about this prediction because if I am right, things could go south fast in the economy. The US has a debt ceiling that is expected to be reached circa October 2019 and without an increase or suspension of the debt limit, the Treasury Department would lack legal authority to resume borrowing.

In such an event, the US will not be able to issue or auction new Treasury securities. Our Federal government would only be able to pay its bills based on incoming tax revenues. They would then be forced to selectively decide which debts to pay and postpone. If interest on the national debt can no longer be paid, then what do you think will happen to interest rates?

Rates will skyrocket. If it costs consumers more to borrow, then asset prices must decrease. In a debt-fueled economy, this would be devastating. And why would they not raise the debt ceiling? Simple, because the Democrats control the House, they hate Trump, and they want to crash the economy before the 2020 election.

Hopefully, I am wrong.