How Much Attention Should You Pay to the US Debt Ceiling?

According to a weekend report from Bloomberg News:

A U.S. government shutdown means President Barack Obama will have fewer people to cook meals, do the laundry, clean the floors or change the light bulbs, according to a White House contingency plan…

Of the 90 people who maintain the President’s family living quarters, only 15 would remain to provide “minimum maintenance and support.”

And apparently in the event of a government shut-down, the US president will have to send home three-quarters of his 1,701 permanent staff.

For some reason the market didn’t like that news. Yesterday the Aussie index fell 88 points. The US Dow Jones Industrial Average dropped 128 points.

It was a big fall for the Australian market. But it’s still above 5,200 points, which is a key level as we head towards the end of the year…

But how much attention should you pay to the US debt ceiling?

After all, this isn’t the first time you’ve heard a bunch of shrieking and wailing as the government nears its spending cap.

So our inclination is to ignore the fuss and use the current pull-back as a chance to buy stocks rather than sell stocks.

Of course, like the boy who cried wolf, there’s always the chance that this is the big one. One day investors will become bored with all the nonsense and decide that stocks can’t rise in this environment, and so they won’t pay the current prices.

This is Why Government Money is Doomed

From a philosophical standpoint the market should embrace the idea that the US government is about to shut down (midnight US Eastern time, 2pm AEST).

The less government spends and the less it can inhibit the free market, the more businesses can focus on doing things that really matter – such as innovating, making products and providing services.

This is why, despite the criticism we face from folks who say that we don’t understand the seriousness of the problem, we choose to pay more attention to individual companies and emerging trends rather than whether the US government can afford to pay its bills.

Take the work we’re doing for subscribers of Revolutionary Tech Investor. Technology analyst Sam Volkering has just arrived back in London after spending a week in Dubai at the SIBOS conference.

SIBOS is an annual get-together for the banking industry. They meet and discuss the latest developments – mainly on the technology side – in the financial markets.

While he was in Dubai, Sam met with and talked to some of the people shaping the technological future of money and banking.

But as Sam sees it, as technology moves ahead at a faster speed, the banks will struggle to keep up.

This is another reason why we’re amused by the current fuss over the US debt ceiling. The fact is the whole thing is actually speeding up the demise of government-issued money. Governments have shown that you can’t trust them to look after money, and so at some point the private sector will show them how to do it.

Three charts show how the US government in particular is ‘helping’ with this shift to private money.

First, a chart of the US debt ceiling, which was USD$16.39 trillion at the end of 2012:


Next is the chart of the US monetary base that shows the extent of inflation and money printing:

Source: Federal Reserve Bank of St Louis

And finally, this chart shows the decline in the purchasing power of the US dollar since 1900:

Would you trust someone who had done that to your money?

The New Way for Money

If you gave a friend a loan and he or she used it as capital to borrow more money from the bank and then made you pay the interest to the bank, would you keep handing over your cash?

One day you’d say enough is enough.

And one day that will happen to the US government and every other government that thinks it can borrow without ever paying back the loans.

But will that day arrive tomorrow? Our bet is that it won’t. Instead, our bet is that you’ll see a continued decline in faith that governments can manage money correctly.

This will happen at the same time as individuals transition towards using non-government forms of money. In a way this is here now with PayPal, iTunes and Amazon.

Soon enough the transition will be complete to the point that you won’t store Aussie dollars or US dollars in a PayPal or iTunes account. Instead you’ll store units of currency issued by these private companies.

But whether that happens next year or next decade, one thing is certain: the private sector will easily adapt to this change – including most of the companies you invest in today.

That’s why for all the bumps in the market we view issues such as the US debt ceiling as an opportunity. Anything that hastens the end of devalued government currencies and heralds the rise of secure and valuable private currencies is a good thing in our book.


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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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One response to “How Much Attention Should You Pay to the US Debt Ceiling?

  1. You’re an extremist. Remember it was these “private” companies that needed bailing out in the trillions last crisis. Tax is a way of wealth distribution; as we see in the US, a reduction in tax for the corporations has created wealth inequality so great it was the great depression since such levels where seen.

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