The Debt Ceiling Fiasco

By Bert Whitehead, M.B.A., J.D.

Politicians are commanding center stage as they debate the best way to keep the country from defaulting on our debt, and how to change the government’s finances to control the deficit. The play-by-play progress (or lack thereof) is amplified by the media. This leaves financial commentators foisting their favorite last chance investment strategies for people to avoid the worst case dreaded outcome.

The investing public is understandably alarmed and confused by these developments. We get questions from clients who have started thinking they should sell all their investments and put everything in cash. Others seriously ask if they should switch most of their investments to gold. Some are wondering if they can realistically plan on retiring when they planned.

I would like to suggest that this has been blown out of proportion. It is a perfect opportunity for the media to sell more newspapers and attract more viewers. Just like the Casey Anthony debacle, the media is impelled to fan the flames of this story, running interviews, cameo performances by ‘experts,’ and endless repetition of every piece of the story ad nauseam.

Of course this is an extraordinary opportunity for politicians to parade their platforms and get their faces on TV and on page one. Suddenly talk show hosts, movie stars, as well as professors have an opportunity to explain economics to the masses.

This issue is much ado about nothing. Those who want to raise taxes, at least a little bit, want to use this to further their agenda. Others insist this isn’t a revenue problem, but rather is a spending problem – they insist on pure spending cuts. Every vested interest wants to protect their turf, whether it is their cherished entitlements or their industry’s tax loopholes.

At the end of the day, everyone knows that default would be self-sabotage for our economy. What will happen is this: when we are near the precipice, there will be some sort of compromise which will enable all sides to take credit, and then this will be forgotten just as past games of deficit brinkmanship have become forgotten asterisks of the past.

Yes, the market will bounce up and down as market timers try to grab an advantage. The president and congress will likely kick the can down the road for awhile more to milk this panic for all they can. But in the end they will come to some resolution which will satisfy no one, but which everyone will take credit for.

I advise my clients to keep focused on their own business, and the endogenous issues that actually have an impact on their lives. None of us can do anything about the debt ceiling fiasco. The best thing we can do for our peace of mind is simply to stop watching the news on TV.