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The Debt Ceiling is Still an Issue

Written By Brian Hicks

Posted December 18, 2013

Debt ceiling talks are right around the corner. Yes, again. And they’re just as much an issue this time around.

Many people are worried this will end up in a shutdown yet again. They don’t trust the government to get its act together before it runs out of money to pay its bills – and it’s no wonder.

debtEven with a spending budget passing through – first in the House, then in the Senate, and now waiting for Congress – there’s still debt limit problems.

You may be asking, “If a spending budget is already being passed, why is the debt ceiling such an issue?”

Well, the differences between the spending budget and the debt ceiling are what cause the most problems. A spending budget agreement is easier to reach because everyone allots money for what they want done through the government. Throw a little money here, throw a little money there – with a little fighting in between – and there you go.

But with the debt ceiling, it’s a bit different. Money is tight. And just as an individual does when he or she is in debt, the government has to figure out where to cut spending or boost income to ensure bills are paid.

If you think about it, the spending budget is the wise way to manage money, and the debt ceiling is the not-so-wise method of money management.

A “Clean” Deal?

So as the debt ceiling negotiations come, the Republicans are tight lipped. What they are saying is that they don’t have any specific demands. They just want to see what they can get out of it.

Is this the truth? Probably not – but there is a reason they aren’t voicing their demands as they did last time. They have one or two things up their sleeves.

Last time, the Republicans wanted to diminish Obamacare. This time, they are saying that’s not their focus, which is smart since it’s a losing battle anyway.

But this time, Obama has also demanded a “clean” increase. He doesn’t want any negotiations. And that will make it difficult for the Republicans to get anything. Still, it’s scary to think the Republicans may hold their ground again until they get something.

With the budget deal now, the party has something it can use as leverage. This can be a good thing or a bad thing. They have a better chance of getting some of things they want, but they also might end up trying to take advantage of their position.

There’s really no way to know if this debt ceiling is going end up exploding like it did last time. All you can do is prepare for the worst and hope for the best.

Preparing for the Debt Ceiling Fight

As investor, it’s time to pay attention to the stocks you’ve currently invested in. If any of them are related to government spending, you’ll likely see them decline soon with the anticipation of the debt ceiling talks. If everything goes well, there won’t be much volatility, but if it does seem like there’s going to be problems again, you’ll see declines much faster than last time.

Keep in mind, the Fed announced today it is going to start to taper in the beginning of the new year too. This could temporarily put a bit of pressure on the economy when it happens, and with the debt ceiling causing even more strife, be prepared to feel it.

The best thing you can do is make sure your portfolio is diversified. If you have money in stocks, bonds, and commodities, you’ll end up gaining no matter where the government goes in the beginning of 2014. If the debt ceiling gets settled quickly and QE holds off, you’ll see the stock market do well. If the opposite occurs, you’ll gain on commodities as everyone tries to secure their investments.

You may want to look at gold as a possibility. It’s hit lows again, and while many are worried it’s still heading south, it may not be such a bad investment with the U.S. economy on the rocks again.

According to history, we know it’s always been that safe haven for investors, and it may be what many run to when the government’s shenanigans pop up again. Since its value is so low right now, it’s going to be even more attractive.

So check your portfolios and figure out a way to diversify as much as possible. That way, you will be prepared for whatever happens in the new year.


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