Debt Ceiling

The U.S. government is one-fifth to one-third of U.S. GDP. Any risk in government spending can stall the economy. Any risk to paying government debts can cause a bond crisis as the world depends on the U.S.'s safe-haven credibility. The debt ceiling topic risks economic growth and risks the strongest link in the global bond market, U.S. debt.

Past Budget Battles

1995-96

The U.S. government shutdown for 27 days in 1995-96 when Congress could not agree with President Clinton on a budget.

2011

In July 2011, Congress agreed in the "final hour" saving a default. Markets did take a hit in this period and U.S. debt received an S&P ratings downgrade. Here are the markets:



Source: Macrotrends

Markets dropped in the period surrounding the 2011 budget battle.

2013

The government had a year of fighting in 2013 after reaching the debt limit at the end of 2012. Congress agreed by October 2013 to suspend the debt ceiling.



Source: Interactive Brokers

In May 2013, the debt ceiling was met and raised. In October 2013 the debt ceiling was suspended pushing off the issue. Although markets rebounded, they were volatile around news as the risks of a default loomed.

March 15th, 2017

We have a debt ceiling deadline due March 15th. President Trump had strong words yesterday sitting in front of his budget hawk Mick Mulvaney. Here's what Mr. Mulvaney said in his process to take his current post:

I do believe that defaulting on America's debts would have grave worldwide economic consequences. I do not believe that breaching the debt ceiling will automatically or inevitably lead to that result.