Debt Ceiling Narrative Intensifies

by Gregory M. Drahuschak January 25, 2023
Now that the U.S. has reached its debt ceiling, discussion has intensified about the supposed dire conditions failing to raise the debt ceiling could produce.

These narratives only give a nod to the possibility that a deal will be reached, when history has shown that previous debt ceiling entanglements all led to the same conclusion: Face-saving provisions enacted to satisfy those who sought to halt government spending. The same conditions are present now.

Some people might argue that it is different this time, with a contingent of members of Congress willing to bring this issue to the brink. However, even the most strident proponents of debt authorization limits realize that the economic, and perhaps more importantly, political consequences are too severe. Already there are conversations among members of the House of Representatives to avoid taking the issue to the brink, as has happened a few times before.

Our view of the many other situations similar to the debt ceiling is that panicking out of the equity market carries more risk than remaining in a portfolio consistent with an individual’s well-reasoned asset allocation. If a less-exposed posture is desirable, lowering overall portfolio beta while possibly adding to 5- to 10-year Treasuries might be employed.

Minimally, this might be a good time to review an asset allocation to be certain it is consistent with intermediate and longer-term objectives. It is not a time make major and drastic news-induced changes.

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About the author

Gregory M. Drahuschak

Equity Market Analyst, ISG

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