Suncor Energy Inc T.SU

US Debt Ceiling - Should We Worry?

[Experienced]

This is a really tough one to answer this time.  At the same time it is really important in terms of short term investment strategy.

Here's my take....take or leave it

The media are billing this as a potential default on the US debt obligations.  This narrative is designed to stoke readership but the reality is that the US Government will not default on paying its interest on the National Debt.  So this is good news...true??

Well not quite!!

What is different this time around is that Biden and the Dems have approved expenditures which are about 50% higher than the likely tax revenue. So while they will pay the interest on the debt, a decision will have to made about temporarily stopping other programs including the multi trillion dollar expenditures related to climate change and EV subsidies and handouts to lower and middle class people who are using this money to keep unemployment levels low and stock prices high.

Decisions related to how the US Government handles this situation can have a big impact on you as investors depending on whether there isn't a deal or not and if there is no deal. For example, what does Biden decide to do to deal with an impasse with the Republicans.

In addition to this, there is the question of an overall market reaction if there is no deal.  In 2011 when we had a similar situation (IMO this time around the potential is for it to be worse than back then), the stock market reaction was not pretty - look it up)

So again, as per my other post from the other day on another issue, investors need to watch this closely and be ready to react one way or the other.  Failure to do so could have a big impact on your returns.

[Torontojay]

You're missing the biggest issue in my opinion and it's that a raised debt ceiling will further drain the liquidity in the economy which in addition to quantitative tightening will likely seal the recession fate. The government TGA account has about $109B and it has come down sharply over the last year at ~ $547B. It's going to run out any month from now. The US will not default but

[Experienced]

Raising the debt ceiling in the US doesn't drain liquidity from the system.  A fundamental issue with the debt ceiling law in the US is that Congress has already approved the expenditures and they are the law of the country.  The problem is that these expenditure programs are approved even though all the legislators know that the funding of these programs will exceed the debt limit

[Torontojay]

It does drain liquidity from the system.  Get your facts straight first.  I stopped reading after the first sentence.   

[Torontojay]

Budget deficits are in fact inflationary.  When the debt ceiling is raised, the government has to replenish its Treasury General Account. It can come from 3 sources and I'll elaborate on each one.  1) The Federal Reserve can print more money. This is out of the question at this point.  2) The commercial banks are the principal owners of the Government debt. Bank