Something I’ve always striven to do in my adult life is pay my debts on time. Whether it’s a credit card bill, a car payment, or the mortgage, I’ve always made it a priority to ensure that I pay my bills to avoid the repercussions of a late or missed payment. This may seem like a simple an obvious task, but it seems that our government continually struggles to keep the nation’s doors open without requiring an increase in its borrowing limit.
Once again, America is facing a debt crisis—as of this writing, a deal has still not been struck in Congress to allow the nation’s debt limit to be increased or suspended, increasing the threat of the United States defaulting on its debts.
For now, Treasury Secretary Janet Yellen is preparing to take “extraordinary measures” to keep the government running. But what does that mean for the economy, and what might you be able to do to help protect your wealth from any potential volatility?
Battles over the debt ceiling are nothing new, but as our federal debt grows, so do concerns from economists.
The debt ceiling is the maximum amount the federal government is allowed to borrow, originating more than 100 years ago as a way to keep the government from borrowing too much money. To keep the country from defaulting on its debts—being unable to repay—Congress has continued to increase the debt limit.
The current debt limit is set at $31.4 trillion—the highest in our nation’s history. That limit is set to be reached Thursday, January 19—the day this edition of “Gold News & Views” is scheduled to publish. As of this writing, it looks like the showdown between Democrats and Republicans over the debt limit may continue into the spring while Treasury Secretary Janet Yellen employs “extraordinary measures” to keep the American government from defaulting on its debts.
According to The Wall Street Journal, U.S. debt held by the public is now about 100% of the nation’s gross domestic product (GDP), “up from 39.2% as recently as 2008 and 77.6% in 2018.” NBC News notes that this time around, “the political divide is deep, and the stakes are high.”
But what does yet another fight over the debt ceiling mean for your portfolio?
The fight over the debt ceiling could “rock financial markets.”
According to CNN, the fight over the debt ceiling “could rock financial markets, unnerve consumers, and threaten the economy with the specter of a calamitous default.” The New York Times frames it another way, saying, “The fragile U.S. economy could be rattled by a calamitous self-inflicted wound.”
The worst-case scenario would be a default on U.S. debt, which would trigger what economists have called “financial Armageddon.” According to CNN, a note released by Goldman Sachs on Monday, January 16, stated that just the fight over the federal debt ceiling “could spark the most uncertainty since the 2011 brinkmanship that cost America its perfect AAA credit score and caused chaos on Wall Street.” It may be worth noting, however, that while Wall Street saw “chaos,” gold reached a then all-time high price of over $1,900/oz.—prices we’re seeing once again.
Secretary Yellen says that the government could default on its debt as soon as June 2023. Until then, markets may be set for increased uncertainty, which could also lead to volatility.
In these times of uncertainty, Americans are turning to physical gold to help protect their wealth.
On January 16, 2023, Reuters reported, “Gold prices are expected to rise towards record highs above $2,000 an ounce this year, albeit with a little turbulence.” The article specifically discusses a potential slowing of interest rate hikes by the Federal Reserve as a main driver of higher gold prices. But other sources like Kitco News noted that gold had already been pushed higher after the announcement by Secretary Yellen that the government would reach the debt limit on January 19, 2023.
For many Americans, this is the exact sort of situation gold is perfect for—times when financial markets face increased uncertainty and a safe harbor may be desired for helping protect personal wealth. I would argue that gold is more than just a financial hedge or safe-haven asset because it has experienced growth in times of both economic uncertainty and prosperity. No matter how you view the precious metal though, it remains a popular choice as a store of wealth for millions of Americans.
For myself and those like me who maintain a steady focus on their portfolios and financial well-being, repaying debts on time is important—partly because we don’t want to face a scenario where a bill comes due and we have no way to repay. With the federal government once again battling over the debt ceiling, we are once again faced with the question of what will happen in the future—and I am once again reassured with the peace of mind that comes from having physical gold in my portfolio.