I often think that if you took away cable news, social media and the politicians who care more about getting on TV than solving problems, the debt crisis the U.S. is in would have been solved a long time ago. Instead, polticians have let things drag out to the point where the possibility of an actual U.S. credit default seems all-too-real. And given that American politics are nastier, more divided and more partisan than ever, it very well could happen.
Still, we have seen this movie before. Many times. I thought it might be instructive to look back and see what lessons can be learned from the past few showdowns and what it could mean for investors this go-round. December 2021: President Joe Biden was in the White House and Democrats controlled the House and Senate. But they didn’t have 60 Senate votes,which are necessary to pass budgets. Senate Republicans could have balked, but chose not to. The deal: In the end, both parties compromised, creating a one-time filibuster loophole that allowed Senate Democrats to raise the cap with a simple majority vote. The deal staved off something that some Republicans had floated: cuts to Medicare and other health programs. Still, as politicians played their sound-bite games, the Treasury came within one day of defaulting. The debt ceiling was raised $3 trillion to its current $31.4 trillion. Market reaction: The S&P 500
fell 17% over the next six months anyway, …
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