Economic Commentary

This Debt Issue is Serious

We are quite sure that we did not need to state the obvious. However, as obvious as the importance of the Federal debt situation is to the average person, we are getting the impression from the media that certain members of Congress are not taking the possibility of default seriously enough. How can that be? For decades, every time the limits of the government’s borrowing power was reached, after some hemming and hawing, Congress voted to raise the debt ceiling. It was unthinkable that we would stop paying our bills. Now some members have said, “enough is enough.” We need to seriously address balancing the budget before the next such action is taken. Discussions have been going on for some time now and we are now running up against a deadline which comes in early August. Could we really have the government shut down temporarily just as the State of Minnesota did recently? Could the “unthinkable” actually happen?

We hope not. The economic recovery has faced enough headwinds this year without the damage a shut down even for a few days could cause. And who knows how bad the financial markets could react. We agree with the “enough is enough” sentiment. Something must be done in order to get the long-term deficits under control. Cuts in a weak economy will not help the recovery in the short-run, however, the fact that the government is willing to address the longer-term issues will give the financial markets and consumers more confidence in the long-run. This confidence will far out-weigh positively the temporary lack of stimulus. A deal must be cut and every side must compromise for that to happen. It would be nice if Americans heard that all elected officials were working seriously together to help solve our problems. What a concept. In the meantime, the closer we get to the deadline, the more volatility we can expert from the financial markets, much like we have seen with regard to the Greek, Portuguese and now Italian debt situations–only more pronounced.

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