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  • Mark Mooring

Is The Sky Falling? Debt Ceiling by the Numbers

Before you read this writeup, I’d like you to conjure up your favorite viral video of a weatherman reporting on the scene of some weather phenomenon. Picture this guy struggling to stand up in hurricane force winds or this lady paddling a canoe down a flooded street. In the short writeup below, I hope to be the jerk that ruins their dramatic shot.


If you’re paying attention to the various outlets spinning out fear from either side of the aisle, you’re probably pretty scared that the US Government’s next check will bounce, and a catastrophe will soon envelope the global financial system. But let’s take a step back and view the situation with some historical context.


Since 1960, the debt ceiling has been raised 78 times, including three times since 2020. Excluding the 1980s, the debt ceiling conversation happens about once per year. So why is it spooky this year? The short answer is divided government. Anytime Congress and the President are in different parties, the political theater heats up and it generates TONS of clicks for news and financial media.


Check out these past headlines:

CNN Money

“Debt ceiling delay would be ‘Chaotic’” - Jun 28, 2011

“Obama signs debt ceiling bill, ends crisis” - Aug 11, 2011


Intelligencer

“Here are Some of the Apocalyptic Things that Could Happen if the Debt Ceiling is Breached” - Sep 27, 2013

“Stop Fretting: The Debt Ceiling Crisis is Over!” - Oct 16, 2013


Financial Times

“A US debt ceiling crisis might be closer than you think” - Apr 18, 2023

“Thanks for the clicks, on to the next crisis!” - Jun ?, 2023


While a true default on US debt would be problematic, the US has never defaulted on its debt over a failure to raise a debt limit. In 1995 the government shut down for about 26 days after two spending bills were vetoed, in 2011 a bill was signed two days before the government ran out of money, and in 2013 the government shut down for 16 days with the final bill being signed the day prior to the government running out of money.


The last 10 times we headed down this path, our esteemed leaders reached a deal about a month before default twice, weeks prior four times, and days prior four times. Using single factor analysis (a.k.a. ignoring the multitude of other things that impact the market), these debt ceiling debates rarely register on the chart when viewed month-to-month. The four times we’ve seen notable market volatility coincident with these debates, only twice has recovery taken more than two months and both of those resolved within the year. Again, that’s not considering any other factors that impact financial markets.


If you’re not yet convinced that the “flood waters” are only ankle deep, can you point out the last ten times we played this game on a chart without any reference points? If so, you’re better than me!

Can you identify the past debt ceiling crises?
Can you identify the past debt ceiling crises?

Here are those debates marked in red (2010-2023). Don’t worry, I don’t see a pattern either.

See a pattern? Neither do I.
See a pattern? Neither do I.

So, what should you do? If you’re concerned, give us a call and we can review your portfolio and whether it matches your risk profile. If you don’t want to call us, then turn off your news feed and believe political chicken will resolve itself and, in a few weeks, we’ll be focused on the next crisis.


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