Epic financial crisis in the U.S. likely to be avoided

I have received several requests to write an article on the U.S. debt situation — something that has been getting a lot of attention in the news recently with an important deadline approaching.

I have received several requests to write an article on the U.S. debt situation — something that has been getting a lot of attention in the news recently with an important deadline approaching.

August 2 is the day when apparently the U.S. government will run out of money, as they will be unable to borrow any more to finance their deficit spending. 

What does this mean? 

Among other things it means that they will have no choice but to default on their debt. 

A number of readers have asked me to comment on the implications of such a default, and here is what I would foresee:

A financial crisis of epic proportions.

And that is about all I want to say about it, because it won’t happen.  

To avoid a crisis on August 2, the U.S. Congress simply needs to authorize an increase to the debt ceiling — something they have done 72 times since 1962 and 10 times in the last decade alone. 

The problem is that more and more politicians are refusing to support this increase unless a credible plan to get the debt situation under control can be agreed upon first. 

I have no interest in taking sides politically, as both parties can share in the blame for getting them to where they are today. But suffice it to say that there are differences of opinion as to how and when the debt issue should be tackled, and what is best for the U.S. economy.

But rest assured that sometime soon they will reach an agreement. They have to, and it will probably happen at the 11th hour. 

Worst case scenario is that it does not happen by the deadline, in which case the markets would fall the next day which would put tremendous pressure on them to get their acts together and reach an agreement — and they would, then the markets would likely recover.

But that of course is not the real issue. 

What is more important has to do with the agreement that they reach, and whether or not it solves anything, as opposed to kicking the can further down the road. Because while a default is very unlikely, there is a real possibility that U.S. debt could be downgraded. And while not as catastrophic as a default, the implications would still be serious. One would think this would mean higher interest rates, for example, but even that is not a given in these days of Quantitative Easing. 

What is an investor to do? 

In my opinion the same thing I have been preaching for years. 

Count on more money printing and make sure you have some exposure to gold and other precious metals. 

Engage the services of a global bond manager who understands the macroeconomic situation and manages your money accordingly. 

Have some exposure to responsibly managed hedge funds. 

If you are to buy stocks, focus on ones that pay dividends that you can reinvest as you see fit. 

Look at alternatives such as annuities, which provide income that is certain and secure. And don’t overlook things that you can control — such as reducing taxes on investment income.

But most of all: focus on what you need your money to do for you, and plan accordingly.

If you need help, please call.


Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only.  Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund. 

For more information feel free to call Jim at 250-594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.

Just Posted

John Furlong told the Vancouver Board of Trade on Feb. 20, 2020 that he thinks the city could and should bid for the 2030 Winter Games. (CP photo)
The Co-op gas station at Whiskey Creek is burning after a camper van burst into flames just before 4 p.m. on Thursday, June 17, 2021. (FACEBOOK PHOTO)
Exploding camper van torches Highway 4 gas station between Qualicum Beach and Port Alberni

Highway traffic blocked after Whiskey Creek gas station erupts into flames

Morningstar Golf Club in Parksville will host the 2021 B.C. Junior Golf Championships. (PQB News file photo)
Morningstar Golf Club in Parksville to host 150 of B.C’s top junior golfers

Provincial boys and girls championship begins June 28

Hannes Grosse, left, and Iris Steigemann, right, as they prepared for their 'Moments of Silence' exhibit. The father-daughter duo are showing at The Old School House Arts Centre in Qualicum Beach until June 26. (Submitted photo)
Cortes Island artists exhibit at Qualicum Beach’s TOSH in first father-daughter show

Both artists will be present at shows on Friday, June 25 and Saturday, June 26

People line up to get their COVID-19 vaccine at a vaccination centre, Thursday, June 10, 2021 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Vaccines, low COVID case counts increase Father’s Day hope, but risk is still there

Expert says people will have to do their own risk calculus before popping in on Papa

Photos displayed at a vigil for former Nanaimo outreach worker Amy Watts, whose body was found June 3 and whose death RCMP are investigating as a homicide. (News Bulletin photo)
‘We need to do better,’ says mother of woman killed in Nanaimo

Vigil held for former outreach worker Amy Watts, whose body was found downtown June 3

Thousands of protesters make their way through the downtown core during a Black Lives Matter protest in Ottawa, Friday June 5, 2020. THE CANADIAN PRESS/Adrian Wyld
MPs’ study of systemic racism in policing concludes RCMP needs new model

Chair of the House public safety committee says it’s time for a reckoning on ‘quasi-military’ structure

A case filled with packages of boneless chicken breasts is shown in a grocery store Sunday, May 10, 2020, in southeast Denver. THE CANADIAN PRESS/AP-David Zalubowski
One million chickens euthanized during labour dispute at Quebec slaughterhouse

Premier says waste amounts to 13 per cent of the province’s chicken production thrown in the garbage

Premier of Manitoba Brian Pallister speaks at a news conference at the Manitoba Legislative Building in Winnipeg on Wednesday, April 7, 2021. THE CANADIAN PRESS/David Lipnowski
Provincial leaders want more federal money for health care, plan to meet in fall

Premiers ask Ottawa to increase its share of overall health spending to 35 per cent from 22 per cent

A section of the eastern slopes of the Canadian Rockies is seen west of Cochrane, Alta., Thursday, June 17, 2021. A joint federal-provincial review has denied an application for an open-pit coal mine in Alberta’s Rocky Mountains, saying its impacts on the environment and Indigenous rights aren’t worth the economic benefits it would bring. THE CANADIAN PRESS/Jeff McIntosh
Panel says Grassy Mountain coal mine in Alberta Rockies not in public interest

Public hearings on the project in southern Alberta’s Crowsnest Pass region were held last fall

An old growth cedar stands in a cut-block within the Caycuse Valley. More than 100 prominent Canadians, have signed an open letter calling for the immediate protection of all remaining old-growth forests in B.C. (Submitted)
Brian Mulroney and Greta Thunberg among 100 celebrities pushing to save B.C. old growth

List includes Indigenous leaders, scientists, authors, Oscar winners

The border crossing into the United States is seen during the COVID-19 pandemic in Lacolle, Que. on Friday, February 12, 2021. THE CANADIAN PRESS/Paul Chiasson
U.S. border restrictions to remain in place until at least July 21

Safety minister says Canada, U.S. extending restrictions on non-essential international travel

Most Read