Is Congress About to Blow Up the Economy? Yes, It Appears So…

With apologies for stealing from a dead guy (New York Yankees great, Yogi Berra), “It’s like déjà vu all over again.” 

Just over a decade ago, late-summer 2011, America awoke on a Monday morning to stunning financial news.  

For the first time in history, bond-rating service Standard & Poor’s had downgraded America’s debt to AA+ from AAA. 

Doesn’t seem like much, like getting a 97 on your trig test instead of a 100.  

But in the world of high finance, this was a small nuclear device that detonated in the financial markets. 

That Monday, stocks lost nearly 5%. But that was just one day in the life of a four-month saga—a saga that saw the S&P 500 stock index fall more than 17%…nearly the official definition of a bear market (a decline of 20% or more). 

The culprit: Washington, D.C. and the fight over the “debt ceiling,” the maximum amount by law that Uncle Sam can borrow.  

Well, we’re there again. 

Sometime next month, the U.S. will hit its spending limit. 

And if Uncle Sam’s enablers—Congress—allow that to happen and don’t raise the limit…well, as Chris Isaak once sang, “Baby did a bad bad thing.” 

America would not be able to hit up the bond market and borrow the money necessary to pay its debts. Uncle Sam would potentially miss upcoming bond payments. Technically, that’s a default.  

And America defaulting on its debt is a huge—HUGE!—deal. 

Not just for America… 

For the world. 

U.S. debt is—supposedly—the safest in the world. But the moment America misses a single bond payment, that whole shtick about “the full faith and credit of the U.S. government” goes right down the flusher. 

Investors would rightly worry about the future, and whether America’s insanely polarized, political circus clowns would continually use the debt ceiling as a stick to wallop the other party every time power switches in Congress or the White House. 

Investors outside America are quickly realizing that what’s good for America no longer matters to American politicians.  

What’s good for party…that’s all that matters in America now. 

The power-hungry lunatics in Congress have decided that the only things truly important to them are undermining the opposition and winning election campaigns…no matter how badly their tactics impact the U.S. economy. 

They appear all too happy to let Uncle Sam default, despite the clearly knowable impacts to the stock market, and to the wealth of ordinary Americans who will see their brokerage and retirement accounts slammed again.  

And, so, we come to the debt ceiling financial fisticuffs… 

My advice: Be prepared for a few months of financial pain.  

And be prepared to snap up certain stocks on the cheap. There are a few in the Global Intelligence portfolio that I will be telling readers to double down on, if they hit certain levels—particularly commodity stock and stocks tied to the blockchain.  

The stock market has fallen 2% or 3% so far this month. As the rhetoric and vitriol heat up in D.C., and as Uncle Sam lurches ever-closer to his Mastercard spending limit, the U.S. and world markets are going to be increasingly on edge. 

And if we wake up on some Monday morning in October to find that the U.S hit the debt ceiling and that S&P has downgraded American debt once again, you can bet it’s going to be a very dour autumn in America.