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The debt ceiling talk is creating fear and volatility in the market. As the House, the Senate, and the President try to come to a bipartisan conclusion, many investors fear the possibility of a default. There are many reasons why the government could default on its debt and raise the debt ceiling, but the severity of the consequences of defaulting is far greater than raising the debt ceiling. This goes beyond rational thinking and actual numbers; politics plays a huge role in the decision. The Republican and Democratic
parties have been more divided than ever, making it more difficult to reach an agreement. Corinthian Wealth Management understands the concerns many of us face during this time and remains on guard for any possible shifts.
Every time is different, but historically, we have been down this road at least twice in the last 12 years. The US has never defaulted on its debt obligations, but doing so would have negative consequences. The US is one of the most powerful economies, and telling people they can no longer pay their debts wouldn’t just impact the country but the whole world. An effective way to think of it is as the nation with the best credit score, meaning we can borrow at higher limits and low rates. If we defaulted, our borrowing limit would be reduced, and the cost of borrowing would increase. This is just one of many other reasons why we may not default.
Because so much is at stake, it doesn’t mean we disregard the possibility of a bad outcome. Our team at Corinthian Wealth Management continuously monitors any drastic market changes and is diligent in the changes we make to our client portfolios. Some of
our approaches are moving a portion of our fixed income into Certificates of Deposit up to the FDIC limit and keeping larger amounts of cash. We are aware of potential tax consequences on the equity side, so we are being more cautious about what we buy or sell. Remember, we are in for the long term, and your portfolios are invested to reflect your risk tolerance and time horizon. If there have been significant life changes that we are not aware of, please give us a call to re-evaluate your situation and make the appropriate changes to your investment goals.
Corinthian Wealth Management
(408) 995-0915
Advisory services are offered through Corinthian Wealth Management INC., an SEC Registered Investment Advisor.
Sources:
Goldman Sachs Market Pulse, May 2023. https://www.gsam.com/content/gsam/us/en/advisors/market-insights/market-strategy/market-pulse/2023/market-pulse-may23.html