The next fight in Washington is going to be over the US debt ceiling. On Dec 31, 2012 the US Treasury Department confirmed the US has reached the statutory debt limit. Congress has until February 28th to raise the debt ceiling. The GOP will want the US Government to reduce spending over the long term to raise the ceiling. President Obama has already said he does not want to reduce spending but would rather just find more revenue (i.e. taxes).
The United States has a spending problem. The Fiscal Cliff has been described as a “self-inflicted” wound since the Administration and Congress knew this issue was going to come up for almost two years. The numbers below are from the last Debt Ceiling fight and compromise. I read it last year in the National Review. If you remember, the S&P 500 downgraded US debt because lawmakers could not come up with a long term solution for the out of control spending. Below is a great example of just how much this is a spending issue and not a revenue problem.
The first set of numbers is the real US revenue, budget, and debt figures from 2011. I don’t know about you, but once you start getting into the billions and trillions the numbers are mind numbing. To make it more real, take a look at the second set of numbers. All we are doing is taking off eight zeros to make it look more like a family household budget. If the family spends more than they take in, then we just add it to the credit card balance. This should put everything into context.
Why S&P Downgraded the US:
U.S. Tax revenue: $2,170,000,000,000
Federal budget: $3,820,000,000,000
New debt: $ 1,650,000,000,000
National debt: $14,271,000,000,000
April 2011 budget cut: $ 38,500,000,000
Let’s remove 8 zeros and pretend it’s a household budget:
Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Budget cuts: $385
That is what happened in 2011 the last time we had the US Debt Ceiling compromise. The markets had an ugly sell off and the US went to the brink of default. I hate to say it, but the prospects for a deal in 2013 look worse than 2011. The President has already said “I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they have passed.”
Many political and economic analyst say that cuts to the deficit this time around are more difficult for 2013. Apparently, all the “easy” cuts were done in 2011. What is left for 2013 is the hard choices. The GOP wants to reduce the deficit if they are going to increase the debt ceiling. The Democrats will want to keep spending as is and just raise taxes revenue. This could get ugly!
Try Turner’s Take Market Alert – for 30 Days
Turner’s Take Market Alert – Trial - Turner’s Take Market Alert includes Daily Updates and an Intraday Trade Recommendation service for Daniels Trading clients.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.