This issue is in the headlines because we are approaching another debt ceiling circus in Washington. Since mid-January of this year, the government has been over its $31.38 trillion debt ceiling. Right now, the Treasury Department is effectively kiting checks by not paying some bills in order to avoid a general default. These financial acrobatics will be exhausted in early June. Between now and then, expect there to be much public posturing about “real” and “lasting” solutions to the problem. The most likely outcome will be leadership kicking the can down the road for another day by raising the debt ceiling but not making any fundamental changes to the budget, let alone having a plan for the deficit. Expect angsty, hot air-filled posturing with both sides screaming into their respective echo chambers about the irresponsibility of the other side. The closer they push this toward the June deadline, the more investors can expect heightened volatility in the capital markets.

As Americans, we have been lucky that the markets have to-date funded our profligate spending at modest interest rates. We have benefited from the fact that there is no alternative to the dollar as the world’s reserve currency. Historically viewed, this pass on overleverage does not last forever. You need only to look back on the Romans, the Spanish, and the British to see what happens when investors lose faith in the world’s safest currency. It does not end well. There are numerous economic and geopolitical benefits that come from being the superpower that prints the world’s reserve currency. For no other reason than that, it would be imprudent to test the market too often with these fictitious debt ceilings. Since 1960, the debt ceiling has been raised 78 total times. Why keep challenging the market to reconsider whether we are good for our debt?

To count to a trillion dollars at one dollar per second would take almost 37,000 years. To count to $30 trillion would take almost a million years. We are not going to solve these problems in a day, but the level and trajectory of our debt load does not appear to give us 30,000 years of runway. At some point both sides are going to realize that they each must give a little – this is both a revenue and expenditure problem – to make any headway in solving what seems to be one of the biggest undiscussed issues facing the long-term stability of our country. We would love to hear your thoughts on this or any other financial matter.

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