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Let’s talk about debt today. 

The U.S. hit the debt ceiling this month which has forced the Treasury Department to begin taking measures to continue paying the government bills. 

The million dollar question for traders and investors is: How will it affect the markets and their money?

Let’s understand this, starting with some data and charts…

The $31 Trillion Problem

$31.4 trillion! That’s a staggering figure and that’s how much the U.S. has reached in its debt obligations.

How did this happen?

The simple answer is that the U.S. government spent more than it earned by borrowing more money to keep things rolling over the years.

Here’s a quick look at the government’s actual and estimated budget receipts, outlays, and deficits:


The U.S. government, which runs on a fiscal year that starts on 1st October and ends on 30th September every year, funds much of its spending through debt, which is issued by the Treasury and the current limit set for this is $31.4 trillion.

Treasury data shows it is running a deficit of $421.41 billion for its fiscal first quarter of 2023, a 12% increase from the fiscal first quarter of 2022.

To make sense of this data, economists like to assess the debt as a percentage of the gross domestic product or GDP of a nation. 

Here’s a look at how the U.S. debt has been over the last few years:


And here’s how this compares with the GDP in percentage terms: 


That’s a whole lot of debt you’d say!

After the pandemic recovery spending, the debt currently is about 120% of GDP. That’s higher than after World War II, and this has prompted the Treasury Department to begin a series of extraordinary measures to continue borrowing until June. 

Let’s understand why this happened by understanding how the debt ceiling works.

The Debt Ceiling

The debt ceiling is not a hard cap and is often raised to allow the government to continue borrowing in order to finance its spending.

When the government reaches the debt ceiling, it can no longer borrow money and must either raise the debt ceiling or find other ways to reduce its debt. If the debt ceiling is not raised, the government may have to default on its debt obligations or shut down certain programs in order to stay within the limit.

Raising this limit would allow the government to borrow more to cover spending already approved by Congress. Failure to raise the ceiling would mean the government would eventually fail to pay back its debts, including interest payments on Treasury bonds — technically putting the U.S. government in default.

Things start to get ugly when this limit is raised too many times and becomes a big debt pile for the nation. 

The debt ceiling has been raised 45 times in the last 40 years! 

And if you want some trivia around how much a trillion is – a million seconds is 12 days, a billion seconds is 31 years, a trillion seconds is 31,688 years!

$31 trillion worth of debt does look huge on the U.S. government’s balance sheet.

Here’s how it can impact the markets…

Market Impact

The general consensus is that the U.S. has never defaulted on its debt and will very likely take steps to avoid a default this time around as well. And because of its reputation, U.S. debt is considered a risk-free “safety asset” in the world economy.

However, shakiness in U.S. creditworthiness could potentially result in some market turmoil, like in 2011 when the U.S. faced a debt ceiling crisis and received a downgrade in its credit rating.

High levels of debt can also make it more difficult for the government to borrow money, as lenders may be less willing to lend to a country that already has too much debt. 

Here’s what a report from the Guardian recalls:

In 2011, congressional Republicans and then President Barack Obama fought a prolonged, bruising battle over the debt ceiling that continued until just before the deadline for action ran out. Even so, ratings agency Standard & Poors downgraded the country’s credit rating for the first time, which made it more costly for the US federal government to borrow money thereafter.

A higher debt can also lead to increased inflation, as the government may be forced to print more money to pay off its debts. Increased inflation could mean decreased purchasing power for consumers and lower budgets and growth outlook from businesses

Additionally, high levels of debt can make a country’s economy more vulnerable to external shocks.

For traders and investors, the current developments around the U.S. debt can potentially lead to more volatility in the markets

It could also lead to higher interest rates as lenders demand higher returns to compensate for the increased risk. And this could further make it more expensive for businesses and consumers to borrow money and can slow the economic growth.

It’s important to note that the U.S. debt is not necessarily a bad thing as long as it is used to invest in infrastructure, education and other things that can boost long-term economic growth.

The current development on the matter is that the Congress must pass legislation to raise or suspend the debt ceiling of $31.4 trillion by that time or risk failing to pay its bills.

All in all, it’s a bad place for the U.S. economy to be in and it may bring potentially major market implications in the coming months.

Our top analysts are closely monitoring these trends and when they see any exciting opportunities to potentially target profit from, you will be the first to hear from them. (Click here to get their latest market predictions).

This prediction is our biggest call for Q1 with around 9015+ PIPs of potential opportunity trading USD currency pairs. 

We’re sharing all the data with you in an urgent webinar. Click here to learn more.

Predicted movements expected to last through the end of Q1 2023.

Predictions are not a guarantee of this or any result. Information provided on this prediction is for general information purposes only. We offer no representation or warranty with regard to this prediction. No prediction is personalized or otherwise directed at any individual or particular circumstances. We disclaim and will not accept any liability for losses associated with this prediction.

Some of the information presented may be provided by a third party. MTI is not responsible for any claims, products, services, or information provided by any third parties.  MTI does not provide any warranty or representation as to any third party data. MTI expressly disclaims any responsibility and accepts no liability with respect to such third party information, services, and/or products. The third party data is provided for convenience only and is in no way meant to imply an endorsement by MTI or any other relationship.

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