Transcript:
Easan Arulanantham:
So another news event that’s been kind of… been pretty prominent this week is, “The Republicans are refusing to raise the debt ceiling. Should I be worried about the market, and what kind of volatility should I expect?”
Tom Vaughan:
Okay, so, in my opinion right now, this is the reason the market’s falling. Probably most likely reason, is the thought of not increasing the debt ceiling. Because what happens is the government’s running a deficit, which just means that we have to borrow money to continue paying our bills, and borrow money to continue paying the interest payments, and principal payments, essentially on these previously issued debt and treasuries. And so, they have a ceiling. And the government runs up against that ceiling, and then it has to be moved up by Congress. That’s one of the dumbest things I’ve ever heard of. I don’t understand… this has been going on, we looked this up this morning, since 1917. So, this is something I’ve just would pray that they’d fix, because it becomes sort of this political football. So, right now, the Republicans are upset about this Reconciliation Bill that’s running around three and a half trillion. It might not be that big in the end. And one of the ways they’re trying to stop the Democrats from getting that through, is by telling them, “look, we’re not going to participate in increasing the debt ceiling.” Which, obviously, you’d have to do to issue this new, large spending program. And on the other hand, you have the Democrats saying, “Well, look, they’re not participating. They’re going to let the country default.
And so you have the Treasury Secretary, even today, talking about how bad it would be to default on Treasury. That’s going to make the market nervous, really nervous. Now, the Democrats can, all by themselves, using the reconciliation process, pass a resolution to increase the debt ceiling. And so, the chances of default or a debt ceiling not being increased, in my opinion, are really, really low, to the point where this downturn that’s being caused by this fear, is probably a buying opportunity, because the once they do increase that debt ceiling, we probably get some of that pressure off. But the fear of it is causing people that take a risk off the table. It is a really important component of what’s happening right now, in my opinion. I really don’t like this scenario at all. I think that there’s got to be a better way to figure out how to raise the debt ceiling, or get rid of it altogether. Putting something like this in the hands of politicians, who then can play political football with it, while the stock market ends up getting hurt because of that, at least in the short term. That’s hurting a lot of individual people, at least in the short term here. So that’s what’s happening. It’s a really good question. It’s very topical. It is today’s information. The market fell based on what Yellen said today. Again, it’s back and forth. I don’t want to assign blame to any one particular side, really. This is happening. It’s been happening for quite some time. It’s just that the debt ceiling is a political football, and it just it shouldn’t be, as far as that goes. This is a finance operation that should be done. They can decide what to spend, or what not to spend, but they shouldn’t be deciding any of the other aspects of it. That’s a mistake.