Raising the Federal Debt Ceiling
January 20, 2023
Many are raising concerns as another standoff over the federal debt ceiling looms. What are the potential economic impacts of this fight? Tune in to the latest episode of TrendsTalk with ITR Economics CEO Brian Beaulieu to find out!
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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hi, I'm Brian Beaulieu, CEO and Chief Economist for ITR Economics. And thank you for joining us for this edition of TrendsTalk. The big topic in the news, at least off and on during the day, is the debt ceiling. The federal government needs to lift it or else, as Janet Yellen says, the world comes screeching to a halt and all sorts of bad things happen. And let's just say that she seems to be given to a little hyperbole at this point.
The last time we found ourselves in a situation where there was a standoff, Congress wouldn't raise the debt limit, was in 2011. And here's what happened in 2011, the government had to shut down for, I think it was 35 days. Okay. So far I'm not seeing any harm in that because essential government functions were told to continue, but they were saving cash on other bureaucratic functions. GDP didn't come crashing down here or around the world. In fact, we forecasted 2011 GDP in middle of 2010, and by the end of 2011, it came in 0.8% below our forecast from 18 months ago. So apparently it wasn't this big detrimental impact on GDP. Industrial production had a very good year. And just like right now, we expect industrial production has other factors that will help it hold up.
Retail sales. Looked at nominal dollar retail sales. They didn't seem to be in any particular pain in 2011. So Main Street sort of shrugged this off. This is political theater. The one thing that I think you should be aware of is that political theater has a way of spilling over into the stock market. And that's one of the points here is if there is going to be turmoil, you'll probably feel it in your portfolios. And from our perspective, that means stay defensive in defensive sectors. It's one of the reasons why the optimizer is likely to stay defensive until we are through this mess, because this isn't normal economics. This is again, political drama, political theater.
Main Street tends to move right along. I don't think most of our clients are going to see a big disruption from this or really any serious disruption from this. We'll be talking about the administration trying to engage in some rhetoric to have the needle move in their direction. We don't have a dog in this fight. It'll move when it moves. It always does. We need to have a shut-down first, but Main Street keeps on turning, turning, and we're going to be buying. So I think there's some really good football games coming up this week, and you may want to tune in on those instead of Janet Yellen's next speech. Thanks for listening and I appreciate it. This is Brian Beaulieu from ITR Economics.