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Will the United States default on its debt? | ticker VIEWS

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US President Joe Biden on jobs

Across the United States and around the world – markets, business leaders, financial institutions, governments, citizens – are anxiously monitoring the question of whether the United States will default on its $28.43 trillion debt that it is carrying today

The United States has never, ever defaulted on its debt.

The political leaders in both parties have never let that happen.  Until possibly right now.

Australia, to its credit, abolished the statutory debt limit in 2013 and does not face this crisis management issue. 

The US statutory debt limit – the amount of money the United States Government can finance – has been raised over the decades by law and is today at $28.4 trillion.  That ceiling was broken in July. 

The United States Treasury is undertaking “extraordinary measures” to manage the inflow and payment of funds

Money coming in from tax receipts and going out in interest and other payments due, to keep the daily aggregate debt under that statutory ceiling.

But those measures will be exhausted on or near October 18.  When that happens, the United States will no longer be authorised by law to pay its creditors. 

It is like your credit card reaching its limit – you can’t buy anything further on it.  You need a higher credit ceiling from your card’s issuer to keep spending.  Good luck!

This is why Congress needs to raise the existing debt limit.

While it sounds simple, it is immensely, intensely, fraught with the rudest, most confrontational politics. 

If you are a Democratic president of the United States, and you need to raise the debt limit, your political opponents, who want you exorcised out of office, will call you irresponsible, radical and guilty of fiscal recklessness – and no, we will not give you the votes in Congress to raise the debt limit.

The debt limit has been raised some 80 of times since 1917 – generally on a bipartisan basis. It was raised three times under President Trump.  But under President Obama, and now under President Biden, Republicans in Congress are refusing to vote in any way, shape or form to raise the debt limit.  

Every responsible economist believes that a default by the United States on its debt will have catastrophic consequences

This includes the possibility of market crashes and recessions in the US and in countries around the world. In the United States, the ability of the government to make cash payments and to continue programs like Social Security and child care and veterans support, could be sharply curtailed and possibly stopped.

Treasury Secretary Janet Yellen has relentlessly argued the urgency of this looming crisis:

Treasury Secretary Janet Yellen

“I believe the only way to handle the debt ceiling is for Congress to raise it and show the world, the financial markets, and the public that we’re a country that will pay our bills when we incur them. 

When Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making.

If to finance those spending and tax decisions, it’s necessary to issue additional debt, I believe it’s very destructive to put the president and myself — the treasury secretary — in a situation where we might not be able to pay the bills that result from those past decisions.”

US Treasury Secretary Janet Yellen

The Republican leadership in Congress is arguing: The debt limit is being breached because of all the Biden spending. 

You have majorities in the House and Senate – this is your problem, you fix it

As a political ploy, it sounds pretty effective.  But the debt limit is always reached on spending that occurred earlier – not the big spending Biden is asking Congress to approve today.  A trillion dollars plus  of today’s debt is due to the Trump tax cuts. 

The Biden spending hasn’t been enacted much less booked yet.

While Republicans say the Democrats have the votes to raise the debt limit, the problem is that Senate Republicans will not let the debt limit extension pass with just a simple majority of 51 (all the Democrats plus Vice President Harris)– they will not yield on the 60-vote supermajority protected by the filibuster.

No one has found a way out of this nightmare yet

The truly frightening undercurrent that is becoming visible is that some Republicans now seem to believe that it is OK for the United States to default – that if that occurs, then the ensuing catastrophe will be at the feet of Joe Biden and the Democrats. 

They lose. We win because they will own the country’s agony.

This is not going away.  It is not even close to getting solved.  The United States may well plunge over the fiscal cliff later this month.

Bruce Wolpe is a Ticker News US political contributor. He’s a Senior Fellow at the US Studies Centre and has worked with Democrats in Congress during President Barack Obama's first term, and on the staff of Prime Minister Julia Gillard. He has also served as the former PM's chief of staff.

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Tame the market with seven facts to conquer your stock fears

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Embrace the upside: Understanding and navigating stock market corrections

If the idea of stock market corrections makes you nervous, you’re not alone.

However, understanding the truth about stock market corrections can free you from fear and empower you to take control of your financial future.

The fact is, corrections and even crashes are a natural part of the market cycle, and fearing them can cost you more than the corrections themselves ever could.

Investing is a participation game, and sitting on the sidelines out of fear may be the biggest financial mistake you can make.

Let’s explore seven essential facts about stock market corrections and how they can help you overcome the fear of investing.

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Corrections Are Normal

The first fact that will free you from the fear of stock market corrections is that they happen frequently—about once a year, on average, since 1900.

A correction, defined as a market drop of 10% or more from a recent high, is a routine event.

Corrections occur for many reasons, from geopolitical uncertainty to economic reports that don’t meet expectations and even dare I say it, market manipulation!

They’re not a sign of doom; they’re part of the market’s natural rhythm.

Understanding that corrections are a regular occurrence can shift your mindset.

Instead of seeing them as a threat, you can view them as an opportunity to buy stocks at lower prices.

History shows that the market eventually recovers and continues its upward trend, rewarding those who stay invested.

FILE PHOTO: Traders work on the trading floor at the New York Stock Exchange

Most Corrections Don’t Become Bear Markets

Another reassuring fact is that less than 20% of all corrections turn into bear markets, which are defined as declines of 20% or more. The last 20% plus correction we saw was the first six months of 2022.

This means that the majority of corrections are temporary pullbacks rather than prolonged downturns.

While corrections can feel unsettling, they’re rarely the beginning of a sustained decline.

By keeping this fact in mind, you can avoid making emotional decisions during market dips.

Instead of selling in a panic, focus on your long-term goals and remember that most corrections resolve quickly.

WATCH INVESTMENT INSIGHTS ON TICKER

Nobody Can Predict Market Movements Consistently

The fear of corrections often stems from a desire to predict the market’s next move. But the reality is that nobody can consistently forecast whether the market will rise or fall.

Even seasoned professionals and economists get it wrong more often than not. I often find myself talking about people like Robert Kiyosaki and Jim Cramer who are famous for their big claims about the market and being wrong, repeatedly!

This unpredictability highlights the futility of trying to time the market.

Instead of attempting to guess when a correction will happen, adopt a long-term investing strategy.

Staying invested through market ups and downs ensures you don’t miss the eventual recovery and growth.

The Market Rises Over Time

Despite short-term setbacks, the stock market has a long history of rising over time.

From 1926 to today, the S&P 500 has delivered an average annual return of about 10%.

This growth includes periods of corrections, bear markets, and even major crashes that includes the pandemic.

The lesson here is clear: the market’s upward trajectory rewards patience and consistency.

Short-term volatility is a small price to pay for long-term gains. By staying invested, you allow compounding to work in your favour, growing your wealth over time.

Bear Markets Are Rare and Temporary

Historically, bear markets—declines of 20% or more—have occurred about every three to five years.

While they can be unsettling, they are temporary and eventually give way to bull markets.

The average length of a bear market is about one year, while bull markets can last for several years, far outweighing the declines.

Knowing that bear markets are infrequent and short-lived can help you maintain perspective. Instead of fearing them, view them as part of the natural cycle that leads to long-term growth.

In fact, bear markets can be a good time to purchase stocks that you have identified as good long term growth prospects and add to them at the reduced prices, while others are exiting in fear.

I call this turning the tables and becoming a professional of the market.

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Pessimism Turns to Optimism

Another key fact is that bear markets inevitably give way to bull markets.

Pessimism about the economy or corporate earnings is eventually replaced by optimism as conditions improve.

This cycle of negative sentiment turning positive is what drives market recoveries and new highs.

Understanding this dynamic can help you stay calm during periods of market stress.

When others are panicking, remind yourself that optimism and growth are on the horizon.

Staying invested allows you to participate in the recovery.

The Greatest Danger Is Staying Out of the Market

Perhaps the most important fact is that the biggest danger to your financial future isn’t a market correction or crash—it’s being out of the market entirely.

Missing just a few of the market’s best days can have a devastating impact on your long-term returns.

For example, if you missed the 10 best days in the market over a 20-year period, your returns would be significantly lower than if you had stayed invested throughout.

Let that sink in for a moment, just 10 days, and they aren’t published beforehand for everyone to know when they are coming.

This highlights the importance of participating in the market, even during periods of volatility.

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Conclusion: Embrace Stock Market Corrections

The fear of stock market corrections often stems from misunderstanding their frequency, impact, and role in the investing process.

By embracing these seven facts, you can shift your perspective and see corrections for what they are: temporary setbacks that lead to long-term growth.

The key takeaway is clear: fear of what might happen is costing you your financial future.

Investing is a participation game, and staying on the sidelines guarantees you’ll miss out on the market’s growth. Take control of your financial future today, embrace corrections as part of the journey, and focus on the long-term rewards of staying invested.

Andrew Woodward is the Founder of The Investor’s Way and host of Investment Insights on Ticker.

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Why America is done with European drama

Putin gains leverage as Trump shifts US stance on Ukraine, sparking concerns over exclusion of Europe from negotiations.

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Vladimir Putin gains leverage as Trump shifts US stance on Europe and Ukraine, sparking concerns over exclusion of Europe from negotiations.

In Short

U.S. Defence Secretary Pete Hegseth stated that returning Ukraine to pre-2014 borders and NATO membership are unrealistic, suggesting a shift in negotiations that may exclude Ukraine. Meanwhile, former President Trump had a significant call with Putin, indicating a willingness to lead peace talks without European consultation, raising concerns among European leaders about their role in discussions and Ukraine’s future.

Hegseth stated that a return to Ukraine’s pre-2014 borders and NATO membership for Ukraine were unrealistic in negotiations.

These remarks suggested that Russia would not need to negotiate over Crimea nor consider NATO military presence a red line.

Shortly after, President Donald Trump revealed he had a “lengthy and highly productive” call with Russian President Vladimir Putin, indicating a willingness to lead peace talks without prior consultation with European leaders or Ukraine.

The announcement caught the international community off guard, sparking fears that Ukraine might be sidelined in future negotiations.

But is this really surprising? It’s evident that President Biden was Zelensky’s ally, and while the Ukrainian president remained hopeful (and had to be) that Trump would follow the same path, he likely anticipated changes once Trump took office.

Appeasement approach

For months, Trump has been promising to end the destabilising Ukraine/Russia conflict. Anyone experienced in negotiation knows you never reveal your next move to your adversary. Trump’s openness about his goals was likely seen as an indication that he understood the only way to contain Putin was to make him feel victorious.

Many are upset by this approach, arguing that ‘appeasement’ sends the wrong message to Putin and other authoritarian leaders. However, reality differs from textbook scenarios—the old saying ‘we won’t negotiate with terrorists’ doesn’t hold up when the terrorist possesses nuclear weapons. M.A.D. was intended to prevent World War III, and it has so far succeeded.

After nearly three years of stalemate and hundreds of thousands of deaths, the only way Ukraine can fully expel Russian soldiers is if the US, UK, and Europe deploy troops. But in which direction does that push the war?

What happens if Russia eliminates an entire UK or US battalion? The situation can escalate rapidly.

Those comparing Trump to Chamberlain in the 1930s are overlooking the fact that Hitler did not have nuclear weapons.

Munich conference

During a major security conference in Munich, JD Vance criticised Europe, questioning its current values. This remark did not sit well with European leaders, who expressed their dissatisfaction and raised concerns about the U.S. commitment to NATO and their involvement in regional security discussions.

For those who completely disregard NATO or Europe’s support for Ukraine over the past three years, consider this: without the defence of Ukraine, how easily might Russian troops have invaded and occupied the country by now?

At least there is still a country to recognise. Perhaps having 80% of something is preferable to having 0% of nothing.

Ahron Young is Ticker’s founder and Managing Editor.

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Why interest rate cuts alone won’t save Aussie business

Impact of interest rate cut on mortgages, rents, and BHP’s profits amid economic recovery signs and trade tensions.

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Impact of interest rate cut on mortgages, rents, and BHP’s profits amid economic recovery signs and trade tensions. But what about business?

In Short

An expected interest rate cut may help mortgage holders by increasing disposable income but could also reduce savings interest for homeowners. Meanwhile, BHP reports a profit drop but remains optimistic about demand despite global economic uncertainties.

As the RBA meets to cut interest rates by .25%,  the change in cost of money will affect individuals based on their financial circumstances. For some, it’s the start of a new era of hope, for others, it’s too little, too late.

The covid 19 pandemic, and government actions since have taken the country’s economy on a rollercoaster ride it didn’t need or ask for. It was the second half of 2019 that economists were warning that Australia may need to look at quantitive easing. How times change. Even the RBA governor was unable to predict just how drastic the inflation bubble would be.

Housing costs play a vital role. Approximately one-third of Australians have mortgages, typically on variable rates. A rate cut may increase disposable income for these borrowers, but just how they will spend that extra cash is circumstantial. For many, it will be spent just the way it is now – getting on top of their mortgage. For others, they’ll be looking at returning to a ‘normal’ life – going out for dinner, and even visiting the supermarket, which is more and more seen as a luxury these days.

Rental market

Around one in three Australians rent, and many rental properties are mortgaged. Lower mortgage costs could relieve pressure on rental prices, though rents rise due to demand and supply issues.

Homeowners, comprising nearly one-third of the population, may see reduced interest earnings on savings due to a rate cut. They often have significant assets benefiting from higher rates currently.

How many cuts?

Predictions on the number of potential rate cuts vary among major banks. Commonwealth Bank and Westpac anticipate four cuts, NAB expects five, while ANZ predicts two. These forecasts may change post-RBA meeting depending on economic outlook.

So how are our businesses doing? Well big business has had a rollercoaster ride too.

BHP remains optimistic about product demand despite economic uncertainties, citing resilient performance in the US and growth in India. An interim dividend of 50 cents per share has been declared.

But for small business, it’s going to take a lot more than one rate cut to strike up the engine. What has always been a delicate balance has swung too far in the wrong direction for a lot of businesses. And while rate cuts may inspire more spending in the economy, there are too many other factors, notably government policy, that businesses need to see change before they’re willing to invest heavily again.

Ahron Young is the Founder and Managing Editor of Ticker.

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