Is There A U.S. Debt Showdown Ahead?

Online, June 7, 2011 (Newswire.com) - Michigan-based financial advisor Dennis Tubbergen frequently discusses U.S. and world economics in his online blog and in his Moving Markets™ newsletter. Tubbergen recently dedicated one of his blogs to the topic of the debt ceiling in the U.S.

"Treasury Secretary Tim Geithner is trying to convince anyone who will listen that the U.S. debt ceiling needs to be raised in order to avoid dire consequences," begins Tubbergen.

He refers to a Bloomberg.com article on May 14, 2011 which states in part, "U.S. Treasury Secretary Timothy F. Geithner said a default arising from failing to raise the debt limit could cause 'irrevocable damage' to the economy, risk a 'double-dip' recession and increase unemployment."

Geithner went on to say that a default at this point in time would not only lead to an increase in the cost of borrowing for our government but for local governments, families and businesses as well.

In the article, Geithner also states a failure to raise the $14.29 trillion debt ceiling would result in the U.S. defaulting on some of its obligations and claimed, "This would be an unprecedented event in American history. A default would inflict catastrophic, far-reaching damage on our nation's economy, significantly reducing growth and increasing unemployment."

Although the United States was thought to have reached our debt limit on May 16, Geithner predicted our government could implement a few different methods to continue to borrow until several weeks past that date.

"With some creative moves, Geithner can keep the federal government operating for about six more weeks," predicts Tubbergen. "In the meantime, prepare for some interesting political theatre with many members of Congress stating that they will not vote to increase the debt ceiling unless there are significant changes made in the way that Congress approaches finances."

Tubbergen notes that in the same Bloomberg article, Senator Mitch McConnell stated he needed to see significant cuts to federal agency budgets as well as long-term spending reductions in Medicare and Medicaid in order to be able to support increasing the debt limit.

Senator Michael Bennett, who was also quoted in the article, stated that it was "absolutely urgent and essential" that lawmakers draft a plan that "materially reduces the deficit."

"Given that Senator McConnell is a Republican and Senator Bennett is a Democrat, is there a chance that we may have some consensus on getting the federal government's spending under control?" questions Tubbergen. "Maybe. But based on what we've heard from many of the Washington politicians so far, it's my view that neither side has the answer."

According to The Council on Foreign Relations in an article they published on May 3, 2011, the U.S. debt limit was put in place by the Second Liberty Bond Act of 1917. Since 1962, Congress has raised the debt limit more than seventy times.

That same article also states, "President Barack Obama's proposed budget for 2012 would require a nearly $2.2 trillion hike in the debt ceiling just to meet the government's obligations for next year. The proposed Republican spending plan would entail $1.9 trillion in new borrowing by October 2012.

"As I've stated previously, neither party has put forth a plan that makes meaningful change in the way that the U.S. government spends money," emphasizes Tubbergen. "While I certainly hope that the parties can work together to arrive at some mutually agreeable solution to the looming credit crisis, I'm not betting on that outcome just yet."

Tubbergen notes the key players did not do too well the last time they tried to achieve a similar outcome.

"With QE2 (quantitative easing 2) ending in June and the debt limit being reached at about the same time, I'm watching the bond markets closely," concludes Tubbergen.

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at www.dennistubbergen.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at www.everythingfinancialradio.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.