Debt Ceiling and Real Estate Investing
My grandfather said once, just because you have not seen it in your lifetime, doesn't mean it can't happen. He has lived through the great recession 1929 and WWII. I start to wonder if I have been too optimistic about the US defaulting on it's debt payments as our two political parties are playing a game of chicken with basically the world economy at stake. This is the big headline this morning in German newspapers and I imagine everywhere else. The fact that we are even having this situation seems so unbelievably irresponsible as it will do doubt harm the standing of the USD in the world.
But politics aside, I wonder how this could impact the US real estate market, perhaps in a way we do not anticipate. If the 10 year treasury goes haywire we could see mortgage rates do the same (looks like the last few days we are on our way back to 7% already..) I have read that CFO's of large companies have increased cash positions to cover at least the next 2 payroll cycles - are they over reacting?
This happens every few years - they are not
It’s like telling your kid your not gonna feed them until they clean their room.
You will eventually feed them even if the room is not completely clean
I attended a shareholder dinner for a local startup business bank on Thurs night. Obviously there was discussion and focus on the recent bank failures, as well as the debt ceiling.
The response from management on the debt ceiling was "I'm not losing one second of sleep over it, IF there isn't an agreement in time then it will be resolved within days". And I'd agree, at that point the agreement will quickly materialize because suddenly the politics of negotiating will be secondary to resolving the issue.
Another consideration...we've defaulted before. Maybe not under these specific circumstances, but it has occurred. Here is a summary. We survived then too.
Finally, I'm personally of the opinion that this 'brinksmanship' is good no matter which side is doing it. These difficult decisions to borrow more, or spend less, or adust budget priorities are happening right now. When there is room to borrow more and a budget is passed the discussion doesn't always have the importance behind it that it should. Even if the result of this is just that the ceiling is raised to meet the current budget obligation with no reduced spending that's good. Then we all looked hard in the mirror and said 'I'm ok with spending using debt, and I feel like those resources were used well'.
We need to be less concerned about the market fallout and the reputation of the country, and more focused on the fact that a real discussion and evaluation can happen when the stakes are really at their highest.
It's politics. It would be interesting to see a government who handles the taxpayers' money the same way that they handle their own finances. Spending seems to go up year over year, yet rarely do they seem to stop and see where the money is going and if budgets should be modified. Politicians seem to treat money like it is candy at Halloween.
The only folks who value money are those who earned it. If you and I spend too much, we can't default without consequences, no idea how that applies to the country. So raise the amount of debt we can carry, reign in the spending for the future, and get on with it. While we are at it I don't see how doubling the interest rate fixed anything. Anybody?