Default? Don’t Bet On It!
The US Government’s annual budget is approximately $3.5 trillion.
When we dig deeper, we find the following expenditures, expressed in $ (billions) and %:
Medicare and Medicaid $802 23%
Social Security $768 22%
Defense $670 19%
Discretionary $615 17%
Other Mandatory $461 13%
Net Interest $223 6%
From this perspective, it seems highly unlikely that the US will choose to stop paying its interest expense. Moreover, neither our President nor our congressmen have anything to gain, and much to lose, if the US were to default on our debt. Instead, we believe that the vitriolic behavior between both parties will continue until we reach a breaking point, at which time a compromise will be reached.
As an aside, it’s a sad commentary that our elected officials can’t conduct themselves in a more professional and collegial manner. A message needs to be sent to Washington that this behavior will no longer be accepted by the electorate.
From an investment perspective, I would think that the current market weakness represents a buying opportunity for equity investors who can tolerate volatility.
As always, all comments are welcome.
Christopher J. Kress, CFA