The Independent Market Observer

Welcome Back to Politics and Some Familiar Threats to the Economy

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Sep 10, 2015 2:27:59 PM

and tagged Politics and the Economy

Leave a comment

threats to the economyAs the U.S. economy has been normalizing—even moving back to good times—politics has been what I can only call denormalizing. In one more back-to-the-future moment, I am now substantially more worried about political threats to the economy than I am about economic threats.

There’s a line I used to use in speeches, during the days of the fiscal cliff, that comes from the movie Independence Day, a wonderful alien-invasion B movie whose poster shows the aliens blowing up the White House. I would put that poster up on the screen and say, tongue firmly in cheek, “The aliens come and destroy Washington. But, later on, it turns out they are actually hostile.” I haven’t used that line in a while, but I can see that I will be pulling it out again.

Debt ceiling déjà vu

Let’s start with the U.S. government debt ceiling. You probably remember when we went through this in 2012 . . . and 2013 . . . and 2014. If you go to the search page for this blog, you can find multiple posts. Well, guess what’s back to haunt us?

Like last time, we actually hit the ceiling several months ago (in March) and have been using the Treasury’s “usual emergency measures” to pay bills since then. This includes raiding various pots of federal cash. And, again like last time, we do not know exactly when the Treasury will run out of money, but the betting is for sometime late this year. So, although this is not an immediate problem, it is one that will very likely rock markets when the time comes.

Presidential politics will cloud the issue

That’s because, just about the time we run out of money, the presidential primary season will be starting, pulling presidential politics into what was already a pretty fraught process in Congress itself. Ted Cruz, who filibustered the last increase in the debt limit, will almost certainly do his best to make it a central issue in the Republican race. Besides that, insiders are saying that there is no way the Republicans in the House will vote for any debt limit increase, bringing us back (again) to where we were last time.

What is really fascinating, though—beyond the immediate fiscal cliff and potential government shutdown issue—is how the Republican thinking on taxes is fragmenting the party even further. While large parts of the House continue to adhere to anti-tax orthodoxy, both Donald Trump and now Jeb Bush have stated that, in some circumstances, they are for higher taxes on the wealthy. I wrote the last time around that taxes would be going up, someway and somehow, and this may be the first crack in the Republican wall on this issue. In the short term, though, it will increase the fragmentation of the Republican Party and make governing even harder.

I have all faith that we will ultimately raise the debt limit and avoid default, but the ride may well be a lot rockier this time around, given all of the intersecting political players. Although I remain optimistic about the economy, I think we can expect considerably more trouble ahead from the politicians.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®