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May 26, 2023
Debt Deadline Nears
Although you could not necessarily tell from watching the stock market, there is a looming debt ceiling crisis upon us. According to Treasury Secretary, Yellen, the United States will run out of money as soon as June 1. If that occurs, it is potentially possible that the United States, for the first time ever, will default on its obligations. It's hard to predict the result of such an event; however, many believe it would send the global economy into chaos. Currently, the President and House Speaker McCarthy are attempting to resolve the crisis. Unfortunately, according to reports, the discussions have not been fruitful. Of course it should not come as a surprise that in this partisan environment, both the President and Speaker McCarthy are playing a game of chicken over the national debt ceiling.
First, it is important in understanding this crisis to know what the debt ceiling is. The debt ceiling was created in 1917 and is a limit on the total amount of debt the U.S. government can accrue. In order to raise the debt limit, both the House of Representatives and Senate, by majority vote, must approve the increase. The debt limit has been raised numerous times in the past, and also, we've seen numerous times in the past where partisan politics take over. It seems the children in Washington enjoy creating a crisis.
Currently, the Republicans who hold the majority in the House of Representatives, are refusing to raise the debt ceiling until the President and the Democrats agree to a variety of spending reductions. The President and the Democrats believe that spending cuts should be a separate issue from raising the debt ceiling. Unfortunately, we have been down this road before, and in the past a deal has always been reached before a default can occur. In fact, in 2011, lawmakers didn't reach an agreement until literally hours before the United States would have defaulted. It was at that time, as you may recall, that Standard & Poor's downgraded the U.S. credit rating for the first time in history.
I believe that a deal will be reached; however, it'll come at the last minute. I also believe that once a deal is reached, there will be some volatility in the market. However, keep in mind that back in 2011 after the downgrade, the market sold off, but recovered within two months. Be prepared for some volatility; however as always, don't panic.
31%
According to a new report by the Federal Reserve, inflation is taking its toll on U.S. households. According to the report, those who considered their retirement savings on track fell to 31 percent compared to 40 percent in 2021. In addition, the number of Americans who said they were doing worse financially rose 15 percentage points to 35 percent. The main reason is not surprising - inflation. Although inflation has retreated from its highest levels, it is still too high and is taking a toll on American families. If inflation continues to be at elevated levels, it may mean that future interest rate hikes may occur.
Class of 2023
This is the time of year that many students will be graduating from high school. Congratulations to the graduates on a job well done. As many of the graduates will be continuing their education in college, I want to remind students that it is important to make the right career choices. Unfortunately, college degrees don’t always lead to high-paying jobs or financial security. College is expensive and requires an investment of time and effort on the students’ part. Choose a career path and degree wisely. FYI, the highest salaries for bachelor’s degrees are dominated by science, technology, engineering, and math degrees. If you're spending a lot of money on a college degree and committing the time and effort, you want to make sure it pays off.
Graduation Gift Ideas
If you’re shopping for graduation gifts, particularly for high school graduates, I’d like to encourage you to think a little out of the box. As opposed to buying a gift card, why not consider a gift of an education. Parents of high school graduates should set up 529 accounts and encourage those who want to make a gift to the graduate to add to that account. Education is expensive today and graduates who are continuing their education will absolutely need the money. Check out the Michigan Education Savings Plan. The Michigan Education Savings Plan is a great way to save for a college education. Not only is it low cost and has very good investment options, but it's flexible and can be used at the great majority of public or private institutions in the country. The key to the Michigan Education Savings Plan is to buy it directly through the State to avoid commissions.
If you are graduating and kicking off your career, congratulations. It’s important to start out on the right foot and keep your financial house in order. It is important from day one to pay attention to your expenses. It is easy to let expenses get out of control, especially if you’re new to budgeting and money management. A great gift for a college graduate is something that will help them keep their finances in order, or that teaches them about personal finance.
Summer Fun
Just a reminder to those of you with young children that summer is a great time to begin to teach them about personal finance. It is never too early to start teaching kids about the importance of money. There are many books and websites these days that you can use to help teach your children to have an appreciation and understanding of money.
Monday is Memorial Day. That is the day that we remember those who made the ultimate sacrifice for our country. Despite all the craziness in our society today, we should never forget how thankful we should be for the freedoms that we enjoy. Unfortunately, those freedoms did not come without cost, and that cost was paid by those who made the ultimate sacrifice for our country on battlefields throughout the world. Yes, we should enjoy the long holiday weekend but also, we should never forget why we have the holiday. For all those who served our country and who made the ultimate sacrifice, I thank you for my freedom.
Enjoy the Memorial Day weekend!
Rick
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