The biggest mistake that I ever made as an investor was worrying about the U.S debt ceiling. If you pull out a $20 bill, you’ll read that it is an instrument of the Federal Reserve. You’ll read that it is an instrument to settle all debts. You’ll also learn that the entire $28 trillion in debt is simply outstanding capital. It’s sitting in bank accounts. It’s owned by the people. Worrying about the debt ceiling is like worrying if the sun is going to rise in the morning.
The United States owns a printing press. That will allow the nation to print more money to settle said debts. The U.S. federal debt is not like household or business debt. The fact that the Treasury Department can print its own dollars sets it apart from many other nations (especially the European Central Bank and its member nations).
Yes, inflation is a challenge. And yes, the world is getting expensive. But if you invest in the stock market at a time that the Federal Reserve expands its balance sheet, you’re going to make money. There is a direct correlation between the central bank’s balance sheet and the S&P 500.
Don’t Make the Same Mistake Because of the Debt Ceiling
In 2011, I made a huge mistake. I was flustered by the fear of the U.S. not raising the debt ceiling. At the time, I unloaded a huge position in JPMorgan Chase (NYSE:JPM) when the stock was trading in the mid-$30s. Today, the stock is trading north of $170. I never went back in. Never rebought it. I made an error. It was a behavioral bias error that I tend to think about. Knowing that 100 shares increased from $3,000 to $17,000 over a decade is a bitter pill. I’ve never made this mistake again.
I point this out because it’s a valuable lesson for you. About 25% of people in Congress have any general understanding of economics. I’m not kidding. There is a wealth of people who are in charge of our finances who don’t even understand what a supply-demand curve is.
So, when Janet Yellen – the head of the Treasury Department – knocks on their door, they listen. A U.S. default would cost millions of jobs, cut our currency’s value, and effectively plunge us into a recession.
There are incredible stories about 2011 when the economists sat down and explained what not raising the debt ceiling would do. I warn everything that it is political football to talk about not raising the debt ceiling. But in the end, every single time, it is raised like clockwork.
We now have a short-term solution on the table. Come December, we’re probably going to experience a little more turmoil. But use any pull back as a buying opportunity. That’s all I have to say about the debt ceiling… Don’t fall for the hype.