I came across an interesting article today. It is an article which highlights the next potential crisis for the US Government – the expiration of the Federal Borrowing Limit in End July.
The August Recess runs from 30 July to 19 Sept in the House and 9 August to 10 Sept for the Senate. If the borrowing limit expires by 30 July with no suspension or raise, the US Government can only depend on tax receipts to pay their obligations.
How will this impact retail investors like you and me?
1) High Interest Fears
Well, it starts with bond investors. Knowing that the limit is going to expire in End July, bond investors will be concerned whether bonds can be repaid should the US debt be defaulted. I am anticipating that short term bond auction take-up rate in mid July will be low, this may result in high interest rate concerns rearing its ugly head again.
Growth/bubble stocks may experienced heavy volatility leading up to End July.
2) Financial Market Uncertainty
Should the House and Senate encounter obstacles in deciding on the borrowing limit action, this will create financial market uncertainty. Mr. Market hates uncertainty. Therefore investors may flock to gold and other safe haven assets leading up to End July.
3) Overall Market Volatility
The DJIA was showing signs of a market correction in End June. Refer to my post here.
It rebounded strongly as of 24th June amidst the news that the democrats and republicans have ‘agreed’ on a deal for the infrastructure bill. However, they have yet to decide on how to pay the bill. However, should the borrowing limit crisis not be resolved early, investors may be spooked as to the uncertainty surrounding the bill again. I foresee the DJIA experiencing volatility as well as NASDAQ and S&P 500. Yes that is how serious this can be. https://www.cnbc.com/2021/06/24/infrastructure-deal-talks-biden-invites-bipartisan-senators-to-white-house.html
What other impacts do you foresee in July ? Do submit your comments !