Debt Ceiling: A Picture is Worth a Trillion Words
Though the U.S. defaulted only once in modern history (1979 due to a technical error) and twice in ‘ancient’ history (1933 on its gold commitments to holders and 1790 as a newly formed nation), the amount of times the debt ceiling was actually raised is staggering, in our opinion. In fact so much so, it seems to do little to impact the ‘long cycle’ of the markets (which we feel is driven by valuations, demographics, and private sector / individual credit cycle trends).
Our data indicates the ceiling was raised basically 70 times in 70 years:
The debt ceiling was established in 1909 at $43 billion. The first time it was raised was announced in 1939, taking effect in spring of 1940. Over the next five years, the ceiling was raised from $43 billion to $300 billion by 1945.
The longest stretch where the debt ceiling went untouched lasted from the mid-1940s up until the mid-1950s- from there, it pretty much became a regular event.
Thus- although a default would be the ‘outlier’ event in which several unknowns still exist, history shows 1. the likelihood for the ceiling to be raised; and 2. there is likely to be minimal impact to our current deflationary bear cycle once it is.
(Research courtesy of Dan Wantrobski, Director, Technical Research, Janney Montgomery Scott, LLC)
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