This week, the Federal Reserve voted to increase interest rates by another 25 basis points, marking the second of three forecasted rate hikes in 2017.
Given 2016’s sharp turns in both the ﬁnancial markets and the political cycle, we believe the world is on the cusp of some important transitions.
A few weeks ago, the world’s markets began to adjust due to a significantly higher probability that there would be a global recession over the coming year. Stocks are down more than 15%, the yield on the 10-year Treasury bond has fallen below 2.5%, Europe is in trouble and Gold is at record levels. After the markets closed on Friday, August 5, Standard & Poor’s (S&P) downgraded U.S. debt, saying that our elected officials’ failure to agree upon steps to reduce spending and pay down debt caused the U.S. to lose its coveted AAA rating. Should we be worried? Well, yes and no.
If the Founding Fathers could not agree on the national debt, then what chance do we have of reaching a compromise about raising the debt ceiling? 235 years later as we address the issue of whether to raise the debt limit before the United States chooses to stop servicing its national debt, there appears to be a lot of “checking” and not much “balancing.” It is unedifying and unnerving to watch people driven by four to six year election cycles play Russian roulette with the Treasury’s inviolable reputation for credibility and reliability.