US Government Debt Ceiling Exhausted by Next Friday
The US Government debt ceiling, according to Treasury Secretary, Lew, will be exhausted by next Friday 18 October 2013.
We believe there are four alternatives that may play out over the next week as the political infighting reaches a crescendo:
1. The US government defaulting on its debt. This would have grave consequences for the markets and the economy, with the freezing of liquidity and credit channels and deteriorating confidence.
2. Raising or deferring the debt ceiling. The lack of market fall-out, to date, indicates the assumption of a longer extension being likely.
3. Prioritising certain Government payments while delaying others. This would see the payment of interest and repayment of the Government debt as the top priority.
4. Invoking Article 14 of the US Constitution. This would allow President Obama to unilaterally raise the debt ceiling.
We believe that alternative 1, the US Government defaulting on its debt, has the lowest probability, and while this could “go down to the wire” there could be more turmoil on the markets than recently experienced. Montgomery Investment Management will continue to look for high quality stocks, with good prospects, selling for less than our assessment of their intrinsic value.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
