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Raising the Debt Ceiling

Should investors worry over U.S. default?

Marketplace Staff Jul 26, 2011
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Steve Chiotakis: In a speech today in New York, Christine Lagarde, the newly-minted IMF chief, said if U.S. leaders don’t show her words ‘political courage’ in raising the debt ceiling — then the world economy will suffer.

The Treasury Department maintains it could run out of money in a week — on Aug. 2. But some analysts say the government won’t default until perhaps a week or two later. Whenever that possible default,those people with money in the stock and bond markets are keeping a close eye on their investments.

Josh Brown is a financial advisor at Fusion Analytics in New York. He’s with us now. Good morning, Josh.

Josh Brown: Hi, how are you?

Chiotakis: Doing well. You manage a lot of money for your clients, what are they asking you about this debt ceiling debate?

Brown: The most common question that I hear is — Josh, is this something we should be worried about? Is this something we need to do something about?

Chiotakis: And what are you telling them?

Brown: Most of them — clients — are investing with the long-term in mind, it’s important to realize that regardless of what compromise may end up coming about, in the long run, none of this stuff is really going to have a huge effect on people. We had a pretty close scare in 1995-1996, with a debt ceiling that almost wasn’t hiked. Ultimately it was. If you look back on a monthly stock chart, going back 20 years, it doesn’t even show up.

Chiotakis: Have you taken any action to sort of offset anything that could happen in the cause of default or downgrade?

Brown: What we try to do is explain to people at any given time, their holdings in the stock market are subject to a 15 percent correction out of nowhere. The discussion could go past the deadline. There could absolutely be ratings agency downgrades of U.S. debt. Can I afford all of the money that I have in stocks — can I afford for that to lose 15 percent. If the answer is no, then you have too much money invested in stocks and understand that stocks by definition are a risk asset.

Chiotakis: Josh Brown, financial advisor in New York. Josh, thanks.

Brown: Thank you.

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