Democrats and Republicans are once again going head-to-head over raising the federal government’s debt ceiling, but this time headlines are riddled with worries of an increased risk of a possible default.
Since 1960, Congress has acted to either permanently raise, temporarily extend, or revise the definition of the debt ceiling limit 78 times.
We technically hit the $31.4 trillion ceiling on Jan. 19, 2023. Since then, the Treasury Department has been forced to implement what Treasury Secretary Janet Yellen calls “extraordinary measures” to keep paying its debt on time.
However, if Congress fails to settle this agreement, Yellen warns that another default could happen as soon as June 1.
How the Debt Ceiling Works
The debt ceiling is a legislatively mandated limit on how much money the U.S. can borrow to meet its financial obligations.
When the government spends more money than it brings in, it has to borrow to make up the difference. It does this by giving out shares, bills, and notes from the Treasury.
As the government borrows more and more money, the national debt rises. The debt ceiling’s job is to put a limit on how much the government can borrow.
Once the debt hits the limit, the Treasury can’t issue any more debt unless Congress agrees to raise the limit.
Yet raising the debt ceiling doesn’t authorize more spending. Its purpose is to allow the government to meet its existing obligations, like paying Social Security benefits, military salaries, interest on the national debt, and other commitments.
If the debt ceiling isn’t raised when it needs to be, the government could default on its debts, which could have serious effects on the U.S. economy and financial markets, such as higher interest rates, a drop in the value of the dollar, and possible damage to the country’s credit rating—which is something we’ve seen before.
The Debt Ceiling Crisis of 2011
While the U.S. has yet to default on its debt, it came close in the summer of 2011.
The 2011 debt ceiling crisis created a huge spike in volatility. The ripple effects were felt everywhere, ultimately causing the U.S. dollar to sell off, a 19% drop in the S&P 500 index, and 401(k) accounts to decrease rapidly. It also led to the first-ever downgrade of the U.S. from its top triple rating by Standard & Poor’s.
By early August, Congress had reached a compromise and raised the debt cap days before the country would have defaulted.
However, something else happened during that time: gold prices rose by nearly 30%, breaching $1,900 an ounce for the first time and hitting a record high of $1,910 an ounce.
Why Protect Your Wealth With Gold?
With no crystal ball in sight, analysts can’t be sure what will happen with the latest debt ceiling debate.
However, award-winning financial writer Brett Arends speculates that current negotiations among Congress could easily go down to the wire, threatening the U.S. with its first-ever technical default.
That fear of the unknown could once again, like in 2011, cause drops in popular investment assets.
That’s why experts, like JPMorgan, suggest that investors turn to gold.
In a recent report, the company said: “The potential for a disorderly debt ceiling episode adds just another kicker for global investors to rebalance U.S. overweights across asset classes. Consider currencies and precious metals like the Japanese yen, the Swiss franc, and gold.”
Arends argues that the “debt ceiling nightmare” could be a “dream” for gold investors.
And former sell-side analyst Anton Wahlman suggests gold may be “the best place to hide” during a U.S. sovereign debt crisis.
Gold is often seen as a safe-haven asset due to its proven ability to help preserve and protect wealth.
Some investors gravitate toward the metal because of its enduring physical value, which can’t be easily manipulated like stocks or currencies. Some also admire that gold is widely recognized, which gives it liquidity.
Maybe it’s time you started considering a Gold IRA?
Opening a Self-Directed IRA With Red Rock Secured
At Red Rock Secured, we are committed to helping hard-working Americans protect their retirement savings by converting their conventional IRA into a Self-Directed IRA that can legally hold precious metals.
This type of IRA could help protect your hard-earned wealth from inflation and economic downturns, such as the SVB collapse.
Red Rock Secured offers several storage options: Depsotiry IRA, Home Delivery Gold IRA, and cash transactions.
With our Depsotiry IRA, we’ll help you convert a percentage of your savings into a Self-Directed IRA that can legally hold precious metals tax and penalty-free (IRS CODE 408(M)(3)). Your Depository IRA is administered by industry-leading custodians who oversee all of your asset purchases and liquidations. Red Rock Secured will ensure that your metals are being stored in a top-tier depository with state-of-the-art security. You’ll have the option to select your preferred location and your metals will be 100% insured by Lloyd’s of London for up to $1 billion.
With our Home Delivery Gold IRA, we’ll have your metals shipped directly to your door, so you can store them at your discretion. You can learn more about that option here.
Our team of gold and silver specialists is ready to help explain and walk you through either process. Just fill out the form on the top right of this page to get started.