Have you heard the latest news? The United States might be entering a period known as the Era of Austerity. But what does that mean exactly?
The Era of Austerity refers to a time when economic and fiscal policies prioritize reducing government spending, decreasing budget deficits, and limiting public debt in the US. This often entails implementing measures like spending cuts, tax increases, and structural reforms with the aim of achieving fiscal discipline and long-term economic stability. Unfortunately, these measures typically lead to a recession and reduced benefits for citizens. The primary goal is to ensure that the government operates within its means, avoiding further accumulation of debt. If the debt limit (debt ceiling) is not raised, it means that some payments might not be made, or there will be across-the-board cuts.
Uncertainty is something the market dislikes, especially when it comes to reduced economic activity. If the government needs to learn to control spending and make difficult choices, uncertainty arises. If the US were to default on its debts, there would be a high likelihood of a slowdown in the economy.
That being said, historically, the government, including Congress and Washington, has typically managed to find a solution at the last minute to avoid default.
We’ve seen a similar situation occur in 2011 when significant uncertainty gripped financial markets due to concerns about a potential US default. Eventually, Congress reached an agreement just before the deadline to raise the debt limit, allowing the government to continue borrowing and fulfill its financial obligations.
Time is running out. Janet Yellen, the 78th United States Secretary of the Treasury, has expressed concerns that the US might default by June 1st, 2023. Until the debt limit (debt ceiling) is raised, it’s likely that we will observe more negative volatility in the stock market. Congress is preparing to initiate an Era of Austerity, and more updates will come in the next couple of weeks.
Be First to Comment