No More Debt Ceiling Fears... For Now

Congress prevents a catastrophic US default, but what happens next?

Welcome back finance enthusiasts! As I’m sure you’re aware, the recent debt ceiling negotiations have been one of the most important ongoing stories in the world of finance. But I’m very pleased to say that a deal between congressional leaders has finally been made!

In this week's premium edition of Mark Talks Money, we’ll dive into an extensive breakdown of the developments surrounding this deal and what we can expect to happen next for our economy and the stock market.

My goal is to provide you with all the important information you need to know in an easy-to-understand manner. I want to ensure you’re well-informed about these crucial financial matters so that you can stay ahead of the game and tailor your own financial plan accordingly.

Let’s dive in:

Breaking Down The Debt Ceiling Deal

The Recent Vote

In a significant vote on Thursday evening, the Senate approved a measure to suspend the nation's debt limit through January 1, 2025.

This action was necessary to prevent the United States from defaulting on its debt, which would have been an unprecedented occurrence as its never happened before. No one knows what the outcome would have been had a deal not been reached in time, but most agree the repercussions would have been very bad.

President Joe Biden is expected to swiftly sign the bill into law, solidifying the resolution. While this is great news for our economy today, it feels a bit like we’re ‘kicking the can down the road.’

Unless more changes are made (which now seems unlikely due to lack of urgency) we’ll have to go through all of this nonsense again in early 2025 (but more on this later).

Why was this measure necessary?

Since the debt ceiling was breached in mid-January, the Treasury Department has been unable to borrow more money to meet the government's financial obligations.

To ensure timely payment of bills, the Treasury had employed “extraordinary measures.” These measures included selling existing investments and suspending reinvestments of specific funds, such as the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.

By taking these steps, the Treasury managed to buy additional time and free up billions of dollars, thus avoiding a potential default earlier this year. But these drastic measures were only taken out of desperation to buy more time for a longer standing deal to be made. Thankfully, a deal was finally solidified thus relieving some of the pressure on our economy and stock market.

Everything In The Deal

Here are the main elements of this newly reached deal:

• A freeze on non-defense discretionary spending in 2024 and a 1% increase in 2025.

• A 3% increase in defense spending.

• Work requirements for SNAP (food stamps) and some smaller welfare programs.

• Resumption of student debt payments (but no changes to Biden's debt relief plan).

• Reducing IRS funding.

• Clawing back unused Covid relief money.

Here's a little secret about the 1% increase in nominal spending