One of the biggest concerns of Mass Affluent investors could be realized if Congress does not reach agreement about raising the debt ceiling. Today is the day that the federal debt will reach its legal limit—currently set at $14.294 trillion. Congress has until Aug. 2 to decide whether to raise the debt ceiling and under what conditions. If it does not, the United State will not be able to pay its bills in full.
The national debt ranks second among the personal concerns of investors—just below fears of a prolonged economic downturn--according to a 2011 survey by the Spectrem Group. Nearly three-quarters of investors with a net worth between $500,000 and $1 million (not including primary residence) are concerned about the growing national debt.
At this wealth level, it’s the top personal concern among investors ages 65 and up (78 percent) and the wealthiest households with a net worth of $750,000 to $999,000. For baby boomers ages 55-64, it ranks just beneath a prolonged economic downturn as a primary concern (77 percent).
The debt ceiling, which was created as a form of fiscal accountability, is a cap set by Congress on the amount of debt the federal government can legally borrow. The first limit was set in 1917. It has been raised 10 times since 2001, according to the Congressional Research Service. The debt level has never caused the government to default on its obligations. If it did, there are fears it would create economic chaos because, according to National Public Radio, U.S. Treasury bonds are held around the world and are considered nearly as safe as cash.
This is an increasingly highly-charged and sharply-partisan debate. Republican Speaker of the House John Boehner has said he is willing to work with President Obama to work out a budget plan. He has said he wants a raise in the debt ceiling tied to future spending cuts.
According to a Gallup Poll announced last week, nearly half (47 percent) of Americans want their member of Congress to vote against raising the debt ceiling versus 19 percent who do. Thirty-four percent don’t know enough to say. Republicans oppose raising the debt ceiling by 70 percent to 8 percent and independents by 46 percent to 15 percent. Democrats favor raising the ceiling by 33 percent to 26 percent.