Debt Ceiling Is Not the Only Issue

|
 |  Includes: DIA, QQQ, SPY
by: David I. Templeton, CFA
Raising the debt ceiling itself is not the issue facing Congress and the U.S. government. As the below chart (click to enlarge) shows, Washington seems to do a good job issuing new debt up to the maximum limit each time the debt ceiling is increased.
Click to enlarge
From The Blog of HORAN Capital Advisors
Click to enlarge
The result of Congress' propensity to spend is the government's budgeted expenses now far outpace incoming revenues. In fact, the government now borrows 40 cents of every dollar it spends as noted in the below chart (click to enlarge).

From The Blog of HORAN Capital Advisors
Click to enlarge

The stickiness of the unemployment rate is contributing to this gap in expenses versus revenue. The below chart (click to enlarge), shows the "income security" spending component of the government's budget has nearly doubled to $603 billion from $374 billion since the beginning of 2008. This increase in the "income security" portion of the budget is highly correlated with the unemployment rate. The "income security category" includes unemployment compensation, housing and food assistance.
Click to enlarge
From The Blog of HORAN Capital Advisors
Click to enlarge
Not many CEOs have commented on the impact Washington's policies are having on business decisions, primarily the desire by businesses to increase employment. However, during a recent Wynn Resorts investor meeting, Steve Wynn, CEO of Wynn Resorts (NASDAQ:WYNN), noted the difficulty businesses are having navigating the new policies and regulations coming out of Washington. The audio of a portion of that meeting can be heard at this link: Wynn Investor Meeting audio. Click to enlarge:

Click to enlarge
From The Blog of HORAN Capital Advisors
Click to enlarge


If politicians in Washington would simply develop a credible plan that reduced spending and created an environment that was conducive to growing revenue over some reasonable time frame, say ten years, the business environment in the U.S. would likely improve.