Risky business: U.S. debt ceiling could lead to recession

The U.S. Congress is divided on the issue of raising the debt ceiling. This could have a major impact on the global economy, leading to a recession in 2023. We suggest keeping high-quality, dividend-paying stocks and profiting from the current higher interest rates. But if the risk disturbs you, buy secure fixed-income assets, such as GICs. Read on to learn more about the U.S. debt ceiling and how it could affect the economy.

U.S. carrying a heavy debt

The Global Impact of U.S. Debt

The U.S. dollar is the world’s dominant reserve currency, and many countries use it as their own currency or peg their currencies to it. That’s why the U.S. debt ceiling has the potential to cause a ripple effect in the global economy. A businessman we know in Toronto does much of his business outside of North America, and he relies on the strength of the U.S. dollar.

The U.S. is rapidly approaching its debt ceiling, and Congress must act accordingly. If the debt ceiling is not raised, payments could be halted, government workers would be left unpaid, and more. This could cause a deep recession in 2023, with a ripple effect on Canada and the rest of the world.

The Risk & Reward of Today’s Economy

Despite the potential risks, there are still ways to make the most of today’s economy. We suggest keeping your high-quality dividend-paying stocks, and profiting from the higher interest rates. This way, you can benefit from the current market and still remain somewhat protected if the debt ceiling is not raised.

If the risk of a recession worries you, you can still invest in secure fixed-income assets, such as GICs. With these investments, you can still receive interest tax-free.

The Bottom Line

The U.S. debt ceiling is a serious issue, with far-reaching consequences. A default or a recession could cause major damage to the global economy. We suggest keeping your high-quality dividend-paying stocks and profiting from higher interest rates. Or, if you’re more worried about the risk, invest in secure fixed-income assets. But whatever you decide, make sure to keep up to date with the latest news regarding the U.S. debt ceiling.

This is an edited version of an article that was originally published for subscribers in the February 10, 2023 issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
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