New D.C. Debt Battle Coming

James DiGeorgia

"Clowns to the left of me

Jokers to the right, here I am

Stuck in the middle with you."

— Stealers Wheel

Despite what you may hear, not all the news is bad this summer.

Stocks are hitting new highs. The Dow Jones Industrial Average is approaching a record 16,000. The economy is starting to show some steady, albeit tame, economic growth.

The last thing we need is another battle over the federal government’s debt ceiling. Yet, that’s exactly what is coming.

Sometime this fall — maybe as soon as September — the U.S. Treasury will reach the legal debt limit. The government will have to stop borrowing money and could even default on its bond payments.

When this same scenario almost unfolded two years ago, Standard & Poor’s rescinded the U.S. government’s AAA credit rating. The resulting market turmoil punished all of us for Washington’s failure.

Could it really happen again? Yes. All the pieces are in place. If anything, leaders on all sides are hardening their positions. Look what they said just in the last week.

  • House Speaker John Boehner: "We’re not going to raise the debt ceiling without real cuts in spending."
  • White House Press Secretary Jay Carney: "We will not negotiate over Congress’ responsibility to pay the bills that Congress ran up … we are the United States; we do not default."
  • Senate Majority Leader Harry Reid: Democrats are "not negotiating on the debt ceiling."

I admire anyone who stands on his principles, even if I disagree. We absolutely must do something about the government’s insane debt and out-of-control spending. I just want our elected officials to do their jobs and not drag us all through another slow-motion train wreck.

They all see it coming — and they’re paralyzed.

In fact, we won’t have just one train wreck. An entire series of catastrophes is coming the next few months.

In addition to the debt ceiling, the President and Congress also have to …

  • Keep the government open after the fiscal year ends on Sept. 30. Without a budget, entire departments and agencies will have to shut down.
  • Deal with the insane, indiscriminate "sequester" mechanism they used to bail themselves out of the same jam in 2011.
  • Oversee ObamaCare’s transformation into the nation’s crown-jewel healthcare system.
  • Confirm a new Federal Reserve chair to replace Ben Bernanke.
  • Avoid further destabilizing financial markets — markets are already nervous as the Fed prepares to end "quantitative easing."

This is no time for games. Washington’s games will have very real consequences for you and your investments.

There is still hope. The economy is still sluggish, but heading in the right direction. Tax revenues are rising. The housing market and corporate earnings look better.

A government shutdown could negate all this progress. The nation’s credit rating could drop another notch, impacting interest rates and upsetting the value of the U.S. dollar.

If both parties stick to their no-compromise guns, you can expect stocks to tumble and gold move sharply higher. This could happen at any time — as soon as the reality of a U.S. government shutdown starts to take hold in the financial markets.

The impasse could also give speculators a tremendous profit opportunity. Anyone short and long in the right assets you could make 20%, 30% and even 100% in the chaos of a government shutdown.

A few people in Washington are trying to be reasonable. Can they negotiate an intelligent, bipartisan compromise? Senator John McCain is once again assuming the role of maverick Republican. He’s speaking almost daily with the White House he almost won in 2008. In the process, he’s agitating other senators and members of the House.

I believe McCain is VERY concerned about the effect a shutdown would have on our military preparedness. He’s been a strong advocate of greater involvement in Syria. He knows Israel may be just months away from taking military action to destroy Iran’s nuclear weapons programs.

I don’t often agree with or compliment politicians, but McCain is a true American patriot. I hope he has enough influence to save us from the worst-case scenarios.

My advice: Use common sense and avoid needless risks. If you want to shoot for gains as the crisis develops, look for my detailed analysis and actionable recommendations in my Global Resource Hunter investing newsletter and Junior Resource Millionaire trading service.

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Good Luck and Best Wishes,