They argued. And, debated. And, chastised. And, pleaded with the American voters…… when faced with similar circumstances in November, 1995. Back then, Newt and like minded Republicans refused to raise the debt limit. Their motive was to rein in spending as part of the “Contract With America” – the 1994 mid-term election slogan. The political process failed to bring both sides together. DOES THIS SOUND FAMILIAR?

The November, 1995 debt limit deadline came and went without Congressional action to raise it. In fact, the debt limit was not raised until March, 1996 – over 4 months after the original debt ceiling crisis deadline. The U.S. Treasury jiggled the books to avoid a default by moving money between different government funds. What happened to the stock market during this 4 month period? IT WENT UP! And, by a whopping 11.7%.

And, Bill Clinton was re-elected in 1996.

I think it is important to repeat last week’s view: lots of uncertainties exist with both the debt limit and potential downgrade of the U.S. Government debt. But, there is plenty to be optimistic about especially with improved corporate profits plus the FED’s stance on keeping interest rates low. My current view is the positives will ultimately outweigh the uncertainties. For this reason, I recommend that: (1) you maintain your long term asset allocation, and (2) if you have idle cash, invest it in this period of uncertainty at lower prices.