U.S. Debt Ceiling Debate

A lot has been made recently of the current U.S. debt ceiling debate. The idea behind it is that if the debt ceiling was not raised, the U.S. would – in unprecedented fashion – default on some of its debt obligations. At this point a deal seems to have been reached and the debt ceiling will be raised, with spending cuts to come as well over a ten year period among other stipulations.

As far as I can tell, the entire situation has truly been a complete farce. The bottom line is that all along the debt ceiling was going to be raised – the U.S. isn’t going to default any time soon on its obligations – and the banter back and forth between political parties has been nothing but positioning for elections. Political ends truly got in the way of the wellbeing of the U.S. – and the financial stability of the world – as most of the soundbytes over the past few weeks have been suggesting that the U.S. was headed for potential financial Armageddon.

Let us not forget that the way the entire financial system works is through printing money. We live in a world of fiat currency – backed by debt – which can literally be printed into oblivion. Increasing the debt limit and meeting obligations is simply a matter of running the printing presses – or doing so digitally.

As a simple matter of supply and demand, what I am expecting to result from the rampant money printing over time is for greater inflation to creep into the system, leading to higher prices for everyday goods.

What’s my protection against inflation? Very simply, dividends are my safeguard. Companies that provide an ever-increasing source of cash flow through dividends and have a long history of doing so are where I prefer to have my money as I can count on those companies to meet and exceed the rate of inflation through price increases based on their strong brand positions. Ever notice the cost of your favourite toothpaste or soda creeping up a few cents at a time? Those little increases give the companies the power to continue to pay their shareholders larger amounts year after year, in steady fashion. I like to be on the receiving end of those increases.

I figure that regardless of what the politicians do and the games they play, people will still keep drinking their favourite drinks, brushing their teeth, and taking their medicine to manage a cold. I’m willing to bet that those recession resistant companies that provide these products will continue to operate regardless of the political wrangling that goes on.