The U.S. has come close to entering into default after a long negotiation process to raise the country’s debt ceiling.
With plans now in place that would suspend the United States’ debt limit through 2025, both Canada and the international markets are able to breathe a sigh of relief.
That being said, Canadians and Londoners alike could already see some of the effects that the threat of a U.S. default has had on the economy, with stock markets slowly trending downwards as negotiations continued.
“We don’t really know what will be the long term consequences of these debt ceiling discussions,” says Dr. Cristián Bravo, Associate Professor of Statistical and Actuarial Sciences with Western University, who raises his doubts on the situation not becoming a larger problem in the future.
“The only thing that we can do is be responsible about it and hopefully this is something that will eventually be figured out, but as I said, I’m not too optimistic about it.”
Bravo is also the Canada Research Chair in Banking and Insurance Analytics with Western University, whose research focuses on developing and applying data science methodologies to improve credit risk analytics.
“We need to know that whenever this is approaching, if they haven’t come up with a permanent solution, this is something that will affect both of our economies.”
Other countries have gone into default in the past including Russia following the numerous sanctions that were placed on them at the beginning of their war with Ukraine as well as Greece defaulting after not being able to pay a $1.7 billion payment to the International Monetary Fund back in 2015.
That being said, this is the largest country to have come close to the possibility of not being able to pay their debts in history.
While the possible default has been a large story across much of the world due to the possible impacts across countries internationally, Bravo says that Canadians and Londoners alike shouldn’t change how they look at their own money and financial future.
“For the common people, the typical advice in terms of how to manage money apply. Keep a diversified fund, if you have your savings, keep them on diversified ETFs that have a low cost. For the regular people, for you and me, honestly there is nothing you should be doing differently.”
Bravo went on to talk about how mindfulness and confidence is key when large-scale events such as the possible U.S. default occur, as many people often make poor financial decisions in a panic, including selling their investments to keep cash on hand.
He goes on to say that this action often puts people into even worse situations as they then have to pay even more to recover their past portfolio once the markets rise back up.
“As long as you have a good plan with your money that you’re confident with and it’s attuned to your level of risk, you will be as okay as you can be in the grand scheme of things because these turmoils are not something that you or I will have any influence on.”
Ultimately, Bravo says that a well-informed financial plan is the best way for Londoners to stay protected and that being prepared in the easier times will keep you better off when the harder days roll in.
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