Dear Friends and Family,

“Investors need to remain calm. Let the politicians be hysterical.” We thought it was appropriate to discuss the hysteria and politics surrounding the “debt ceiling” discussions swirling in Congress and the media.

What is the definition of “Debt Ceiling”? A “debt ceiling” is the maximum amount of debt that a government can take on. For instance, the United States currently has a debt ceiling of $12.1 trillion dollars. Since 2002, Congress has had to raise the ceiling seven times, with an eighth expected soon.

In perspective though, this debate is an investor’s best friend because it forces discussion about the size of government (and spending). The US is not insolvent, nor is it illiquid. Now Wall Street may be affected, especially Treasuries as they function like a currency and investors often use these bonds as security deposits in their trading in the markets.

And there could be an impact to your wallet if the debt ceiling isn’t raised by the August 2nd deadline. Everyday costs like credit card bills and gas prices could spike, there could be an increase in mortgage rates and a drop in the value of the U.S. dollar. The chance of a default is very slim. The U.S collects more in tax revenues than is required to pay their bills.

In 1972, the United States accounted for 21% of the world’s manufactured goods. Since then, employment in manufacturing has declined 23%. The majority of what we hear from the media is that a large percentage of US manufacturing has been shipped off-shore, especially to China. We hear that US factories are closing and American manufacturing jobs are going overseas. Yet today, the US still accounts for 21% of global manufacturing, the same as in 1972.

America remains by far the No. 1 manufacturing country. It out-produces No. 2 China by more than 40 percent. U.S. manufacturers cranked out nearly $1.7 trillion in goods in 2009. The story of American factories essentially boils down to this: They’ve managed to make more goods with fewer workers. The average worker is 325% more productive. That higher productivity has meant a leaner manufacturing force that has capitalized on efficiency to keep prices low and stay competitive globally.

As always if you have concerns about anything, please call us. We are here to help you through challenging markets with our proven model and are happy to answer any and all questions you may have.

A reminder: Our website has been updated with a new video that we hope you find educational. It was an interview taped for PBS, and can be found at www.katzfamilyfinancial.com.

Sincerely,

Katz Family Financial