The Debt Limit Debate and its Impact on ARM Industry

Mike Ginsberg

The President and Congressional leaders came to an agreement last night to raise the debt ceiling and cut spending by $2.4 billion.  The debt deal is expected to pass but still needs the support of the Senate and the House who are expected to vote today.  Last night’s announcement comes just days before the Federal Government would have been unable to pay its own bills, a notion that I am sure many collection professionals find ironic.

What does this mean for the ARM industry?

For the most part, it is too early to say but here are my initial thoughts:

• Early reactions by the financial markets were positive.  This bodes well for improvements in consumer confidence which can provide a positive jolt to recovery efforts over slow summer months as July proved to be a tough recovery month.

• Interest rates are expected to hold steady, alleviating the concern that rates will increase, causing businesses to cut back expansion efforts and new hires.  The unemployment rate remains the single largest indicator of improved recovery efforts.

• Government spending will decrease which will cut some jobs but Obama said last night that any cuts would be staggered over time.  This may reduce recovery efforts somewhat but not substantially.

• How will state and local governments behave? When the economy is weak, governments often step up spending.  But in the first half of 2011, spending actually decreased.  The real impact can come next year as the effects of federal stimulus efforts fade.

• For those ARM companies involved in healthcare collections, if the government does not agree to at least $1.2 trillion in cuts on their own, pre-set cuts would kick in, including cuts in Medicare payments to healthcare providers.

The debt deal still has to pass through  Congress  and it still leaves a lot of hard questions unanswered.

Mike Ginsberg is President and CEO of ARM advisory firm Kaulkin Ginsberg, and can be reached by email. The firm is celebrating its 20-year anniversary in the ARM market.