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Dump the Debt Ceiling? Sure, as Long as We Get One Thing in Return: Mauldin

Dump the Debt Ceiling? Sure, as Long as We Get One Thing in Return: Mauldin

Since the government officially re-opened, the S&P 500 has risen about 2%, and delivered a string of new record highs along the way. Truth be told, the current bull run actually started a week before the latest political punt, so to speak, was even reached.

Such is life in the new era of D.C.-centric investing, a climate that author, economist John Mauldin calls frustrating, but unsurprising.

"We've become complacent. We've been taught that they're going to fix this one way or the other", the chairman of Mauldin Economics and author of the new book Code Red, How to Protect Your Savings From the Coming Crisis says in the attached video. "We're trying to live in a world of abnormal."

To be sure, exchanging the two previous deadlines (spending resolution and debt ceiling) for three new ones, is hardly a solution to the country's most pressing problem, or the last time we'll likely see such deferral by Congress.

Related: Time to Dump the Debt Ceiling Once and for All?

"Until we resolve (the budget deficit) issue, we're going to continue to see this debt ceiling volatility," he says, acknowledging that the recent spike in the Vix Volatility Index (^VIX) was modest compared to prior cataclysms such as the debt ceiling fight/downgrade of 2011, and the financial crisis of 2008.

"We have a fundamental difference of opinion over what the size of government should be," he says. "Voters are of two minds; they want as much health care as they can get, and they don't want to pay for it."

While some have argued that the cycle of governing by crisis would all go away if the debt ceiling were simply eliminated, Mauldin says the only way fiscal conservative like him would support that is if some alternative form of spending restraint were to take its place, such as a law that tied the size of the federal budget to a fixed percentage of GDP.

Ultimately, Mauldin believes some balance of service reductions and tax increases can and will be reached, in what he refers to as a day of reckoning on how we deal with the deficit.

"But we get there," he says of this inevitable yet still unobtainable truce, "and the market says, 'okay, now we know the rules' and I think it becomes very, very bullish for the world."

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