How You May Be Affected If the Debt Ceiling Agreement Isn’t Reached
The US is days away from being unable to pay its bills. Ever since the U.S. hit the debt ceiling (that is, the total amount of federal debt that could be outstanding) in January, the Treasury Department has been using what it calls “emergency measures” to avoid defaulting on the national debt.
Earlier this month, Treasury Secretary Janet Yellen said in a letter to Congress that the US may not be able to pay its bills by June 1st. Thus, as Congress moves closer to an agreement to raise the debt ceiling, the default deadline approaches. and closer too. The US has never defaulted on its debt before, and economists are warning of dire consequences if Congress fails to reach an agreement on the ceiling. Let’s see what that means for you personally if Congress doesn’t come to an agreement on a debt ceiling soon.
How the debt ceiling deadline will affect you
Yellen said a US default on its debt could cause “irreparable damage” to the US economy. Because the US has never defaulted on its debt before, there is no historical precedent for exactly what will happen. What is clear is that even such a close breach of the US debt ceiling could have some potential consequences.
Social Security, Medicare, and Other Government Obligations
One of the first areas to be affected could be government mandated spending programs. In this case, the Treasury Department may decide to defer or temporarily suspend payments such as Social Security checks, Medicare payments, and even payments to state and local governments. If you are a government employee, you may not get paid in full or on time.
Higher interest rates
If you’re planning on getting a credit card, house, or car anytime soon, brace yourself. Another consequence of the uncertainty and risk associated with a stagnating debt ceiling is rising interest rates. It affects everything from your mortgage to your student loans to your credit card.
Beyond your personal finances, higher interest rates take taxpayer money away from other much-needed federal investments like infrastructure and education.
The recession and all its consequences
A default can trigger a recession . In particular, economists at Goldman Sachs have calculated that breaching the debt ceiling would immediately bring about one-tenth of US economic activity to a halt. This means a sharp drop in stock prices, a surge in consumer prices and job losses. As an individual consumer, here’s what you can do now to prepare for a recession .
bottom line
Even aside from default, there is huge uncertainty about how this debt ceiling fiasco will hurt you as an individual. For now, all you can do is focus on what you can and cannot control. During a recession, your means of increasing income will be limited, so it’s wise to focus on cutting costs. Keep building your emergency fund and be prepared for ripple effects such as job losses, higher inflation and higher borrowing costs.