Treasury Secretary Janet Yellen has warned that time is running out before reaching a deal to avoid a default by the U.S., and that the U.S. could run out of money. pay the bill by June 1. While the idea of breaking the debt ceiling may sound daunting, financial experts warn that it could hit Americans economically in many ways. Here’s what you should know:
What is the debt ceiling?
A debt ceiling set by Congress represents the maximum amount the federal government can borrow to pay its debts. Raising the debt ceiling doesn’t authorize new spending, but it does allow the government to fund previously approved obligations, from Social Security to military salaries.
Failing to raise the debt limit is “going to a restaurant, looking at the menu, seeing how much everything costs, and by the time you get the check, say, ‘I don’t care, I can’t afford this.'” It’s the same,” he said. Jacob Channel, senior economist at LendingTree, said:
Has the US ever breached the debt ceiling?
No, there have been several crises before, most notably in 2011, when lawmakers raised the debt ceiling just days before the nation’s borrowing capacity was about to run out. I agree with you. As a result, the credit rating agency Standard & Poor’s downgrade US government bonds first time. Stock markets plunged, with the Dow Jones Industrial Average down 17% in the weeks before and after the crisis.
“I can’t stress enough how bad it can be,” Mr Channel said.
How will a debt ceiling breach affect my 401(k)?
A default would rattle global financial markets, prompting many investors to sell stocks and bonds. Prices will plummet, but it’s unclear how severe the hit will be given the U.S. has never been in such a situation.
Wilmington Trust Chief Investment Officer Tony Ross said a breach would “very likely lead to significant disruption to the U.S. financial markets.” “Frankly, the whole country will be in arms over the chaos it will bring to financial markets.”
Will I still receive Social Security payments?
social security beneficiary I may not receive my check on time, according to experts. With 66 million beneficiaries, such delays could cause financial hardship for many, especially seniors and other Americans who depend on Social Security as their primary source of income.
If the U.S. defaults, Yellen said, “it is unlikely that the federal government will be able to pay the millions of Americans, including military families and the elderly who depend on Social Security.” Stated. Said in April.
Do federal employees get paid?
As Yellen pointed out, federal and military personnel may not be paid.What will the United States need to decide? prioritize payment If funds are still available, it may choose to continue paying interest on bonds to avoid a debt downgrade, rather than pay federal salaries.
“The government may decide, ‘We’re not going to pay civil servants this week,'” said Patrick Gurley, associate professor of economics at New Haven University. interview Partnership with Government Executive, a publication covering the federal government.
What about Medicare and Medicaid?
Both could be disrupted, impacting care for older Americans on Medicare and low-income households dependent on Medicaid. Together, Medicare and Medicaid enroll 158 million people, nearly half of the US population.
“Get medical attention now. Don’t wait until June 1,” says Sarah Rosenbaum, professor of health law and policy at George Washington University. Said Axios. “My message to the world is don’t wait for plastic surgery.”
Will my credit card be affected?
Any breach could lead to higher interest rates on credit cards and the like, raising broader borrowing costs.
it will hurt.Your credit card annual rate is already record high, nearly 21%, the highest level since the Federal Reserve began tracking annual interest rates in 1994. And consumers already owe most of the debt. $1 trillion in charge cardsan all-time high, up 17% from last year.
How would a debt ceiling breach affect mortgage rates?
The purchase price of a home could be even higher. A default would mean the Treasury would have to pay higher interest rates on the bonds to convince investors to stick around. And mortgage rates and other borrowing costs tend to track Treasury rates.
If the debt ceiling is exceeded, mortgage rates could rise to 8.4% by September from 6.9% currently, according to Zillow. In that case, mortgage payments for typical homes would be 22% higher, likely to “freeze” the market, the property firm said.
Will the US go into recession?
Moody’s Analytics chief economist Mark Zandy said even short-term debt ceiling breaches of less than a week would likely send the economy into recession. report. Zandi said a short-term breach would be “enough to undermine an already fragile U.S. economy.”
But if the breach lasts longer than that, the U.S. could plunge into a “deep recession”, with employers laying off 7.8 million jobs and the unemployment rate jumping to 8%, nearly double its current level. There will be, Zandy predicted.
How long can a debt ceiling breach last?
Given the mess that will affect anyone with a 401(k) or who is dependent on government programs, the uproar has prompted the White House and Congress to find a solution quickly. experts say they are likely to be forced to return to the negotiating table.
“If we default, the pressure to rectify the situation will be so strong that the disruption will be high and the default will not last long,” said Mr Ross of Wilmington Trust. “It will only last a few days.”
