The US government just hit a debt ceiling of $31.4 trillion – sparking fears of unpleasant consequences for Americans. Here are 3 ways it can hurt you
The US officially hit its debt ceiling of $31.4 trillion on Thursday – launching a ticking ticking time bomb towards the possibility of a “catastrophic” default.
Unable to break the political deadlock in Congress, the Treasury will now take “extraordinary measures” to ensure the government can pay its bills.
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According to Treasury Secretary Janet Yellen, the emergency measures are due to expire on June 5 – raising fears of unpleasant consequences for Americans.
Here are three ways it can hurt you.
Freeze social support
The Council of Economic Advisers (CEA) – the body that advises the President on economic policy – paints a bleak picture of life after default.
Every American can feel the impact.
“The payments from the federal government that families rely on to make ends meet are in jeopardy,” the CEA explains. “Basic functions of the Federal government—including maintaining defense, national parks, and countless others—will be at risk.
“The public health system, which has helped this country respond to the global pandemic, will not be able to function properly.”
What does that mean for individual households?
That means the government could defer various paychecks that help millions of Americans, such as Social Security, Medicare and Medicaid payments, and veterans benefits.
History tends to repeat itself and this does not bode well for America’s eleventh debt ceiling…or your investments.
In 2011, the National Assembly approved an extension of the debt ceiling just hours before the Ministry of Finance defaulted.
This close call led credit rating agency Standard & Poor’s to strip the United States of its highly rated AAA (outstanding) rating, removing the country from its list of lowest-risk countries. The agency cited dysfunctional policymaking in Washington as a factor in the downgrade.
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Careless investors reacted quickly and the stock market plunged. It took the S&P 500 index nearly six months to recover.
What is happening today is similar.
The coming months of “special measures” look set to be a protracted political wrestling match, with Republicans opposed to using their vote on the extension as leverage to find a way to cut the bill. spending.
As things settle down, another realistic debt ceiling extension seems likely.
This could cause headwinds for the S&P 500, which has already been hurt by a double-digit drop in 2022.
Credit cards and mortgage interest
Interest rates on credit cards, as well as on other interest-bearing loans like mortgages and auto loans, are tied to the health of the US economy, which is already facing a severe hit in the financial crisis. default on this debt.
The Federal Reserve raised interest rates from 4.25% to 4.5% in its last monetary policy meeting in 2022, pushing borrowing costs to their highest levels since 2007.
As the federal funds rate rises, so does the prime rate – the rate at which banks lend money to customers with good credit.
This means borrowers pay higher interest rates on their credit card balances. Mortgages could also become more expensive for American families.
According to the CEA: “These and other consequences can cause a recession and freeze in credit markets.”
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.