January 17, 2023
What could really happen if the US defaults on its debts and congress doesn’t raise or suspend the debt ceiling? It can’t be that bad?
Ehhhh…depends on your definition of bad. I know lots of you will probably gloss over this because you think it doesn’t impact your everyday life – but it does.
We already know the federal government will hit the debt ceiling in two days. The debt ceiling is the amount of money the federal government is legally allowed to borrow to pay its existing bills. Not its new bills. When we hit the ceiling, no more money can be borrowed…but the bills keep coming. You know how it works, if you don’t pay the bill, you default on the debt and that’s when the problems start. The Treasury Secretary says she can avoid the default and keep the u-s government a float using what are called “extraordinary measures” until June. But if congress doesn’t either suspend or raise the debt ceiling — the United States will default for the first time in our history.
So in this video I want to run down the real consequences for all of us if congress do something in the next couple of months.
The us government would not be able to pay salaries, or benefits for federal or military personnel, veterans and contractors. Social Security, Medicare and Medicaid benefit payments would stop. Your tax refund may not go out, student loan benefits may not get paid and government facilities won’t stay open.
Interest rates would increase even more than they already have which of course impacts costs for corporations and small businesses, state and local governments, credit card interest rates, mortgages and car loans, and the cost to import goods would skyrocket. All that would certainly jack up inflation – again.
Your retirement accounts in the stock market take a hit.
The value of a dollar drops on the world stage and world markets also take a hit.
Experts say a “mild recession” would be the best-case scenario. The worst case – millions of jobs lost, a near-freeze in credit markets and the gross domestic product would take a tangible hit that could last for multiple quarters. Basically, it would absolutely shock the economy into a full blown recession.
Here’s the other thing — if investors even *think* the US *could* default, the consequences could be almost as bad as an actual default. Because u-s debt is seen worldwide as the safest investment anywhere. And if investors get skittish a huge revenue source dries up.
The fact is – Congress has increased the debt ceiling more than 75 times in the last 50 years. Most recently in December of 2021. And the situation we’re in today is a result of congressional actions that happened years ago. As I have said repeatedly, raising or suspending the debt ceiling does not authorize any new spending. It just pays the bills congress already racked up over decades.
