Will the Debt Ceiling Crisis Impact Your Finances?

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Will the Debt Ceiling Crisis Impact Your Finances?

Lawmakers have less than three weeks to raise the debt limit or risk a first-ever default, which would trigger a broad market sell-off and put a stranglehold on everything from government payments to the ability to borrow. If lawmakers in Washington are unable to resolve the debt limit in time, and the Treasury begins paying its bills late, the United States could default on its debt – something that has never happened.

Lawmakers are at odds over raising the federal borrowing limit a.k.a. the debt ceiling, which allows the U.S. government to make good on its financial obligations. The debt ceiling is the amount the government can borrow are currently stands at $28.4 trillion. The national debt, the amount the government owes its creditors, is $28.43 trillion.

Failure to raise the debt ceiling by mid-October would make it impossible for the federal government to maintain its financial obligations that include payments to veterans and Social Security recipients. Nearly 50 million senior citizens could face delays in their Social Security payments, as well as troops and families relying on monthly child tax credit if Congress fails to suspend or raise the debt ceiling in the coming weeks.

Potential Problems

If the United States defaulted on its debt, it could create a scenario in which the economy may plunge back into recession after pandemic-related disruptions to financial markets worldwide. The result would be millions of job losses that had been recovered since the COVID-19 outbreak last year, according to financial experts. It could also mean a spike in mortgage rates and other consumer borrowing for Americans, at least until the debt limit is resolved and Treasury payments resume. 

Despite warnings of economic catastrophe, most likely the negative effects from the debt ceiling standoff would probably be limited. Most economists and analysts widely expect that a deal will be reached before the Treasury runs out of money.