The US government hit its $31.4 trillion debt ceiling last month, sparking fears of a nasty fallout for Americans. Here are 3 ways it could be hurting you

The US government hit its $31.4 trillion debt ceiling last month, sparking fears of a nasty fallout for Americans.  Here are 3 ways it could be hurting you

The US government hit its $31.4 trillion debt ceiling last month, sparking fears of a nasty fallout for Americans. Here are 3 ways it could be hurting you

On January 19, the United States officially reached its $31.4 trillion debt ceiling, setting off a time bomb towards a potentially “catastrophic” debt default.

Unable to break the political deadlock in Congress, the Treasury will now take “extraordinary steps” to ensure the government can pay its bills.

The emergency measures will expire on June 5, according to Treasury Secretary Janet Yellen, sparking fears of a nasty fallout for Americans.

Here are three ways it could hurt you.

Not to be missed

Freezing of social support

The Council of Economic Advisers (CEA) – an agency that advises the President on economic policy – has painted a bleak picture of life after a debt default.

Every single American could feel the impact.

“The federal government payments that families rely on to make ends meet would be in jeopardy,” the CEA explains. “Basic functions of the federal government, including maintaining national defense, national parks and countless others, would be at risk.

“The public health system, which has enabled this country to respond to a global pandemic, would not be able to function properly.”

What does this mean for individual families?

It means the government could delay various paychecks that help millions of Americans, such as Social Security payments, Medicare and Medicaid, and veterans’ benefits.

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Market turmoil

History has a tendency to repeat itself, and that does not bode well for America’s 11th hour debt ceiling decision…or for your investments.

In 2011, Congress approved a debt ceiling extension hours before the Treasury defaulted.

This close decision prompted the credit rating agency Standard & Poor’s to strip the United States of its valuable AAA (outstanding) credit rating, removing it from its list of lowest risk countries. The agency cited dysfunctional politics in Washington as a factor in the downgrade.

Shady investors reacted quickly and the stock market crashed. The S&P 500 took nearly six months to recover.

What is happening today is similar.

The coming months of “extraordinary measures” look set for a long and drawn-out game of political struggle, with opposing Republicans using their votes on an extension as leverage to seek spending cuts.

As things stand, another debt ceiling extension looks likely.

This could cause a storm for the S&P 500 index, which has fallen 19% in 2022.

Credit cards and mortgage rates

Credit card interest rates, as well as other interest-bearing loans such as mortgages and auto loans, are tied to the health of the US economy, which is facing dire straits in this debt default debacle.

The Federal Reserve raised its short-term interest rate by another 0.25 percentage point on Wednesday, pushing borrowing costs to their highest level since 2007.

When the federal funds rate goes up, so does the prime rate—the interest rate that banks lend to customers with good credit—so does.

This means that borrowers have to 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 could trigger a recession and the freezing of the credit market”.

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This article provides information only and should not be construed as advice. Comes without warranty of any kind.

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