The US government just hit its $31.4 trillion debt ceiling — triggering fears of a nasty fallout for Americans. Listed here are 3 ways it could hurt you

The US government just hit its $31.4 trillion debt ceiling — triggering fears of a nasty fallout for Americans. Listed here are 3 ways it could hurt you

The U.S. officially hit its $31.4 trillion debt ceiling on Thursday – launching a ticking time bomb toward a potentially “calamitous” debt default.

Unable to interrupt the political deadlock in Congress, the Treasury will now take “extraordinary measures” to make sure the federal government pays its bills.

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The emergency measures are resulting from expire on June 5, in line with Treasury Secretary Janet Yellen – triggering fears of a nasty fallout for Americans.

Listed here are 3 ways it could hurt you.

Freezing social support

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

Each American could feel the impact.

“Payments from the federal government that families depend on to make ends meet can be endangered,” the CEA explains. “The essential functions of the Federal government—including maintaining national defense, national parks, and countless others—can be in danger.

“The general public health system, which has enabled this country to react to a worldwide pandemic, can be unable to adequately function.”

What does that mean for individual households?

It implies that the federal government could delay various paychecks that help thousands and thousands of Americans, corresponding to Social Security payments, Medicare and Medicaid, and advantages to veterans.

Market turmoil

History has a bent of repeating itself and this doesn’t bode well for America’s eleventh-hour debt ceiling decision … or your investments.

In 2011, Congress approved a debt ceiling extension with just hours to spare before the Treasury would default.

This close call prompted credit standing agency Standard & Poor’s to strip the U.S. of its prized AAA (outstanding) rating, removing it from its list of lowest-risk countries. The agency cited dysfunctional policymaking in Washington as a think about the downgrade.

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Skittish investors reacted quickly and the stock market tanked. It took the S&P 500 index almost six months to get well.

What’s happening today is comparable.

The approaching months of “extraordinary measures” look set for a protracted, drawn-out political wrestling match, with opposing Republicans using their votes on an extension as leverage to hunt spending cuts.

As things stand, one other down-to-the-wire debt ceiling extension seems likely.

This might cause a storm for the S&P 500 index, which is already hurting after a double-digit decline in 2022.

Bank card and mortgage rates

Bank card rates of interest, in addition to other interest-bearing loans like mortgages and auto loans, are tied to the health of the U.S. economy – which is facing dire straits on this debt default debacle.

The Federal Reserve raised rates of interest from 4.25% to 4.5% during its final monetary policy meeting of 2022, pushing borrowing costs to the best level since 2007.

When the fed funds rate goes up, the prime rate – the rate of interest banks lend to customers with good credit – also increases.

This implies borrowers must pay higher rates of interest on their bank card balances. Mortgages could also turn into costlier for American families.

In accordance with the CEA: “These and other consequences could trigger a recession and credit market freeze.”

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This text provides information only and mustn’t be construed as advice. It’s provided without warranty of any kind.

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