There has been a lot of talk lately about the debt ceiling. On Monday, May 15, 2023, Treasury Secretary Janet Yellen warned that the U.S. could run out of money to pay its bills as early as June 1, 2023. But as of Tuesday, May 23, talks were still stalled on the issue.
It is not new news. The United States has been teetering on the edge of reaching its debt ceiling for decades. In fact, since 1960, congress has increased or suspended the debt limit 78 times. With the risk of default looming again, concerns are now mounting about the ripple effect for all Americans—and experts fear the impact could be far-reaching when it comes to borrowing costs, job stability, and government services.
What is the Debit Ceiling?
The debt ceiling is a legal limit set by the U.S. Congress on the amount of money the federal government can borrow to finance its operations and pay its obligations. If the U.S. defaults on its debt, that means the government will be unable to meet its scheduled payments on outstanding loans or bonds. This could have severe consequences, not the least of which include a loss of investor confidence, higher borrowing costs, financial market turmoil, and disruptions to government services and programs.
If the U.S. defaults on its debt, it could also have a significant impact on your wallet. Here are a few potential consequences:
- Interest borrowing costs: A default on debt could lead to a downgrade in the U.S. credit rating, causing interest rates to rise. This would make it more expensive for consumers to borrow money for mortgages, car loans, student loans, and credit cards.
- Economic instability: A default could also trigger a feeling of economic instability and volatility in financial markets—which could lead to a recession or even a global economic downturn. For the average American, this could spell higher unemployment rates and reduced job opportunities.
- Stock market volatility: A default can create uncertainty and panic in financial markets, leading to increased stock market volatility. The value of investments, such as retirement savings and portfolios, could decline, affecting the financial well-being of individuals.
- Reduced government services and benefits: A default could force the government to cut spending on various programs, such as social security, healthcare, and education. This may result in reduced benefits and services that the average consumer relies on for their well-being and livelihood.
- Weakening of the U.S. dollar: A default can undermine the value of the U.S. dollar, leading to inflation and higher prices for imported goods. This could erode the purchasing power of consumers, making everyday essentials more expensive.
While the uncertainty may be unsettling, there are a few ways you can protect yourself. First (if you can) keep an emergency fund. For this, a high-yield savings account with at least some liquidity—like our Indexed and Premium Money Market accounts—is your best bet. These money market accounts offer better returns than traditional savings accounts and allow you to access your funds when you need to without penalty.
It may also be a good time to refinance your mortgage or auto loan—especially if your credit has improved since you last evaluated your rates. For one thing, lower monthly payments can make a huge difference in hard economic times. For another, if you own your home, you may be able to unlock equity in it (before mortgage rates rise any further). This could be impactful if you have been considering home improvement projects or have big expenses coming up (like a child going off to college). If you have questions about refinancing your home, auto, RV, boat, or personal loan, just talk to one of our lending experts.
In fact, if you have questions about anything regarding your finances, just ask us. Call us or drop us a text at 503.588.0181 or stop by a branch location. We will be here to walk you through it—whether you want to evaluate your current loans for better terms or find a more efficient way to protect your assets and attain your financial goals.