News outlets have been all abuzz about the debt ceiling in recent weeks. As you might have heard, the debate over the debt ceiling has heated up in Congress. Some lawmakers push for raising the ceiling, while others continue to refuse.
But what is the debt ceiling, anyway? And why do we care? How does this issue impact the average person?
Each year, Congress passes a budget for federal spending. Ideally, that budget is covered by incoming tax revenue. But in most years, the government overspends this budget, and must borrow funds in order to continue paying debts owed. These debts can include everything from government employee paychecks, to Medicare and Social Security programs, and more. The debt ceiling refers to a limit on how much the government can borrow each year.
Yes, they are essentially borrowing money to pay their bills! And that’s precisely why so many people feel alarmed by the situation. But on the flip side of the issue, failing to pay the amounts owed can have catastrophic effects upon the overall economy. Just imagine what would happen if millions of people stopped receiving their paychecks, for example.
We’ve already exhausted the budget this year, and then hit the debt ceiling on August 1. Since that date, the Treasury Department has taken “extraordinary measures” to continue covering debts owed. However, they report that the debt ceiling must be raised by October 18, or else the government will run out of money.
If the debt ceiling is not raised, anything from child tax credit payments to Social Security benefits could stop. Federal workers might not be paid, or veterans benefits could be cut off. Congress must find a way to pay these debts, or some will stop – and we can’t predict which ones.
As for how this situation would affect the economy, analysts predict the unemployment rate could rise from 5.2 percent to 9 percent. The stock market might lose a third of its value, eliminating $15 trillion in household wealth.
On the other hand, continually adding to the nation’s debt raises concerns about the future. How will this debt ever be repaid, and by whom?
This situation sounds serious, but we urge you not to panic. Remember, Congress has debated this issue many times before! But if you’re feeling concerned about the future, call us to discuss your personal financial plan. We can help to reassure you, and make plans for both best- and worst-case scenarios.