How do you prepare for a debt ceiling crash?
If you have money in U.S. government money market funds, U.S. Treasury money market funds, or treasury bills maturing in June or July SELL those securities and hold cash deposits or perhaps even prime money market funds until the debt ceiling crisis is over.
If you have money in U.S. government money market funds, U.S. Treasury money market funds, or treasury bills maturing in June or July SELL those securities and hold cash deposits or perhaps even prime money market funds until the debt ceiling crisis is over.
That means tamping down on excess spending, making a budget, and shoring up emergency savings to cover at least three months of living expenses. Since a debt default would likely send interest rates soaring, any credit card debt you're saddled with may soon cost you more.
“If the debt ceiling is not raised and the government defaults on its debt obligations, investors may turn to gold and other precious metals to protect their wealth.”
Under normal conditions, the Treasury sends Social Security payments one month in arrears. That means the check you receive in June covers your benefits for the month of May. If the debt ceiling isn't raised, the Social Security payments due to be sent to beneficiaries in June would most likely still go out.
Even if the Treasury does default, money market fund experts point to several reasons why a repeat of the Reserve Primary Fund debacle is extremely unlikely. A U.S. debt default would affect only a small number of Treasury securities, namely those that mature on the date that the Treasury's cash runs out.
In this circ*mstance, domestic spending has been given priority over bond holders and the U.S. government defaults on its debt. Immediately, the U.S. dollar experiences a sharp decline in value relative to other currencies, as last-minute hopes of a political compromise are dashed.
If US defaults on its debt, Treasury would have to decide how to pay the bills. As the date that the US could default on its obligations grows closer, the Treasury Department must prepare for an unprecedented situation – figuring out which bills to pay with the money it has on hand if Congress doesn't act.
In 2011, the U.S. reached a crisis point of near default on public debt.
What happens when a country defaults? For ordinary people, a default means higher food costs from inflation, as the government prints money to cover its costs. It means unemployment, as businesses and government agencies cut spending. And it means reductions in essential services such as health care and education.
Should I be worried about the debt ceiling?
Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.
Thinking about it doesn't mean panicking. Even in a crisis, I buy and hold diversified investments in the global stock and bond markets, preferably through low-cost index funds. That's a well-tested approach for long-term investing.
In fact, we have already seen evidence of significant market stress correlated with debt ceiling tensions. Yields on Treasury bills with maturity dates around the X-date have increased considerably—directly increasing the cost of borrowing for the government and thus the cost to taxpayers.
President Joe Biden on Saturday signed a $460 billion package of spending bills approved by the Senate in time to avoid a shutdown of many key federal agencies. The legislation's success gets lawmakers about halfway home in wrapping up their appropriations work for the 2024 budget year.
As of December 2022 (estimated), the intragovernmental debt was $6.18 trillion of the $31.4 trillion national debt. Of this $6.18 trillion, $2.7 trillion is an obligation to the Social Security Administration.
Social Security is considered a mandatory program, and it isn't funded by the shorter-term appropriations bills passed by Congress and signed by the president. That means its operations and funding don't stop when the government shuts down.
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.
About Recessions and Ensuring Deposit Insurance
If the United States were to enter a recession, the funds you have saved at a bank aren't at risk of becoming lost or inaccessible the same way they were during the Great Depression.
' There is a one-in-four chance that Washington negotiators fail to raise the debt ceiling and the U.S. government is unable to pay its bills on time.
What countries are trying to get rid of the US dollar?
This is an effort by a growing number of countries to reduce the role of the U.S. dollar in international trade. Countries like India, China, Brazil, Malaysia and Bolivia, among others, are seeking to set up trade channels using currencies other than the almighty dollar.
A collapsing dollar typically leads to inflation, which can inflate your home's nominal value but also increase everything else dramatically. This means while your home might be worth more on paper, everyday expenses like groceries, utilities, and repairs become so much more expensive.
Thus, T-bills are considered a safe and conservative investment since the U.S. government backs them. T-bills are generally held until the maturity date. However, some holders may wish to cash out before maturity and realize the short-term interest gains by reselling the investment in the secondary market.
Retirees, Veterans, and Survivors
Although there are no proposed cuts to retirement compensation, payments to retirees of the uniformed services are paid out of the Military Retirement Trust Fund. Default could result in payment disruptions for retirement and Dependency and Indemnity Compensation (DIC).
Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).
