Here's what the debt limit standoff means for you

Lawmakers have less than three weeks to raise the debt limit or risk a first-ever default, which would trigger a broad market sell-off and put a stranglehold on everything from government payments to the ability to borrow.

“It is imperative that Congress swiftly addresses the debt limit,” Treasury Secretary Janet Yellen said in remarks to the Senate Banking Committee.

Failing to act could spark an economic catastrophe, Yellen also said.

“Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays.

“In a matter of days, millions of Americans could be strapped for cash.”

More from Personal Finance:
Social Security cost-of-living adjustment could be 6% in 2022
This is the age when Americans say they plan to retire
3% of near-retirees can answer all these Social Security questions

The federal debt is the amount of money the government currently owes for spending on payments such as Social Security, Medicare, military salaries and tax refunds.

The debt limit allows the government to finance those existing obligations.

“Raising the debt ceiling doesn't authorize additional spending of taxpayer dollars. Instead, when we raise the debt ceiling, we're effectively agreeing to raise the country's credit card balance,” Yellen has said.

In the worst-case scenario, the federal government would default, at least temporarily, on some of its obligations, including those Social Security payments, veteran's benefits and salaries for federal workers.

Social Security, which was created in 1935, has never missed a benefit payment. However, checks could be delayed for weeks, or even longer, if Congress fails to either raise or suspend the debt limit, the National Committee to Preserve Social Security and Medicare recently warned.

Social Security is self-funded yet the program is drawing down from its trust funds, which include Treasury bonds, to pay benefits.

Potential downgrades of U.S. credit ratings would hammer Treasurys. Demand for U.S. Treasury bonds could sink if they are no longer considered a reliable, safe-haven investment and bondholders would demand dramatically higher interest rates to compensate for the increased risk.

That, in turn, would also send other borrowing costs higher, including credit cards, car loans and mortgage rates (which generally are pegged to yields on U.S. Treasury notes).

Just the uncertainty can impact borrowing terms and borrowing availability.
Yiming Ma
assistant finance professor at Columbia University Business School

At the very least, fear of default could rattle the stock market and send shock waves throughout the economy, said Mark Hamrick, senior economic analyst at Bankrate.com.

“If you go back to a decade ago, there was an immediate selloff in the financial markets — it hit investors hard and runs the risk of a cascading financial crisis,” he said.

In 2011, a debt limit standoff in Congress brought the country very close to a default before lawmakers finally struck a deal, but not without a downgrade of the country's credit rating and significant market volatility.

Between July and October of that year, the S&P 500 sank more than 18%.

This time, lenders may start tightening their standards in advance to reduce their exposure — or risk — during a contentious battle, said Yiming Ma, an assistant finance professor at Columbia University Business School.

“Just the uncertainty can impact borrowing terms and borrowing availability,” she said.

“If I was someone about to take out a loan, I would look at the terms now,” Ma added. “In the last days, there could be a frenzy going on.”

“We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” Yellen wrote in a letter to House Speaker Nancy Pelosi Tuesday.

Congress and the White House have changed the debt ceiling almost 100 times since the end of World War II, according to the Committee for a Responsible Federal Budget. In the 1980s, the debt ceiling increased to nearly $3 trillion from less than $1 trillion. During the 1990s, it doubled to nearly $6 trillion, and doubled again in the 2000s to over $12 trillion. 

In 2019, Congress voted to suspend the debt limit until July 31, 2021. Now, the Treasury is using temporary “emergency measures” to buy more time so the government can keep paying its obligations to bondholders, veterans and Social Security recipients.

“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by Oct. 18,” Yellen said in the letter to Pelosi. 

“At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.”

CNBC's Lorie Konish contributed to this report.

Internet Explorer Channel Network
News Related

OTHER NEWS

Pension lifetime allowance tax raid: How much you could save - and how much you'll LOSE

Pensioners may have to brace themselves for a whopping 55 percent tax raid on their pension pots if Chancellor Rishi Sunak reduces the pension lifetime allowance again in his Autumn ... Read more »

Stocks making the biggest moves in the premarket: Pinterest, PayPal, Tesla and more

Take a look at some of the biggest movers in the premarket: Pinterest (PINS) – Pinterest shares tumbled 13.2% in premarket trading after PayPal (PYPL) said it was not pursuing ... Read more »

Huseierne: Norwegian homeowners need to prepare for rising housing-related costs

More expensive electricity is only the beginning of rising housing costs in the future, according to the organization Huseierne. The organization is now asking homeowners to prepare for tighter economic ... Read more »

Beyond Meat plummets 60% since a January peak. Why this stock is ‘misunderstood'

Beyond Meat has taken another dive after warning on third-quarter sales. The alternative meat company fell 12% to close out last week after blaming the Covid-19 delta variant and a ... Read more »

Wells Fargo has a new virtual assistant in the works and it's named Fargo

A Wells Fargo logo is seen at the SIBOS banking and financial conference in Toronto Chris Helgren | Reuters Wells Fargo is developing a virtual assistant to help it convert ... Read more »

HSBC eyes interest rate boost as quarterly profits jump

HSBC has said it expects to benefit from central bank interest rates rising earlier than expected as it announced a third-quarter boost to its profit. © HSBC is the biggest ... Read more »

Millions could see Budget wage rises as Sunak poised to axe public sector pay freeze

Teachers, police officers and civil servants are poised to see salary hikes in Wednesday’s Budget after a cruel freeze on public sector pay. Chancellor Rishi Sunak has hinted he will ... Read more »

Investors cash in on pandemic pet boom

George Parrett had wanted a dog for years but the timing never seemed right. While the 33-year-old commuted from Tunbridge Wells to London for a job in public relations, his ... Read more »

IMM Private Equity inks deal to buy stake in Hanssem for W1.45tr

A headquarters building of Hanssem in Seoul. (Hanssem)IMM Private Equity said Monday it has signed a binding term to become the largest shareholder of South Korean kitchen and interior furniture ... Read more »

Budget 2021: The NINE taxes Rishi could inflict on YOU

The Autumn Budget 2021 will be delivered on Wednesday, October 27, and given the huge financial and human cost of the Covid pandemic sweeping changes are expected across many areas ... Read more »

As Britons adopt fintech what will become of those left behind?

© Provided by This Is Money MailOnline logo Britons are increasingly using online banking, money apps and contactless cards, a comprehensive survey shows. Fintech use and adoption has risen in ... Read more »

Nivesh ties up with distributors to expand presence in India's Tier-II & III cities

Nivesh, a digital-first platform, on Monday announced that it has witnessed 100% growth in investments from tier-II and tier-III cities and has tied up with individual distributors in more than ... Read more »

There's a chance China might finally put taxes on property

Vehicles drive by unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.Carlos Garcia Rawlins | Reuters BEIJING — China ... Read more »

Rishi Sunak's top 7 Budget tax targets - which one will hurt YOU most?

Victoria Scholar, head of investment at wealth platform Interactive International, said Sunak has to balance the books after spending more than £108 billion over the last 12 months, lifting total ... Read more »

S. Korea ranks 4th in ‘relative poverty' among 38 OECD members

Pedestrians cross a street near Gwanghwamun Square in Seoul on Oct. 20. (Yonhap)South Korea ranked No. 4 among 38 global economies in terms of the percentage of its population living ... Read more »

(2nd LD) Citibank Korea to close retail banking 'in phases'

(ATTN: ADDS more info at bottom) SEOUL, Oct. 25 (Yonhap) — Citibank Korea Inc., the Korean unit of U.S. banking giant Citigroup, said Monday it will close its retail banking ... Read more »

HSBC is set to report third-quarter earnings today. Here's what to expect

HSBC building in the Canary Wharf district of London, U.K.Leon Neal | AFP | Getty Images HSBC is scheduled to release its financial report card for the third quarter at ... Read more »

(LEAD) Citibank Korea to close retail banking 'in phases'

(ATTN: UPDATES throughout with Citibank Korea’s official announcement) SEOUL, Oct. 25 (Yonhap) — Citibank Korea Inc., the Korean unit of U.S. banking giant Citigroup, said Monday that it will close ... Read more »

Citibank Korea to close retail banking 'in phases'

SEOUL, Oct. 25 (Yonhap) — Citibank Korea Inc., the Korean unit of U.S. banking giant Citigroup, said Monday that it will close its retail banking services “in phases” in line ... Read more »

Rishi Sunak to hand NHS £6bn to tackle waiting lists and boost tech

A £5.9bn billion package aimed at tackling NHS waiting lists in England will form part of chancellor Rishi Sunak’s autumn Budget, the Treasury has said. © PA Chancellor Rishi Sunak ... Read more »

Triple lock scrap: Retirees £208 worse off - plot launched to overturn devastating drop

The Liberal Democrats are this week launching a bid to ensure pensioners are not crippled by financial difficulties next year. The cost of living crisis currently engulfing the UK is ... Read more »

People living in poverty ‘hit harder by gas and electricity bills', new data shows

Poorer households have been found to pay as much as 50 per cent more on their energy bills than those with more money, according to data analysed by the Labour ... Read more »

Dow futures fall 100 points after the blue-chip average notches third winning week in a row

Traders work on the floor of the New York Stock Exchange (NYSE) on October 15, 2021 in New York City.Spencer Platt | Getty Images Stock futures edged lower in overnight ... Read more »

'Buckle your seatbelts' because earnings will start to disappoint, long-term bull Art Hogan warns

Earnings season may turn an ugly corner. Long-term bull Art Hogan warns a storm of disappointing corporate guidance and missed revenue targets is ahead. “Buckle your seatbelts,” the National Securities' ... Read more »

What the first bitcoin futures exchange-traded fund means for the cryptocurrency industry

The value of Bitcoin (BTC) has exceeded the threshold of 66,895 dollars for the first time in his history. Chesnot | Getty Images This week marked a milestone for cryptocurrency ... Read more »

Rishi Sunak shares the 'big difference' between a National Insurance and Income Tax hike

Earlier this year, the Government announced that National Insurance payments for workers and employers would be temporarily increased by 1.25 percent, prior to a new 1.25 percent Health and Social ... Read more »

Lending caps on NBFCs may offer big opportunities to small players

New lending caps on NBFCs against funding initial share sales may throw up big opportunities for small players in last-mile financing. Many smaller NBFCs are likely to enter the estimated ... Read more »

Interest rates may be rising soon. Will your finances stand the strain?

The era of rock-bottom interest rates could soon be at an end. Expectations are growing that the Bank of England could raise rates as early as next month to tackle ... Read more »

[ESG Talk] Overseeing ESG risks in supply chain: procurement with a purpose

Bae, Kim & Lee expert adviser Lee Yeon-woo (Bae, Kim & Lee)In 2022, an area that is likely to strain companies’ transition toward a resilient, sustainable economy is the ESG ... Read more »

[Market Eye] Record-breaking year expected for banking groups; financial stocks, maybe

A citizen passes by a row of automated teller machines in central Seoul on Oct. 4. (Yonhap)Bank stocks in South Korea have long been regarded as an unappealing option for ... Read more »

Bumpy road lies ahead of top bidder to take over SsangYong Motor

Sports utility vehicle All-New Rexton’s special brand “Master” (SsangYong Motor)A new shareholder group led by South Korea’s electric bus manufacturer Edison Motors has unveiled its capital procurement plan for its ... Read more »

S. Korea alarmed by surging fuel prices, inflationary pressure

A gas station in Seoul shows a gasoline price of 1,843 won ($1.56) per liter on Sunday. The average nationwide gasoline price gained 45.2 won to 1,732.4 won in the ... Read more »

Inheritance Tax: Britons 'most hated tax' hits families as HMRC receipts rise by £700m

HMRC released data recently which showed £3.1billion was paid by families through Inheritance Tax (IHT) between April and September, an increase of £700million on the same period in 2020. Unfortunately, ... Read more »

Bitcoin is the new GOLD - $100,000 crypto is haven from inflation and stock market crash

The latest Bitcoin resurgence has seen its value has double since it slumped to around $30,000 just three months ago, in mid-July. Many investors will be kicking themselves for missing ... Read more »

S. Korea's seaport cargo up 8.1% in Q3 amid global rebound

This file photo shows ships carrying containers docked at a port in South Korea’s southeastern city of Busan. (Yonhap)Cargo processed at South Korean seaports advanced 8.1 percent in the third ... Read more »

‘I shaved 9 years off my mortgage': Simple way finance expert took his family to loan free

© THE HUMBLE PENNY/GETTY Ken Okoroafor of The Humble Penny Ken Okoroafor is a financial expert who managed to become financially free by just 34. During the pandemic, he was ... Read more »

Self Assessment guidance issued as deadline nears & a 'lumpy tax burden' hits freelancers

Self Assessment paper returns must be completed by October 31, while online returns must be done by January 31, 2022. Despite there still being time to act, new research from ... Read more »

Razorpay launches tokenisation solution in partnership with Mastercard, RuPay and Visa

Fintech firm Razorpay on Friday announced a new a tokenisation solution for businesses that will allow their end-customers to have the convenience of saved card transactions with added security and ... Read more »

Chancellor unveils multi-billion pound spending pledges ahead of budget

The chancellor has announced a series of spending pledges ahead of the autumn budget this week, which include £5bn for health research and innovation and £3bn for education. © Imagebridge ... Read more »

Labour calls for VAT cut on energy bills ‘to see people through the winter'

Labour is calling for a VAT cut on domestic energy bills to help tackle a looming cost of living crisis. © Eddie Mulholland Rachel Reeves said a VAT cut would ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic