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President Biden and Congressional leaders just wrapped up their first meeting since February to discuss raising the debt ceiling and avoiding default. The result? No deal! As America inches closer and closer to the point of no return, they say they will meet again on Friday.

Understanding the debt ceiling debate is critical to understanding how our nation's bills get paid and how our currency stays strong. In our previous primer on the debt ceiling, we discussed this law which has been on the books since 1917. Here is some more information about this critical debate and how it affects our economy and your own family’s pocketbook.

When is the deadline (also known as the X date)?  

Treasury Secretary Janet Yellen recently moved up the “X date” – the day when the government runs out of money and will start missing payments – to June 1st. That’s 23 days from now.  

In January, Secretary Yellen informed Americans we had breached the debt ceiling and she began taking “extraordinary measures” to avoid default. Many economists thought these measures would last into the late summer. But after a weaker-than-expected tax season, everyone is acknowledging the X date has moved up: 

• Moody’s Analytics chief economist projects a June 8th X date; 
• Goldman Sachs is saying the “first half of June” is now more likely; 
• Bank of America thinks an “early June” date is now just as likely as their original “late July” projection. 

What happens if we default? 

The Treasury secretary put it plainly on Sunday – “We would simply not have enough cash to meet all of our obligations. And it's widely agreed that financial and economic chaos would ensue.” 

This chaos would lead to consequences similar to those we suffered during the Great Recession: 6 million jobs lost, and a 4% drop in GDP (that’s a lot!). 

If you receive Social Security, Medicare, Medicaid, or any other public assistance, your benefits could be reduced, delayed, or canceled.  

If you’re a member of the military or a government employee, your paycheck might not arrive on time. 

In 2011 during the last debt ceiling crisis, the full faith and credit of the U.S. was downgraded by a credit rating agency. If this happens again, the Treasury secretary warned it would lead to “permanently higher borrowing costs for Americans for buying a home, buying a car.” 

Treasury bonds, bills, and notes would lose their risk-free reputation, and investors would demand higher interest rates to compensate for the increased risk. Because many types of lenders peg their interest rates to the rates charged for Treasuries, prices could increase across the board.  

That means if you have or want a mortgage, a car note, a credit card, medical debt, or a student loan, your costs could rise.  

And if you’re an entrepreneur, business loans could be more expensive and harder to come by. If you have a 401(K), stocks could lose up to a third of their value, which could jeopardize your retirement savings.  

But there’s more:  

• The national debt could grow exponentially; 
• Border Patrol could be defunded in the middle of a migrant surge at the border;  
• TSA could lose funding; national parks could be closed… your summer vacation could be ruined! 

Assignment: How would defaulting on the debt affect you? Email [email protected] your story and we may share it with our growing community of concerned citizens. 

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