Advice | Debt ceiling standoff is as much about managing fear as finances (2023)


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I’m mad as hell about the political posturing around the debt ceiling crisis.

The day — the so-called “X-date” — the U.S. government could fail to meet its financial obligations is fast approaching, possibly as soon as June 1.

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678)ArrowRight

“That’s a hard deadline,” Treasury Secretary Janet L. Yellen said during an interview on NBC News’s “Meet the Press.” “There will be hard choices to make if the debt ceiling isn’t raised.”

Hard choices? Try catastrophic.

7 doomsday scenarios if the U.S. crashes through the debt ceiling

(Video) Debt Ceiling Deal: Controlling the Budget | August 2011 | Public Square

Still, I highly doubt the government will default.

As Yellen noted, the United States has been paying its bills on time since 1789. “That’s what the world wants to see, a continued commitment to do that,” she said. “It’s what underlies U.S. Treasury securities as the safest investment on the planet.”

The drama will have “no material bearing on the typical American’s finances” if there’s a resolution before the X-date, said Mark Zandi, chief economist at Moody’s Analytics. And even if payments are paused, they will resume quickly. Seniors will eventually see their Social Security deposits in their bank accounts. Military personnel and Medicaid providers will get paid.


But the fear the debt ceiling standoff is generating won’t be easily fixed. Financial anxiety doesn’t disappear when a crisis is averted. It lingers and stains.

If you also factor in high inflation, a possible recession and an economy still trying to recoup from the pandemic, this showdown is incredibly foolish and financially irresponsible.

As funds run short, Treasury asks agencies if payments can be made later

Should even one check be delayed when so many live on the financial edge, it could have a long-term impact on a person’s mental and physical well-being. A 2022 paper published in the Journal of Family and Economic Issues concluded there is a connection between financial worries and psychological distress.

As the debt ceiling standoff drags on, people have been asking me whether they should move money out of their FDIC-insured bank accounts. One reader asked: Should I cash in my U.S. Savings Bonds?


(Video) McCarthy leans on ‘five families’ as House GOP plots debt-limit tactics

Others have expressed doubts about investing for retirement, wondering whether they should just wait until things get better. That’s timing the market, and that’s not a good investment strategy.

“Investors can’t help but feel nervous,” wrote Danni Hewson, head of financial analysis for AJ Bell. “The last time these talks got down to the wire, markets plummeted, and the country’s borrowing costs shot up. Even if the deadlock is broken in time to prevent the U.S. defaulting on its debt, the uncertainty is destabilizing, particularly when the economy is already looking a little vulnerable.”

Taking the United States to the brink of default will lead to persistent economic unease. I feel it. My gut is constantly gurgling as my retirement portfolio rises and falls on news of debt ceiling negotiations stalling.

It doesn’t matter how we got here or who will be at fault if the government defaults. The folks who will suffer the most will be the ones least able to recover quickly.

“A breach will also quickly cause interest rates to rise as investors will rightly wonder how long they will get paid before Social Security recipients, already fragile confidence would be upended, and the economy would descend into recession, which means lots of lost jobs and rising unemployment,” Zandi said. “Everyone would suffer financially, but the most financially vulnerable lower-income households would suffer the most.”

What to do with your money as Congress debates lifting debt ceiling

Consumer confidence is so important right now. People need to believe and trust that the government is going to pay its obligations.

“Would you do business with a very wealthy company or a person who required that you accept that they might later decide not to pay you because they would rather do something else with their money?” wrote Gary Sylvern of Oakland, Calif.


(Video) Debt Ceiling

With this Congress and the high political discord, nothing is impossible. So what can you do if the debt ceiling isn’t raised?

Curb unnecessary spending

It’s always a good time to watch your spending, but now more than ever. “A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in the millions,” according to a White House blog post.

If the crisis is averted, you can resume your planned spending. But if things get bad, you’ll have some cushion to pay for necessities.

If the U.S. defaults, will it miss Medicare payments? What about Social Security? See what’s at risk.

Check in with your parents

Last year, 55 percent of retirees said they rely on Social Security as a “major” source of income, according to a Gallup poll.

If your parents or other retired loved ones are heavily reliant on Social Security to make ends meet, ask whether they can handle a missed payment. Find out how they might pay their bills. If you’re in a position to help, reassure them you will.

Senior care is crushingly expensive. Boomers aren’t ready.

Contact your lenders

As soon as you know you may miss a mortgage, car or credit card payment, get on the phone with lenders. Look, a government default will have an impact on so many people that lenders will be more inclined to help consumers.

Continue saving and investing

A breach of the U.S. debt ceiling would probably roil financial markets almost immediately, according to Moody’s Analytics May report. “Even without the specter of a debt limit breach, many CEOs and economists believe a recession is dead ahead.”


(Video) Stocks mixed as regional banks pare gains: May 8 | Yahoo Finance Live

Your brain will want you to flee a downward stock market. Don’t. Whatever happens, this crisis will probably be temporary.

Don’t withdraw cash to stockpile it. Your money is not safer in your house.

Your U.S. Savings Bonds will still be the safest investment.

Although you may have lingering fears once this debt ceiling dilemma passes, the alternative is to shut down financially, and that won’t serve you well.

“I would recommend people continue to save and invest like they typically do,” Zandi said. “Look through the near-term drama and focus on the long term. Despite all the Sturm und Drang, it is never wise to bet against the American economy in the long run.”

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

Recession-proof your life: The tsunami of economic news is leading consumers, investors and would-be homeowners alike to ask whether a recession is inevitable. Regardless of the answer, there are practical steps you can take to help shield yourself from a worst-case scenario.

Credit card debt: Carrying credit card debt is never good and you should ditch the habit. Here are seven ways to lower your credit card debt in light of the Fed continuing to raise interest rates.

Money moves for life: For a more sweeping overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career to living an abundant life in retirement.

Test Yourself: Do you know where you stand financially? Take our quiz and read advice from Michelle.


What does the 14th Amendment have to do with the debt ceiling? ›

Clause 4 of the 14th Amendment states that the “validity of the public debt of the United States … shall not be questioned”. By invoking this provision, Biden could order the US Treasury to keep issuing bonds and keep paying the government's bills.

What happens if we hit 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.

Is the debt ceiling constitutional? ›

Congress has maintained some form of a debt limit, without constitutional controversy, since the dawn of the republic. According to widely held legal principles, its existence creates no conflict with the Constitution, and the Supreme Court would almost certainly reject any attempt to argue otherwise.

Does the debt ceiling affect Social Security payments? ›

If the US is not able to pay all its bills for the first time ever, senior citizens could quickly feel the pain.

What does the 14th Amendment say about debt simplified? ›

Section 4 Public Debt

But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

What does the 14th Amendment say about due process in the Bill of Rights? ›

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. See Amdt14.

When was the last time the US hit the debt ceiling? ›

The debt ceiling was raised 74 times from March 1962 to May 2011, including 18 times under Ronald Reagan, eight times under Bill Clinton, and seven times under George W. Bush. In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.

What happens if US defaults on debt 2023? ›

Individuals and businesses would have trouble getting loans, and Zillow estimates that a prolonged government default would push mortgage rates up to about 8.4% from the 6.4% interest rate on a 30-year fixed-rate mortgage that we see today, per Freddie Mac.

What happens if US government defaults on debt? ›

So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive. Finally, there is a real concern about the economy — that a default could spark a recession.

Is the US the only country with a debt ceiling? ›

Denmark is the only other country in the world with a debt ceiling comparable to that of the U.S., but it never causes the same political crises that Washington frequently faces.

How many times has Congress changed the debt ceiling? ›

Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.

Have we ever defaulted on the debt ceiling? ›

Still, fears of a default have prompted lawmakers to pass legislation to raise or suspend the ceiling every time, most recently in December 2021. So the US has never actually defaulted on its debt.

Can debt collectors take Social Security? ›

Generally no, debt collectors can't take your Social Security or VA benefits directly out of your bank account or prepaid card. After a debt collector sues you for the debt and wins a judgment, it can get a court order for your bank or credit union to turn over money from your account or prepaid card.

What happens if the USA defaults? ›

And if a government default were to last much longer — well into the summer — the consequences would be far more dire, Zandi and his colleagues found in their analysis: U.S. economic growth would sink, 7.8 million American jobs would vanish, borrowing rates would jump, the unemployment rate would soar from the current ...

Can you get Social Security if you have debt? ›

Similar to federal income taxes, the government can simply withhold Social Security benefits if you still have federal student loan debt remaining as you approach retirement. Once again, this can take place because the federal government is the creditor. As much as 15 percent of your benefits may be garnished.

What does the 14th Amendment make it so states Cannot? ›

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

What are the 3 main provisions of the 14th Amendment? ›

14th Amendment - Citizenship Rights, Equal Protection, Apportionment, Civil War Debt. Constitution Center.

What does the Constitution say about all previous debt? ›

Fourteenth Amendment, Section 4: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

What is a violation of due process rights? ›

What is a violation of due process? A violation of due process is anything that includes depriving a person of “life, liberty, or property, without due process of law." An example of such a violation would be law enforcement searching an individual's property without a warrant.

Can you sue for violation of 14th Amendment rights? ›

14th Amendment lawsuits may be filed as class action lawsuits. These types of lawsuits may lead to very significant damages awards that are issued to members of the class named in the lawsuit. One example of this is when the constitutional rights of a group in a community have been violated.

What is Section 3 of the 14th Amendment insurrection? ›

Section 3 prohibits public office holders who have taken an oath to support the U.S. Constitution and then engage in insurrection or rebellion against the United States, or who give aid or comfort to enemies of the United States, from serving in public office.

What is the highest the US debt has ever been? ›

These have corresponded with periods when the federal government ran large budget deficits: the Reagan-Bush years of the 1980s and early 1990s; the 2008 financial crisis and subsequent Great Recession; and the pandemic-caused recession of 2020, when federal debt spiked to an all-time high of 134.8% of GDP.

Who owns US debt? ›

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

Why does the US have so much debt? ›

America's debt has risen massively since the beginning of the 21st century, as "politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers, and emergency measures to help the nation endure two debilitating recessions," writes Jim ...

Does debt go away after 7 years in USA? ›

A debt doesn't generally expire or disappear until its paid, but in many states, there may be a time limit on how long creditors or debt collectors can use legal action to collect a debt.

How can I protect my money if US defaults on debt? ›

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.

What year was the US not in debt? ›

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt.

What happens if the US never pays off its debt? ›

If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.

Does the US ever have to pay off its debt? ›

In modern history, the U.S. has never defaulted on its debt. The debt ceiling is the self-imposed limit on how much debt Congress allows the federal government to have. If Congress does not raise or suspend the debt ceiling, the U.S. could default on its debt, which would also impact financial markets and the economy.

Will the stock market crash if the US defaults on its debt? ›

The stock market will certainly take a hit if the U.S. defaults on its debt. At moments, the losses could seem significant to anyone with investments or retirement accounts. But for those with diversified portfolios who aren't nearing retirement, investment experts advise that you stay the course.

What US states are not in debt? ›

States With the Least Debt in 2020

Mountain states, such as Idaho, Montana, Utah and Wyoming made the top-10 list, as did upper Midwest states like Nebraska, North Dakota and South Dakota. Alaska takes the No. 1 spot, with a tiny debt ratio of only 14.2%.

What country has more debt than the US? ›

Japan tops the ranking with central government debt of 221 percent of GDP, followed by Greece, Sudan, Eritrea, and Singapore. Not long ago, the U.S. was among the least indebted countries.

What is the only country not in debt? ›

The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.

How much debt is the US in? ›

When the government spends more than it earns, it has a budget deficit and must issue debt in the form of Treasury securities. The U.S. has run a deficit for the last 20 years, substantially increasing the national debt. In fact, according to the Department of the Treasury, the current debt is $31.4 trillion.

What is the 11 word phrase to stop debt collectors? ›

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

What type of bank accounts Cannot be garnished? ›

Bank accounts solely for government benefits

Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would not be subject to garnishment.

Why seniors should not worry about old debts? ›

Seniors enjoy protection from collection

Elders in California have a raft of legal protections from creditors. Exemption laws, pension law, and the Social Security Act often make it hard for creditors to seize the assets of elders, even to pay legitimate debts.

Do credit cards affect Social Security? ›

Federal income retirement benefits are protected from commercial garnishment through the federal Consumer Credit Protection Act. This means Social Security and other federal benefits can't be garnished by credit card companies, for medical bills, and other commercial creditors.

What debts can be garnished from Social Security? ›

Section 459 of the Social Security Act (42 U.S.C. 659) permits Social Security to withhold current and continuing Social Security payments to enforce your legal obligation to pay child support, alimony, or restitution.

What can stop Social Security payments? ›

If you have reached full retirement age, but are not yet age 70, you can ask us to suspend your retirement benefit payments. By doing this, you will earn delayed retirement credits for each month your benefits are suspended which will result in a higher benefit payment to you.

What law created the debt ceiling? ›

Early history

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling.

What Amendment has to do with debt? ›

The debt-ceiling standoff has renewed debate over the Constitution's 14th Amendment. Some lawyers argue it lets President Biden unilaterally pay the nation's debts without heeding Republicans' demands; others say that idea fundamentally misreads the Constitution.

What did the 14th Amendment declare Confederate debts to be? ›

Section 4 of the Fourteenth Amendment renders all public debt accumulated by Congress to be legitimate, and determined that the state and federal governments are under no obligation to compensate for the lost financial value of the freed slaves or the Confederacy's war debts.

Did the Fourteenth Amendment recognize the validity of Confederate debts? ›

Amendment XIV, Section 4 allowed the federal and state governments to refuse to pay war debts of the Confederate army as well as any claims made by slave owners for their losses when slaves were freed. Lastly, Amendment XIV, Section 5 gives Congress the power to enforce all the provisions within the whole amendment.

When was the last time the US raised the debt ceiling? ›

The 2013 crisis was temporarily resolved on February 4, 2013, when President Barack Obama signed the No Budget, No Pay Act of 2013 which suspended the debt ceiling until May 19, 2013. On May 19, the debt ceiling was raised to approximately $16.699 trillion to accommodate the borrowing done during the suspension period.

Has the US hit the debt ceiling? ›

The debt ceiling refers to a law that caps the total amount of federal debt allowed to be outstanding. The U.S. hit that limit in January, but the Treasury Department says it has been using workarounds, or what it calls “extraordinary measures,” to keep the government paying its bills on time.

Has the United States always been in debt? ›

The U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to over $75 million by January 1, 1791.

What is the 31st Amendment right? ›

No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.

What is the 22nd Amendment limitation? ›

Section 1: No person shall be elected to the office of the President more than twice, and no person who has held the office of President, or acted as President, for more than two years of a term to which some other person was elected President shall be elected to the office of the President more than once.

What does Amendment 11 prohibit? ›

Jackson. The Eleventh Amendment's text prohibits the federal courts from hearing certain lawsuits against states. The Amendment has also been interpreted to mean that state courts do not have to hear certain suits against the state, if those suits are based on federal law.

Who does the 6th Amendment protect? ›

The Sixth Amendment guarantees criminal defendants nine different rights, including the right to a speedy and public trial by an impartial jury consisting of jurors from the state and district in which the crime was alleged to have been committed.

What Amendment is 19? ›

Passed by Congress June 4, 1919, and ratified on August 18, 1920, the 19th amendment granted women the right to vote. The 19th amendment legally guarantees American women the right to vote.

What is the 24th Amendment say? ›

The right of citizens of the United States to vote in any primary or other election for President or Vice President, for electors for President or Vice President, or for Senator or Representative in Congress, shall not be denied or abridged by the United States or any State by reason of failure to pay any poll tax or ...

Does the 14th Amendment nullify the Bill of Rights? ›

For many years, the Supreme Court ruled that the amendment did not extend the Bill of Rights to the states. Not only did the 14th Amendment fail to extend the Bill of Rights to the states; it also failed to protect the rights of Black citizens.

Did the 14th Amendment really end slavery? ›

The Fourteenth Amendment to the U.S. Constitution was the centerpiece of the Reconstruction Amendments, which together abolished slavery, gave African-American men the right to vote, and guaranteed full citizenship, due process, and equal protection of the laws to all.

Why was the 14th Amendment needed to protect the Civil Rights Act of 1866? ›

Narrator: After the Civil War, many states passed civil rights acts that granted the rights of citizenship to Blacks. But some congressmen believe that unless there was federal protection, those state laws could be easily overturned. That's why they proposed the 14th Amendment to the Constitution.


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