U.S. Senate Minority Leader Mitch McConnell, R-Ky.; Speaker of the House Kevin McCarthy, R-Calif.; President Joe Biden; and Senate Majority Leader Chuck Schumer, D-N.Y., meet in the Oval Office on May 9, 2023 to discuss the debt ceiling.
Anna Moneymaker | Getty Images News | Getty Images
The U.S. may be weeks away from being unable to pay its bills — an event that, should it come to pass, would likely be accompanied by broad and painful financial consequences for American households.
Among the ramifications of a debt ceiling standoff, any payment issued by the federal government — like Social Security, Medicare, tax refunds, military paychecks and ample others — may be delayed.
As an illustration, if the U.S. has just 80 or 90 cents for every dollar it owes, it will be forced to defer certain payments.
“Someone is getting shortchanged,” said Michael Pugliese, senior economist at Wells Fargo Economics.
More from Personal Finance:
How the debt ceiling may affect Social Security
Don’t change portfolio to beat the ‘looming recession boogeyman’
What the debt ceiling standoff means for money market funds
There are many unknowns: the length of any delay or if the government would prioritize certain payments, for example. The U.S. has never been in this situation and the government hasn’t issued a public road map outlining its response, meaning there’s a certain amount of guesswork involved.
“We’re looking at some sort of contagion effect,” said Rachel Snyderman, senior associate director of economic policy at the Bipartisan Policy Center, a think tank. “The degree of contagion is unknown.”
Why a standoff may delay federal payments
U.S. Treasury Secretary Janet Yellen on April 21, 2023 in Washington.
Alex Wong | Getty Images News | Getty Images
The U.S. is in this situation due to a political standoff tied to the debt ceiling, also known as the debt limit. This ceiling is the amount of money the U.S. is authorized to borrow to pay its bills.
The nation runs a budget deficit,…
Read the full article here