How the debt ceiling crisis might affect the average parent

What the debt ceiling and government default mean to you. Via Google Images

It’s impossible to turn on a television or browse a news site without hearing something about the “Debt ceiling” or “Government default” these days, but sometimes it’s hard to relate national news like this with our everyday life. The truth is, this problem and how it gets resolved has a very direct affect on parents, the elderly and just about everybody else in the United States.

The issue being debated right now by democrats and republicans in the U.S. Government is how best to keep the government able to pay its bills after it runs out of money (somewhere between August 2 and August 12, depending on a few external factors). There are several ideas being debated and each has a different effect on the average citizen.

One idea is to raise the country’s debt limit (basically allowing the government to borrow more money). This could alleviate the problem instantly, but comes with long term risks associated with higher debt. One of those concerns would be that the interest on the debt may become so high that the nation would be forced to print more money to service its growing debt, causing inflation (higher prices for you and me). Another concern about higher debt is the unattractive prospect of passing that debt on to our children and grandchildren.  Another idea is to raise taxes (although in the debates this idea seems to be limited to taxing “Wealthy” individuals and corporations). The danger to the consumer with this one (assuming you aren’t wealthy enough to have to pay the tax) is that corporations and wealthy individuals would tighten their belts even further to save money to pay the taxes, so there would be less buying, less hiring, more layoffs, etc. The third major idea on the table is to cut spending. When the government cuts spending, it will always affect somebody, whether it’s the senior citizen who gets less of a raise in their social security, the student who doesn’t get an educational grant because of a cut in educational spending, or the father who gets laid off from the aeronautics firm because the government cut defense spending. The final solution is almost certain to be a combination of the three approaches discussed.

What happens if the problem isn’t resolved in time and the government goes into default? The first immediate impact is loss of pay and loss of jobs. Some government employees might be forced to go without pay until a deal is reached.  Some companies dependent on government support or government contracts may go bankrupt or at least lay off employees.

Next, the credit rating of the United States may go down, which would result in higher interest rates on loans across the board. Higher home loan rates make it more expensive for families to buy a home, higher student loan rates make it harder for students to pay for college, and higher credit card rates make it harder for families already in debt to survive.

Finally, the lack of confidence in usually-solid U.S.-backed bonds and funds could cause panic in the markets, meaning massive sell-offs and big losses in retirement and college funds.

All of these consequences could be relatively short-term and none of them are unavoidable, but it appears the best hope for the American family is that the politicians are able to put aside their differences and resolve the debt ceiling issue before it becomes a crisis.