The US Treasury Secretary Janet Yellen released a rather shocking statement this week. The announcement stated that the US Government could be out of funds by the 18th of October this year. In the very same statement, Yellen also said that it was uncertain whether the Government would be able to continue all the commitments after that date. The Government proposed the Debt Ceiling to be raised so that Americans may keep receiving their Government payments on time.
Honestly, the American People are tired now after both the Trump and Biden administration has failed to give enough cash in hand to the average people during a pandemic & the Congress recently approved a billion dollars to fund Israel’s “Iron Dome”. After this rather shocking announcement by US Treasury Department, people have been brutally trolling them over social media by sharing fun innovative ideas for the Government to make money.
While the Government gave $1200 USD to the average American during the pandemic, people offered the same to the government stating “Give them $1200 that should be more than enough”, on Twitter.
$28.7 trillion Dollars of Debt
Money doesn’t come for free. The US Government tries to borrow more & spend more on Defence, Government Subsidies, Stimulus, etc. Not only the US government does that. Every other nations borrows money from foreign investors, Citizens or from Central Banks by issuing bonds.
Banks & People consider Government bonds to be safer. But situations do arrive when Government fails to manage their Debt obligations and then they start defaulting on payments. But Jokes aside, operating with a deficit is normal for most governments. Some economists believe it to be a way to afford all the social services in case of a deficit.
This is kind of similar to basic personal finance which no one is taught at school. The thumb rule being if you borrow more & more beyond they sustainable levels, a time will come when you won’t be even able to make timely payments. The catch being a compounding interest rate which looks small during the initial phase but keeps growing big as time passes on.
What is the Debt Ceiling?
In simple words, it is the amount of money the US government can borrow to pay its bills. Every year, Congress passes a budget that specifies Government spending on Infrastructure, Social Security & Salaries for federal workers. People do pay taxes for all that spending but for years, US Government has been borrowing more than it takes in from taxes.
The Government needs to borrow more money just to keep paying the bills which has been OK’d so far. This Ceiling puts a limit on how much money the US Government can borrow to pay its bills.
Why should we Care about this?
If the US government can’t borrow more money, there will certainly be visible real world effects for the world and for millions of Americans as was mentioned by the White House, Treasury department.
- Around 15 million senior Citizens could stop receiving Social Security Payments
- 30 million families could stop receiving Joe Biden’s expanded Child Tax Credit Payments
- US Military service could stop receiving paychecks.
- The US Government’s Credit Worthiness could be downgraded, eventually leading to spike in interest rates which would rate the rates of mortgage, car & credit card payments.
- S&P 500 could drop by as much as one-third of its value today hurting global investors and 401ks.
And many more things could happen but at least these are the ones I could recall. Apart from that, Global Markets could also tank down and move towards a correction wiping off trillions of dollars worldwide.
So US raise the Debt Ceiling?
As I came across varied opinions on the Internet, I genuinely feel people are worried about the US Government defaulting on its past commitments and the impact of such an action on the Global Financial Markets. That being said, right now, the federal debt is at $28.43 trillion, and current debt ceiling is actually $28.4 trillion. If that is raised further, it could be stretching the bubble further more to keep past commitments intact.
But I have a question for all the readers. Imagine you were in a similar situation. You had no savings, a maxed out Credit Card & way too many personal loans. Will the banks lend you more money just so that you can pay your old Debt? Straight away the answer would be a big no since you’re way too much stretched financially. But the US Government despite of being in a similar scenario is doing this. Taking on more Debt will be like blowing this financial bubble more and when bubbles burst, we know what happens. Market Crash, Currency Devaluation, Job Losses, Unemployment, Protests & more.
Solution for you now?
Believe me or not modern money today is debt. Money is created when someone borrows it from banks. Rich know this but the average people don’t or atleast they aren’t informed about this. Whenever someone borrows money, it is new money being injected into the economy. Other than that there’s Economic Stimulus, Quantitative Easing & many more practices which keep devaluing the Fiat Money every single day.
If you’re someone who’s hoping that Fiat will last forever, then I do like that optimism but sadly things won’t last forever. The US borrowing more money today is like blowing more air inside that massive balloon just waiting to be burst. Savings in your Retirement Accounts, Stocks, Mutual Funds will all become worthless when the day comes. The real value remains in stuff which we call as hard money. Start looking for hard money around you, & save that.
The World Economy isn’t the same as it was before 1971. Governments can keep borrowing, banks can keep lending, central banks can keep printing all to make people think Fiat is the way ahead. Not that Bitcoin will just replace fiat in a snap but gradully both will co-exist & people will have a choice to either be on Plan A or Plan B. In short, Bitcoin is a cure for the disease called as Fiat. Some will loose their life savings to smart money & some will gains massive wealth by being an early adopter.