Debt ceiling disagreement may wreak havoc on American's finances

Jul 25, 2011

President warns debt issue may hurt Social Security

If the Republicans and Democrats cannot come to an agreement over the debt ceiling before the August 2 deadline, everyone with a stake in the U.S. economy may suffer negative consequences, according to Bankrate.com.

The debt ceiling is the amount of borrowed money that the U.S. can have outstanding at any one time. If the limit is not raised past the current $14.3 trillion it is at, the government will not be able to borrow any more money.

President Obama has said this funding freeze could prevent the government from sending out Social Security payments, possibly financially crippling Americans without another source of income through a whole life insurance plan or retirement savings account, Fox News reports.

The crisis may also cut the U.S. credit rating, which would hurt the value of 401(k)s, IRAs and college savings accounts, according to Bankrate.com. The global mindset may also shift, causing international markets to believe that if the U.S. can default, anyone can.

If Treasuries were to plunge, yields would adversely skyrocket upwards. This would then cause an increase in mortgage rates and consumer loans, negatively affecting many Americans. 

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