Debt Ceiling Updates
Intrade suggests the debt ceiling isn’t getting raised until after July 31 — a nailbiter, in other words. But it also thinks we’re likely to get some kind of deal in August.
What will this mean for you? A lot depends on where your debts and assets are and how the financial markets react. I’m not an economist, so I humbly welcome corrections in any of the following speculation.
First, who will this benefit? People with lots of fixed-rate dollar-denominated debt, which will get eroded by inflation. Homeowners with fixed-rate mortgages will see their payments get easier. That is, assuming they can keep their jobs and swing an adequate cost-of-living raise in the unprecedented economic collapse that follows.
In other words, not too many people will benefit.
Who will this hurt? People on fixed incomes. People with significant adjustable-rate loans. People who will lose their jobs entirely, which will be a lot. Lots of people will get hurt here.
Federal employees seem mostly in the dark right now. In the threatened government shutdown earlier this year, various agencies were quite open about contingency plans and how furloughs would be handled. Not so this time. It’s not even clear that management knows what will happen, as far as I can tell.
When will it all go down? One thing I worry about is that no one wants to be last in line at a bank run. If the federal government defaults, there’s likely to be a very serious run on the dollar. One reason the dollar has the value it does is because lots of people really like to hold dollar-denominated assets — first and foremost Treasury bills. Bye-bye to that means bye-bye to the dollar as even a relatively strong currency.
But when’s the best time to get out? Before everyone else does, of course. Gulp.
On a personal note, our family will be just fine for a few months at least. As with the threatened government shutdown, my NASA engineer husband Scott very likely won’t be paid, won’t be allowed to work elsewhere in the field, and won’t even be allowed to volunteer at his current job. We’re not entirely sure. But we’re in a much, much better financial position than we were in the spring, thanks to some deals we wrapped up in the meantime.
I debated even mentioning this, because I’m pretty sure some idiot will come along in the comments trolling about how much I’m looking forward to a default and how much I’ll personally benefit from it. If you’ve read anything I’ve written on the subject, you know I pretty much agree with Megan McArdle — a default will be an enormously stupid, enormously painful, completely avoidable mistake. It’s not like I enjoy burning through our family’s savings, either.
But I didn’t want the decent folk around here worrying too much about us, at least. We’ll be okay, even if the crisis lasts a few months. It’s everyone else I’m worried about.