What’s the Deal with the Debt Ceiling?

While debt ceiling negotiations continue to dominate our national dialogue and the August 2nd deadline becomes imminent, what will this mean for the average American?

A failure to increase the government’s borrowing capacity by next week will be detrimental to the already weak U.S. economy and put the country’s AAA credit rating in jeopardy.

A coalition of Illinois mayors including Chicago mayor, Rahm Emanuel, penned a letter to Washington lawmakers yesterday stating, “Failure to successfully moderate the discussion and bring both parties to resolve this crisis is unacceptable. It will cause grave damage for our cities and we simply cannot handle another recession. Instability in the municipal bond markets impedes our ability to build infrastructure and create jobs. Job creation, the top priority of Illinois mayors and Illinois businesses, cannot happen with such uncertainty surrounding the national debt. We cannot emphasize more how great the impact is for our cities and our State if you cannot come up with a solution.”

Mellody Hobson, president of Ariel Investments, a Chicago investment firm, outlined five points, highlighting how Illinois residents could be affected if the debt ceiling is not raised:

  • Interest rates on your credit card will rise, so having an unpaid balance will end up costing you more. To avoid the hit, pay down your credit card debt as much as possible.
  • Mortgage rates will increase. Faced with the possibility of higher monthly mortgage payments, home buyers will put pressure on sellers to reduce home prices further.
  • Overall borrowing costs will increase, whether you are seeking a home equity line of credit or a car loan.
  • The value of the dollar will drop, making it more expensive to buy imported goods. This includes gasoline and many household goods we routinely purchase at Walmart or Target.
  • If you are invested in the stock market, either directly or through mutual funds that invest in stocks, you could experience a decline in the value of your investments because the uncertainty about the government’s ability to pay debt and all of its bills will cause the stock market to drop in the short term.

And, it also means cuts Medicare, Medicaid, Social Security, Food Stamps and pell grants. Not matter your age, you will be affected if the debt ceiling isn’t increased.

While Congress exhausts itself over an artificial crisis about lifting the debt ceiling, the real issue is many Americans are struggling to find employment, keep up with their mortgage payment or pay college tuition. The political grandstanding by both parties has gone on for long enough. The clock is ticking.

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