Money Rehab with Nicole Lapin - Debt Ceiling? Government Shutdown? What's Going On?

Episode Date: October 13, 2021

You’ve probably seen headlines on the debt ceiling and a possible government shutdown. Let’s be real: both of those things sound scary. Nicole unpacks the news cycle for all of us who are wondering what the heck is going on. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Lately, you've probably seen headlines on the debt ceiling and a possible government shutdown.

Let's be real, both of those things sound very, very spooky. So let's follow our elementary teacher's advice and actually face our fears head on. So I'll unpack the news cycle for all of us who are wondering what the heck is going on. Most of these headlines are stemming from the fact that the U.S. government needs to make a decision on raising the debt ceiling. But first, what is the debt ceiling? It may surprise you to learn that the U.S. government operates with budget deficits, which basically means that in the government's spending plan, they allow for more money to go out than to come in. If you remember way back to one of the very first Money Rehab episodes on how to make a budget, I said that spending more than you make is a big no-no. I guess the government

wasn't listening to that episode because that's exactly how they run things. Go figure. I've been saying for a long time that the U.S. government needs money rehab, and the latest news is making this an I told you so moment, but I digress. Because the U.S. government runs on budget deficits, when it comes time for the government to pay their bills, no surprises here, the government does not have enough money to settle up. So the government has to borrow. The debt ceiling is the name for the maximum amount of money the government is allowed to borrow to pay their bills. Currently, the debt ceiling is set at $28.4 trillion.

debt ceiling is set at $28.4 trillion. That is a lot of money. So you might be thinking that should be plenty, right? Wrongo. According to the Peter G. Peterson Foundation, an organization that tracks the national debt, at the time I'm recording this, the U.S. national debt is over $28.43 trillion. So next time you're stressed about your debt, just be thankful it's not $28.43 trillion. Anyway, the important thing is the national debt is a couple billion-ish dollars higher than the government is allowed to borrow. Historically, the solution in situations like this is to raise the debt ceiling or for the government to say, you know what, we should be able to borrow a little bit more so we can pay what we owe. If the government cannot decide on raising the debt ceiling, it would bring conversations on next year's national budget to a grinding halt. If the budget isn't agreed upon, then some federal services

can't operate and the U.S. goes into a government shutdown. A government shutdown could mean delays or pauses in Social Security payments, child tax credit payments, veterans payments, funding people affected by natural disasters, child nutrition programs, and paychecks for federal employees. Plus, people can't take advantage of government programs like national parks or passport services and so on. Typically, a government shutdown does not mean a complete shutdown. Government employees that are designated as essential, like TSA and border protection, air traffic control, law enforcement, and power grid maintenance, continue to operate. But sometimes these employees don't get paid until the shutdown is lifted.

You might remember in 2019, there was the longest government shutdown in U.S. history under President Trump. It was 35 days. We don't want to go back there again. It is the U.S. of A, and it is 2021. No one should be working for free. Overall, a shutdown is bad for the economy. And even worse, if the debt ceiling isn't raised, the U.S. government could actually default on its loans for the first time in history. This trouble signals instability to the world, which is bad for the global economy and the U.S. stock market. All in all, it sounds like this should be a no-brainer, right?

Why doesn't the government just raise the roof already? just raised the roof already. Well, the issue is that Congress needs to authorize the debt ceiling, which means bipartisan coordination and shit. That is a tall order. Whenever Republicans and Democrats need to come together to make things happen, things get really tricky. It turns into a what have you done-lately situation where politicians say, sure, I'll agree to your terms if you give me what I want. Those conversations seldom happen quickly. The deadline to prevent a government shutdown is December 3rd, but Treasury Secretary Janet Yellen estimates that some government services may dwindle starting October 18th if the political gridlock continues. So if we want to avoid any disruption to the economy, the government needs

to come together and act quickly. For today's tip, you can take straight to the bank. Prepare yourself for some dicey stock market moments in the upcoming months. If it's a bumpy road to settle on the issue of the debt ceiling, the stock market will feel those bumps the most. This could mean that your brokerage accounts or even your retirement accounts could see some dips. Here's what you can do. Feel frustrated. Go for it. I know it does suck. But here's what you can't do. Be too quick to take money out of those accounts. Remember, the stock market has rebounded from every single dip in U.S. history. So don't freak out. Historically, when it comes to the stock market, what goes down has always come up. Money Rehab is a production of iHeartRadio.

I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in

yourself so that you can get it together and get it all.