Money Rehab with Nicole Lapin - How To Profit From a Debt Ceiling Standoff

Episode Date: September 20, 2023

On this week's roundup of the biggest headlines on Wall Street and how they affect your finances: Nicole follows the money trail of the American-Iranian prisoner exchange, the latest union to go on strike and the silver lining of a government shutdown. Want to start investing, but don't know where to begin? Go to moneyassistant.com and meet Magnifi, your AI money assistant, designed to help you make a plan for your financial goals. Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. All right, here's your weekly roundup of the biggest headlines on Wall Street and how they affect your finances. So one of the ways I picked these stories to cover

is by looking for the stories where I see a lot of confusion around what's going on. And that's definitely the case with the narrative surrounding the prisoner exchange between the United States and Iran, involving $6 billion in assets for five Americans jailed in Iran. I've spoken to a couple of friends recently, and they were concerned that the US is paying Iran $6 billion when our government is struggling with rising debt. And depending on where you get your news, that confusion is totally understandable. But the truth is, these are not American tax

dollars. The $6 billion is Iranian oil revenue, which has been frozen in South Korean banks as part of global sanctions against the country. And this deal doesn't give Iran full access to the money. Rather, it transfers the money from that South Korean bank to a bank in Qatar. The government there will oversee the account and will only allow for dispersal of funds for humanitarian reasons like the purchase of food or medicine. So don't worry and tell your aunt on Facebook not to worry either. The United States didn't just go ahead and send billions of U.S. tax dollars to Iranians. They gave the Iranians limited access to their own funds, basically. Now, why does this matter to

you? Simple. The United States is now staring down $33 trillion, with a T, in debt. If you remember back in the beginning of the summer, the U.S. government almost shut down during painful debt ceiling negotiations. They reached a compromise that suspended the debt ceiling and attempted to take a bite out of future debts by cutting federal spending by $1.5 trillion and limiting spending to only increase by 1% in 2025. Unfortunately, this isn't close to enough budgeting to take on that $33 trillion of debt. And the total debt, by the way, is projected to top $50 trillion by the end of the decade, and nobody likes that. The U.S. government has a funding deadline coming up at the end of the

month. Usually, Congress would pass a series of appropriation bills that detail what and how things should be funded. That hasn't happened yet this year. Instead, 12 appropriation bills have stalled out for lack of support. Without the funding being authorized, government agencies will be forced to shut down. Members of Congress had planned to pass a stopgap measure that would have approved just enough funding to basically keep the lights on. But now that plan is struggling as well. And suddenly, just like earlier this year, we are facing another shutdown by the federal government. Right now, I don't know how likely that shutdown is or how long it's going to last. But what I do know is that during this time period, short-term treasuries should print money and enjoy pretty high interest rates.

This is great if you want a balanced portfolio and are looking to pick up a few treasuries. But it's not so great for the national debt load. Earning a guaranteed $5 for every $100 you invest is actually a pretty good deal. But for the borrower, aka the U.S. government, 5% is a pretty hefty interest payment. And while the U.S. government is potentially shutting down for lack of funding, they aren't the only ones who may not be working. The latest labor story is that the UAW is on strike at all three major automotive manufacturing companies. The UAW is one of the nation's oldest unions and has a mouthful of a name. It's not just three letters, as the name suggests. UAW is one of the nation's oldest unions and has a mouthful of a name.

It's not just three letters, as the name suggests. UAW stands for International Union United Automobile, Aerospace and Agricultural Implement Workers of America. Obviously, this union covers a lot of different fields, and it's been problematic and faced several corruption scandals. But they've had a leadership shakeup, and they're looking forward to negotiating their first contract since 2019. So let's recap here. In the few years since they last signed a contract, there was a global pandemic, supply chain issues, and skyrocketing car prices. As a result, there was pent-up demand, people had more savings,

and automakers made bank. They were making record profits, all while paying their workers based on a contract that was negotiated before any of these paradigm shifts. So in this negotiation, the UAW is asking for a serious raise for its people. Much like the actors and writers strike we discussed last week, there's also a desire to future-proof members jobs. For actors and writers, the concern is about the role AI could play in replacing them in creative work. Here, the union is concerned about jobs being lost during the transition from gas-powered vehicles to electric ones. This strike comes at a time when some balance has finally been returning to the car market, with prices trending down from their crazy highs during the pandemic.

It is possible, though, if a strike goes on long enough, the inventory of cars will fall and prices could shoot back up again. So if you're thinking about buying a car, either do so as quickly as possible, or accept that you might have to wait a little while for prices to go back down. But cars aren't the only place where waiting is probably the right move. Home prices are also staying stubbornly high despite higher interest rates. Prices aren't going up as rapidly as they did a few years ago, but they still are increasing at a steady rate. Experts don't expect them to decrease this fall. So we've already reached the waiting stage of the game. And unless you need a house right now, you're better off playing that game.

Even the stock market is just waiting. In 2022, the market had a not great year. The S&P 500 alone lost 25% of its value between January and October of 2022. While the market has recovered that lost ground, it hasn't really grown. Rather, it's in a holding pattern where many experts expect it to stay until the Fed starts lowering interest rates. Historically, the stock market has struggled to fight the Fed or rise when the Fed is pursuing a policy of monetary tightening like they are doing right now. While I can't tell you what the market is going to do or exactly what

the Fed is going to do, I can tell you that based on historical models, the market may struggle to make any significant gains as long as interest rates stay high. Finally, the last story to come back to haunt us is just peeking out of the grave and waiting for October to really rise from the dead. That's because in two weeks, in the beginning of October, student loan payments will begin to come due, and loans, which had been put on pause, are earning interest rates again already. Some retailers have expressed concern that the payment restart could have a bit of a shrinking effect on their profits, and they aren't the only ones worried about what this is going to mean for their financial future. Borrowers are also struggling to get their

finances together so that they can resume payments. In a few weeks, we're going to have a better idea of what the impact will be on borrowers and the broader economy. For today's tip, you can take straight to the bank. If you're one of those borrowers who's going to be resuming payments and you haven't started paying just yet, I would say scoot it up to the top of your to-do list today. As soon as interest rates start accruing, you're going to need to be working on paying off your loans. And I know it can be tempting to wait as long as possible, but unfortunately, you're only going to end up costing yourself more money in the long run. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie.

Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyre's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.