Money Rehab with Nicole Lapin - What a Government Shutdown Means for Your Money

Episode Date: May 15, 2023

Treasury Secretary Janet Yellen says that the U.S. government could default on its loans as early as June 1st, if an agreement on the debt ceiling isn't reached in Congress. If the debt ceiling isn't raised, we'd likely face a government shutdown. Today, Nicole explains what a government shutdown would mean for your finances, and how you should prepare.

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself.

Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Today is a very big day for your girl, Nicole Lappin. I just got into New York City and I have Good Morning America this morning. No big deal. And then the Webby Awards tonight. It is a pretty big Monday, but it's not all glitz and glamour over here. We have some mic issues. So I'm recording this

episode on my phone. We're going to roll with it because the show must go on. Today on GMA, I'm going to be talking about the perilous state of the debt ceiling. And I wanted to give you, my money rehabbers, the exclusive scoop before I go on air. So let's start with this. WTF is the problem with the debt ceiling. So here's the deal. Right now, the debt ceiling in the United States is set at $31.4 trillion, and we're currently a smidge over that. The debt ceiling is the limit that Congress needs to decide on. In practice, this means that if the country goes over the debt ceiling, the government needs to get it together

and agree on a budget. If the budget isn't agreed upon, then some federal services simply can't operate, and America goes into a government shutdown. A government shutdown could mean delays or pauses to Social Security payments, child tax payments, veterans payments, funding for people affected by natural disasters, child tax payments, veterans payments, funding for 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 those employees don't get paid until the shutdown is lifted. You might remember in 2019, there was the longest government shutdown in US history under President Trump. It was 35 days, and over that time, federal employees were not paid. We don't want to go back there again. It is America, and

it is 2023. No one should be working for free. Federal employees do get paid, but there is a delay, and frankly, that shouldn't happen either. 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? Well, the issue is that Congress needs to authorize the debt ceiling, which means bipartisan cooperation and damn, that is a tall order. Whenever Republicans and Democrats need to come together to make something happen,

things get tricky. It turns into a what have you done for me lately situation where politicians say, sure, I'll agree to your terms if and only if you give me what I want. Those conversations seldom happen quickly. Republicans want to reduce future debt by cutting government spending in discretionary areas like education and canceling a lot of green energy tax breaks. Democrats have a plan to tax billionaires and giant corporations with the goal of reducing the national debt by $3 trillion over the next 10 years. But since, again, the total debt is $31.4 trillion, there is a long way to go. So to draw a clear line between the points we've talked about so far, the thing to understand is that this is a standoff in

Washington, not a true crisis. So the country is not broke. Plenty of countries would be stoked to lend the U.S. money. But because of what is essentially a big budgeting argument, we can't get that money. The easiest way to explain this is imagine you're a college student and you pay tuition with student loans and those checks get sent to your mom's house. And then you and your mom get in a big fight, and she kicks you out and holds the checks. The money is there to pay for your tuition, but you just can't get to it until you make nice with mom. Also, this is not a surprise. Again, this debt that we're talking about is what lawmakers already signed us up for with the laws they passed,

and money that is good as spent. So this is a lot of fuss for something that we could have seen a mile away. It's like swiping your credit card and then complaining that you all of a sudden have a credit card bill. That choice was on you, boo. Treasury Secretary Janet Yellen said the U.S. could default on its loans as early as June 1st. So in all likelihood, the debt ceiling will be lifted again, but it might be a rocky road to get there. And while a government shutdown isn't likely, it's happened before. So here are three things you should do to prepare for whatever comes next. Number one, prepare your emergency savings plan. You know the drill. Three to six months of living

expenses in the bank would be great to have squirreled away in case of an emergency, and ideally in an account that's liquid, meaning easily accessible. But this is especially important if you're a federal worker, like a TSA agent or a member of the Coast Guard. Because again, in the past, government workers didn't get their checks. Historically, Medicare and Medicaid payments have been protected during debt ceiling fights, but if it goes on long enough, those could be affected as well. So if you or your family members depend on the government for money, start thinking about what life would look like without it for a few weeks. Call your mortgage company now and ask if forbearance is an option if a shutdown happens, and ask what kind of paperwork you would need to

file so that you're ready with a plan if your paycheck is late. You'll get paid eventually, but it's important to prepare for a situation if that money is a few weeks or more late. Number two, take advantage of treasuries. Right now, three-month T-bills, those are treasuries or short-term bonds issued by the government, are at 20-year highs at over 5%. This is factoring in the default risk. So remember, bonds are like IOUs. If the person you are letting borrow your money is perceived as risky or there's a chance you'll never get your initial investment back, then you'll want a higher rate of return for lending them your money in the first place. But generally, the stock market and the

bond markets will be rocky. So put your blinders on and keep a long-term perspective. Number three, go for gold. Generally speaking, during times of economic uncertainty, gold has done really well as a flight to safety. There are several ways you can get exposure to gold, buying into gold exchange traded funds or ETFs or investing in public gold mining companies. Gold prices are pretty high right now, so there might be a limit to how much higher they could go. But historically, market forces like a debt ceiling standoff have caused them to go higher. For today's tip, you can take straight to the bank. Like any fight that happens in Washington, these unresolved debt ceiling conversations will be no good for the stock market. So we need to keep our horizons long. Any I'm here for a good time, not a long time attitude will not work with the current

stock market. So keep your blinders on. Don't panic. Don't liquidate your brokerage account. Focus on treasuries. Chill. Rinse and repeat. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that.

If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host, so I can still make that extra cash

while also making it easy on myself. Find a co-host at Airbnb.com slash host. 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, 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 Money News and TikTok at Money News Network 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.