I’m not going to get too into why a government shutdown is bad. There’s no reasoning with any anti-government goon that thinks it’s good. Critical funding to law enforcement and other initiatives stops and workers potentially go unpaid, maybe even deciding to walk off the job for an employer that will pay them steadily.
But there’s a major threat to your wallet.
When the U.S. government takes on debt by issuing bonds, it’s putting the full force of our country’s credit and credibility behind those bonds. To put this in really simple terms think of it like a credit card. You have a credit limit. The United States as a sovereign government has the power to raise its own credit limit and lenders are willing to lend more and more money because the United States is a safe bet with a strong dollar — they will get their money back with interest. Some of those lenders are Americans. Some are foreigners. All are relying on the United States to pay its debt. The faucet will pretty much never turn off as long as we keep telling people we’ll borrow some more money — or at least it’ll be a damn long time before the faucet turns off because people believe in our country’s ability to pay its debts.
Now, if we choose not to raise our credit limit and borrow more money to pay off the interest on our current debt, we default pretty quick, because the government simply doesn’t have the cash on hand. I suppose it could print money, which would cause inflation and make every dollar you own less valuable — but that’s not a great idea. So what happens when we default and stop paying the interest on United States debt?
Lenders get nervous. Interest rates go up. And again, we get inflation that makes every dollar you own less valuable — and prices go up to reflect this new reality of decreased purchasing power around the world.
So this is really a no brainer. The fact that it’s used as a political weapon is the single greatest failure of modern government. Theres no end game where failing to raise that debt ceiling is good for Americans.
Oh, and if you own a United States bond and they stop paying your interest, that’s bad too. There are many seniors that rely on the fixed income from bond interest to survive, and I don’t think I need to get into what happens when you turn older folk’s income off and potentially crash their investments. There’s just no good reason to do that. It’s evil.
If we go this route the world may no longer see us as a safe place to invest. A weak dollar means Americans lose.
It’s my sincere hope we don’t go there and that there are some adults in the room. But for the time being I’ve got all my money in brokered Certificates of Deposit because it seems like the ultra rich are trying to crash everything so they can buy cheap, cheap, cheap.
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