What To Do (And Not Do) With Your Money Amid The Debt Ceiling Crisis

So you keep hearing about the national debt ceiling, and how if it isn’t raised by June 5, the roof will cave in. As in, really bad things will happen.

“The U.S. economy will plunge into a deep recession and no amount of stimulus would be able to help it get out of the sinkhole. Other countries, too, will fall into a deep recession,” said Mohammad Elahee, professor of international business at Quinnipiac University in Hamden, Connecticut, before adding:

“There will be a complete meltdown of the global financial system.”

Other than that, we have nothing to worry about.

Of course, this raises one big question: “What should I do if the debt ceiling isn’t raised?”

We asked a number of economics professors around the countryabout it. But first, it’s important to note that most experts think the debt ceiling will eventually be lifted — the question is at what point that happens.

First, a little context: Will the U.S. default on its debt?

At the moment, Republicans say they won’t agree to raise it unless the Biden administration agrees to steep spending cuts in the federal budget, and the White House has responded by referring to this demand as “hostage-taking.” Many economics experts, at least, seem to feel that it will be lifted, just like all of the other times Congress and the White House have wrestled over this issue. To not lift it would be madness.

For those who haven’t been following the news, the debt ceiling represents the amount of money that the Treasury can borrow to pay bills that are due. In a nutshell, the federal government first tends to vote a budget into law, and then later, the two political parties bicker about whether they will actually pay for what they’ve agreed to spend money on.

Why isn’t the debt ceiling raised when the budget is voted on? Because that would make too much sense.

This weird political dance has been going on since a debt ceiling was first put into place by Congress in 1917. Generally, if one political party controls both Congress and the White House, the debt ceiling is lifted without much drama. But in recent decades, when Democrats have held the White House, Republicans in Congress have precipitated crises by demanding cuts to social and welfare programs in exchange for raising the limit. Such is the case this time, though now negotiations seem to be going worse than usual — which is why Treasury Secretary Janet Yellen just warned that the government could run out of cash to pay its bills on June 5.

If that happens, economists mostly agree, it will be bad.

“If the debt limit is not raised, the impact on a lot of regular folks, particularly seniors, will be almost immediate and potentially devastating,” said Brendan Cushing-Daniels, associate professor of economics at Gettysburg College in Pennsylvania.

He said that benefits for Society Security recipients could be delayed, as well as for people who receive SNAP benefits, veterans benefits and disability benefits.

“Federal employees’ and contractors’ pay will also be delayed,” Cushing-Daniels said.

The White House’s Council of Economic Advisers predicted on May 3 that more than 8 million people would lose their jobs and the stock market could drop 45% in the first quarter after a default.

There is no way for ordinary households to prepare for the consequences of not raising the debt ceiling.Tenpao Lee, professor emeritus of economics at Niagara University

However, Tenpao Lee, professor emeritus of economics at Niagara University, in Lewiston, New York, predicts that there won’t be a crisis. “The debt ceiling will be raised for sure.” To not do that, he said, could set the global economy back for years.

Alexandra Digby, assistant professor of economics at Minerva University in San Francisco, noted that it would be better for the economy if Congress figured things out sooner rather than later.

Right now, Elahee said, the situation we’re all in is a little analogous to a surfer on a surfboard who has no idea that a lot of sharks are lurking in the water below.

“A drone hovering a few hundred feet above can spot the danger, but the surfer, despite being so close to the sharks, is completely oblivious to the danger,” Elahee said.

What you should do while the debt ceiling is in limbo

Let’s assume the worst for the moment: June 5 arrives, Congress has tied itself in knots, the debt ceiling somehow hasn’t been lifted, and suddenly the federal government can’t pay its bills or has to start rationing who it pays. What should you do?

Get informed and contact your congressional reps. If you rely on government assistance or a government paycheck ― as many people do ― you may want to start preparing now, even if the likelihood of a default is small. Saving as much as you can is never a bad idea. You can also look into what state and local government assistance programs you may qualify for, such as rent assistance.

Search for your local food bank, mutual aid network, veterans support organization, or local faith group. (You can locate a local food bank, pantry or soup kitchen by visiting Feeding America or FoodPantries.)These are great places to find support if you need it; if you don’t need help, consider volunteering, donating or helping in other ways. If there is a default, plenty of people in your community will require aid. Dialing 211 is also a good way to quickly get in touch with health, human and social service organizations.

Reach out to your representatives. Ultimately, the people with the power to stop this are lawmakers; they need to hear from you that you want them to avoid a default ― or stop it quickly if it happens. You can find out where to contact your representatives in Congress by clicking here or calling 202-224-3121.

Otherwise, unfortunately, there’s little you can do other than pushing for legislators to do their jobs.

“There is no way for ordinary households to prepare for the consequences of not raising the debt ceiling,” Lee said.

Matias Vernengo, a professor of economics at Bucknell University in Lewisburg, Pennsylvania, agreed. “I’m sorry to say that there’s not much families can do,” he said.

Shore up your investments. Important warning: If you panic and make rash decisions, whatever you do will make things worse. Vernengo thinks that the likely outcome of not raising the debt ceiling would be a mild recession, mostly because he thinks if there is a default, it won’t last long, “since it most likely will backfire politically, as shutdowns normally do.”

But if you have a lot of investments and truly believe the debt ceiling won’t be raised in the near future, Lee said, then you would be justified to consider selling all or most of your investments for cashsince the longer the debt ceiling isn’t raised, the worse the economic consequences will be. If it isn’t raised, the result will be more akin to the Great Depression than a typical recession.

“If you are a very conservative investor, you may restructure your portfolio with higher weight in cash or guaranteed annuities,” Lee said.

But, of course, if everybody starts selling their investments into cash,that wouldn’t help the economy. It’s probably best to not sell your investments, certainly not for a loss, since with the stock market, what goes down eventually goes up.

“Since the situation is unpredictable and the extent of the risks largely unknown, people should hold tight and carry on,” Digby said, opting essentially for the “do nothing” path.

“Don’t go canceling your summer vacations or shifting your investments around, but do stay on top of developments,” Digby said.

Do what we all are (hopefully) doing anyway. That is, set a budget for the month and try to stick to it. If you’re able, keep socking money away in your retirement accounts and emergency fund. Rediscover the joy of couponing. And like Digby said, continue to plan that summer vacation, but maybe it’s best to make sure your hotel and airline tickets are refundable.

Just in case.

CLARIFICATION: This article has been updated to reflect the most recent estimated default date of June 5.