- The US government is hitting its debt ceiling and will soon be unable to pay its bills
- Experts say there will be an economic catastrophe if the debt ceiling isn’t raised
- Gold prices are surging as investors seek safe havens
US Hits it Debt Limit
The United States government is quickly approaching its debt limit. The US could default on its debt as early as June 1, meaning the country would run out of money to pay its bills. Americans could face an economic catastrophe if the debt ceiling isn’t raised. Treasury Secretary Janet Yellen warned there would be dire consequences, including job losses, big cuts to retirement savings, and a severe economic downturn.
What is the Debt Limit?
The debt limit is the maximum amount of debt that the federal government is allowed to borrow to keep paying for programs already mandated by Congress. The US hit the debt limit of $31.4 trillion in January. Since then, the Treasury Department has been using “extraordinary measures” to keep the government running.
What Happens if the US Defaults on its Debt?
If the debt ceiling is not raised, it could lead to an economic disaster. The Joint Economic Committee found that a default could cost Americans $20,000 in retirement savings.1 Moody’s Analytics estimates that a default could lead to 2.6 million job losses and cause the stock market to plunge by one-third, erasing $15 trillion in household wealth. Social security beneficiaries might not receive their monthly checks.2
Interest rates would rise even higher. Kathleen Day is a business lecturer at Johns Hopkins University. “The cost to borrow for homes, cars and credit cards would explode,” she said in an email. “In short, default would cause mayhem.” Consumers are already struggling with higher borrowing costs due to the Fed’s record pace of interest hikes. A stalled housing market would get even worse.3
What is the Current Situation?
The House passed Speaker McCarthy’s bill to raise the debt ceiling by $1.5 trillion or through March 31, 2024, whichever comes first. The bill included $4.5 trillion in spending cuts, including banning student loan forgiveness, and adding work requirements to welfare programs. However, the bill is unlikely to pass the Democrat-controlled Senate and White House.4
Has This Happened Before?
In 2011, Congress narrowly resolved the debt ceiling. Despite a last-minute deal, the stock market went down 14% over four weeks. Because of the crisis, debt-rating agency Standard & Poor’s downgraded the US debt for the first time.5
What is the Impact on Gold?
During the 2011 debt ceiling crisis, gold hit $1,900 an ounce for the first time. It then reached a record high at the time of $1,910 an ounce. Today, gold is aiming to surpass $2,020 as its safe haven appeal grows alongside debt ceiling worries. An extension in the US debt ceiling could result in a downgrade of the US long-term outlook. This would have a negative impact on the US Dollar, Treasury yields, and the S&P 500, all of which can drive the price of gold higher.6
The government is playing a dangerous game of brinkmanship with the economy. If the debt ceiling isn’t resolved, retirement funds may drop off a cliff. People looking to protect the value of their funds should investigate gold. Call us at 800-462-0071 to learn how a Gold IRA can safeguard the value of your portfolio.