Government Shutdown Update: Here’s the New Default Deadline and What It Means for You 

Mandatory Credit: Photo by MATT MCCLAIN/POOL/EPA-EFE/Shutterstock (12475212d)United States Secretary of the Treasury Janet Yellen appears before the Senate Banking, Housing and Urban Affairs Committee with Chair of the Federal Reserve Jerome Powell at the Hart Senate Office Building in Washington, DC, USA, 28 September 2021.

With the government shutdown having been averted, at least for now, the next big date of consequence is the potential deadline for government default: Dec. 15, 2021.

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What’s the Difference?

On Dec. 2, Congress approved emergency legislation to avoid a government shutdown, meaning that it agreed to fund the government through the middle of February. The Senate would later confirm this funding, averting said shutdown. However, the Treasury Department has also declared that it will run out of money if the debt ceiling is not raised by Dec. 15 of this year.

U.S. Treasury Secretary Janet Yellen proclaimed in November that Dec. 15 would be the date by which the Treasury could potentially run out of money, meaning that the funds would not be in place to properly allow the government to function while repaying its debts.

When we speak of government default, it means the threat of the U.S. failing to deliver due payment on its loans. The debt ceiling is the legally allowable amount of debt the government can hold in order to pay off receipts of old debts. Due in part to the stresses caused by the coronavirus pandemic, the government had an unprecedented year of borrowing in order to finance relief programs, including stimulus payments and advance payments of child tax credits. This is borrowing that has already taken place though, and the debt ceiling needs to be raised in order for the government to “make good” on its prior debts.

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If the ceiling is not raised, it could affect the average consumer in a big way.

What a Government Default May Mean for You

The U.S. is considered one of the most credit-worthy nations in the world — never in its history has it defaulted on its own debt. Due to its high credit rating, borrowing is plentiful, and cheaper.

Should the U.S. default in the near term, this circumstance could have a direct impact on borrowing costs from your bank. This means mortgages, car loans, personal loans, or any form of borrowing could become more expensive. Ultimately, such a default may also lead to higher interest rates. Such an increase in interest rates would come in addition to — and in exacerbation of — an anticipated potential rate hike that is already expected on the horizon, one bolstered by runaway inflation, rising prices, and increased wages.

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A U.S. default also has the potential to send shaky markets into murkier territory, as well as to plunge the country into another recession. Global markets would also be quite likely to be effected by such an announcement.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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