GUEST BLOG POST: Is the Government Going to Shutdown or Increase Our National Debt?

July 14, 2011

Once upon a time, there was such a thing as a “risk-free” rate of interest.  This was the rate at which the federal government could borrow money from lenders, who happily went to sleep at night because, after all, the United States government could always pay its bills.  Unlike mortgage lenders Freddie Mac or Fannie Mae, Uncle Sam really was “too big to fail.”  (His unique ability to tax and print money helped, too…)

Apparently this fairy tale may be coming to an abrupt and unhappy end. By August 2, the federal government is projected to run up against its $14.3 trillion debt ceiling and it will be unable to meet some of its spending obligations.  You can expect policymakers to be spending much of July scrambling to find ways to fix our country’s dependence on deficit financing. Or talking about how the debt limit really doesn’t matter.

Consumers can expect a spectacular display of political fireworks on Capitol Hill, with plenty of “poppers” and “smokers” as the rhetoric heats up.  But the grand finale – whether a government shutdown or yet another increase in our national debt – is not something consumers can watch and then forget about. The issues our federal elected officials are dealing with on a macro, public level are distressingly similar to our own micro, private issues. And what they decide at the macro level could have a troubling impact on how we manage our own finances, especially if interest rates skyrocket for mortgages, credit cards and other forms of business and personal credit.

The only good news is that, as consumers, we do control what we do with our money and there are things you can do to protect yourself from the consequences of government spending.  I’ll share some strategies in my next post (hopefully someone in Congress will read it!).