Hello my fellow Americans, I know OMD isn’t the natural platform for this kind of post, but a lot of people I internet-know live in this house.
For anyone who doesn’t know, I work for The Man, partially doing risk management. I’m actually going to be out of the country for May-June. I’ll hit American shores a few days after the (potential/probable) default.
Like any good Safety Officer, I’m getting my mitigations done before I leave. And I thought this post might help, like, the community at large.
A few caveats:
I freely admit that I have no idea what will actually happen if/when America defaults.
I freely admit the outcome ranges from “eh,” to “wow, my country no longer exists.”
I freely admit that individuals cannot plan for the worst outcome; weathering that will require effort far above the individual. So effectively, don’t worry about that outcome! Yay.
There’s significant evidence that the lowest outcome also won’t happen. Defaulting has an extremely high probability of causing some shit.
What’s a good individual to do? Glad you asked! The answer is: mitigate the bad outcomes that are mitigate-able as an individual/family. Then sit back and hope for the best.
Some excellent mitigations:
Go get some cash, and put it in your house.
Keep some food in your house.
For the emotional stuff: make your decision about your inflection points now, long before any sort of emotion enters into the game. Are you willing to backstop a relative on gov’t fixed income? A friend? Would you consolidate your living situation?
Default, if (if!) it comes will probably (probably) be more of a long emergency, than a sharp shock. It leaves us vulnerable to being a frog. No one wants to be a frog.
Thank you @PAWG for starting this thread. I’ve been wondering what the heck a default will look like, practically speaking. I am tired of government games of chicken.
Right now I think our literal cash in the house is about $10, so uh…yeah I should head to an ATM anyway.
Some other things that I guess we’re thinking about:
if the markets drop significantly, we won’t want to be forced to sell stocks, so I’m keeping a larger than normal amount of $$ in regular bank accounts.
credit would be more expensive - this doesn’t impact us as directly (I think?) because we don’t plan on needing to take out any loans. It would suck for my parents, who are thinking of moving this year.
chipping in to help friends and family: folks who depend on social security and/or work for the government etc etc. I’m not the sole support for any relatives thankfully but we would definitely want to help.
beefing up our regular donations to local food banks: the need is already high and ooof. Hard to think about it getting worse.
Well, my family is totally dependent upon the government for our income. My husband (and daughters) receive SSDI disability and I work for a federal government agency. In 2011 when we hit the debt ceiling Congress passed the budget reconciliation law that enacted sequestration in 2013. My agency was actually exempt from that budget cut because we are backed by the Federal Buildings Fund. No one at my agency lost their jobs or had any pay cuts, but we were in a hiring freeze for a few years afterward and we were limited in some activities like training and travel.
Given the way Congress is acting right now, and because we have a split Congress, I’m expecting them to potentially force us to default, and I think we have a 99% chance of a shutdown on Oct 1 when they are supposed to pass a budget. However, I generally don’t worry about it. I cannot control what the idiots in Congress do. I feel pretty secure in how much available credit I have on credit cards (well over $100k) and I can always use those to float a few weeks until I get backpay in the chance of a shutdown.
These could definitely both affect us (hoping to buy a house this year + my parents live entirely off SSI/SSDI). My work could also potentially be affected, as I work in the legal sphere and anything that affects the DOJ can affect how much business we have coming in.
As a question: Is it just me or have our elected officials become increasingly cavalier about the debt ceiling in the past decade? It feels like people are becoming more and more comfortable playing what feels like a very dangerous game to me.
But basically what I have heard is that raising the debt ceiling used to be bipartisan, even if budget debates were not… Until TeaParty/Trump Republicans realized they could hold it hostage.
And as for these threats to simply block the increase entirely, that would take the full faith and credit of the U.S. as a kind of hostage. That’s a much more recent feature of the debate. It came with a more recent generation of far more aggressive members of Congress led by figures such as Texas Republican Ted Cruz, and they’ve used it to leverage policy changes such as trying to defund Obamacare, for example.
Oh, definitely. The tea party basically discovered that hostage-taking was an effective strategy and…well. Here we are. It’s a relatively new (last 15 years? 20?) tactic and it sucks.
It’s also why Biden is incentivized to play hardball in response: debt ceiling skirmishes will continue as long as it’s politically profitable to do so, now that it’s an established tactic.
I am glad that the majority of my income is from my state pension. My SS is only 265 after they subtract Medicare so I will be fine. I feel bad for people whose only income is SS.
The idea that they wouldn’t raise it was HISTORIC when they started playing chicken with it, and the US’s credit rating got downgraded just because of the debates about it. Now it’s becoming way too normal.
Is anyone thinking of cutting down on retirement contributions because of these shenanigans? Right now I’m doing 15% of my pretax income into my employer’s 401(k) because I’m trying to catch up for years of low income and no retirement savings (I’m also trying to save for a house next year, which is why this isn’t more). Or does this question make me a dirty market timer? Like I know market fluctuations are normal but this…seems like it has the potential to be pretty nasty
We’re not changing retirement contributions or much else, to be honest. The biggest change we’re making is keeping more money in the bank account until we see how this pans out.
Incidentally, I found this report from Moody’s Analytics about the debt ceiling that you may find interesting.
Thanks for this post with actionable items. Some of which are the same as hurricane season prep anyway. YAY, doing hurricane prep and debt default prep at the same time?!?
Gonna take out some cash and also start on the list of nonperishables to restock, this weekend.
I think the biggest thing is that if there is a default, and you can afford it - keep investing.
We have eased up on our contributions a little right now so that we have more free cash. (And our situations are weird right now anyway, since my household is now 2/3 adults disabled - on the one hand, private disability insurance means no layoff risk; on the other, it means guaranteed bureaucracy shenanigans and a known end date for payments.) My thinking is: it’s most important to have enough cash that we don’t need to sell during the dip. 2nd most important is being able to buy during the dip.
Thanks for the link Benson, that’s a useful summary of the possible scenarios.
Like I know market fluctuations are normal but this…seems like it has the potential to be pretty nasty