Wealth Finance

With the Aug. 2 deadline looming, how concerned are you that the U.S. will go into default?

It’s in the headlines nonstop, but many New Yorkers don’t have a clue as to what the debt ceiling is and why it matters to them.

You should care – bigtime.

The debt ceiling, now at $14.3 trillion, is the maximum amount that the federal government can borrow. We will hit that limit on Aug. 2, unless the ceiling is raised.

“It is sort of like a limit on a credit card for an individual,” said Lawrence White, a professor of economics at New York University’s Stern School of Business.

If President Obama and Congress can not reach an agreement on the debt ceiling, the federal government will default on its debts and there could be harsh consequences.

Federal Reserve Chairman Ben Bernanke warned that failing to raise the debt limit in time to avoid default would end up making the federal deficit even bigger, damage the economy and “throw the financial system potentially into chaos.”

“The stock market will tank, which will damage everyone’s portfolio and/or pension fund,” White said.

That’s what happened when Congress initially failed to pass the TARP legislation in Oct. of 2008, White noted.

Moody’s Investors Service is already reviewing the government’s credit rating. If Moody’s were to lower the rating, it would hit you right in your pocketbook, pushing up interest rates for home loans, car loans and other debts.

Also on the way if the debt ceiling isn’t lifted: an even harsher job market.

“Unemployment will probably rise, which will make it harder for anyone who is unemployed to find a job,” White added.

That’s the last thing anyone would want.

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