US Debt Ceiling Wrangle Causes Market Jitters

The White House and Republicans in Congress are locked in a standoff over the US debt limit. The debt ceiling is the maximum amount of money Congress allows the federal government to borrow to cover its bills. Treasury Secretary Janet Yellen has issued a stark warning that failure to raise or suspend it could result in the first-ever US default.
As the US government normally spends more than it collects in taxes, it must access debt instruments to pay its expenses. However, the expenses in question have already been approved by Congress, so the debt ceiling does not pertain to new spending, but rather existing commitments.
Raising the debt ceiling is normally a routine process. Indeed, Congress has lifted the debt limit 78 times since 1960. The debt ceiling was last raised in December 2021 by $2.5 trillion, capping the limit at $31.381 trillion.
While it remains a highly unlikely scenario, were the US to default on its sovereign debt commitments, it would wreak havoc on the economy and destabilize markets around the world. Indeed, a default on treasury bonds could throw the US economy into a tailspin. 

What does this mean for me?
The last time Congressional Republicans threatened a default in 2011, Standard & Poor’s downgraded the US credit rating for the first time ever to AA+ from AAA. According to Moody’s analytics, if the US were to default, GDP would drop 4% and more than seven million workers would lose their jobs. Naturally, markets are edgy.