The government shutdown has had major disruptions across the nation, but an even bigger threat comes as the national debt approaches the debt ceiling. But many people don't even know what the debt ceiling is, let alone why everyone is so worried about it.
In the following video, Dan Caplinger, the Motley Fool's Director of Investment Planning, runs through three key facts you need to know about the debt ceiling. Dan defines the law and what it means for government borrowing, describing the actions one financial company took to avoid the potential consequences of owning Treasury debt. He then notes that there's no established priority for determining who gets paid once we hit the debt ceiling. That could have a huge potential impact on United Technologies (NYSE: UTX ) , Boeing (NYSE: BA ) , and Lockheed Martin (NYSE: LMT ) , especially if a prolonged shutdown leads to permanent defense-contract cuts. Finally, Dan notes that even if the debt ceiling is raised in time, the U.S. could face another downgrade of Treasury debt. This time, shareholders in PIMCO Total Return (NYSEMKT: BOND ) and Vanguard Total Bond (NYSEMKT: BND ) might not be so lucky as bond investors were two years ago, when the first-ever debt downgrade led to lower interest rates.
How Did We Get Into This Mess?
The reason the debt ceiling is so important is that the U.S. government has piled on more than $10 trillion of new debt since 2000. Annual deficits topped $1 trillion after the financial crisis, creating a need for repeated debt-ceiling increases to enable the government to keep spending. Learn more about this crisis and what it means for the future in The Motley Fool's new free report, "Everything You Need to Know About the National Debt." Inside, we walk you through step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!