The debt standoff in Washington is garnering attention from many people wondering what it will mean for them. Will they get Social Security checks? Will federal employees be paid? Will the government default?
Personal money management expert and national radio personality Dave Ramsey took a stab at answering some of these questions on his radio show this week.
For readers who may not be familiar with him, Ramsey counsels people who call into his radio show about their financial situations in a blunt, entertaining style. Most of his advice centers around teaching people how to get out of debt, so you can imagine what he thinks of the debt problem in Washington.
Anybody who has ever listened to Ramsey give advice to his callers before knows that he doesn’t sugarcoat things. He’s said himself that he doesn’t tell people only what they want to hear, but rather what he thinks is going to be best for them given their situation.
Ramsey went through some of the numbers on the federal budget and the debt ceiling situation. He noted that the government takes in $2.6 trillion in revenue each year. Out of that $2.6 trillion, he delineated the list of spending priorities the government is likely to follow. It breaks out likes this:
|Interest on the debt||$0.4 trillion ($400 billion)|
|Medicare/Medicaid||$0.7 trillion ($700 billion)|
|Social Security||$0.8 trillion ($800 billion)|
|Military||$0.8 trillion ($800 billion)|
Note the first line in the table regarding the interest on the debt. Mathematically speaking, Ramsey said paying the interest should be a non-issue since there is more than enough revenue to cover it and our debt will not be downgraded as a result: “We’re not going to default, the bonds will not be downgraded, therefore the interest costs will not shoot through the roof. I will give you a 100% guarantee of that.”
The other line items are what Ramsey believes are essentials in the budget and therefore are likely to be given priority for payment. And since the numbers show that the money is there to pay for these benefits, he believes that the hype surrounding people not seeing them continue is “dramatically overstated.”
This is where it gets problematic for federal employees. In his usual direct style, Ramsey addressed what the debt debate might mean for them: “If I’m running the place, and I have to choose between paying for parks and recreation or Social Security checks, sorry guys, Social Security is going out. If I have to choose between some of you other folks that are federal workers, I’m sorry but I’m going to prioritize this, and you are too and they are too. If I was a federal worker, I would be afraid that your income may be stopped if they don’t solve this, or until they solve this. We don’t have the money to pay you without going into debt; that’s kind of scary.”
Ramsey said it’s simply a matter of priorities – “Even if it’s you, you don’t want to be called a ‘lower priority,’ but you are.”
Ramsey had some advice for investors with retirement accounts too when he said, “Don’t jump in and out of your 401k, don’t make rash decisions and sell everything you own and start buying buffalo chips or gold. The stock market doesn’t like uncertainty and stupidity of scale in Washington, so it’s going up and down. Usually when the markets freak out, it’s a buying opportunity, not a permanent condition.”
TSP investors have been moving more money into the G fund recently, contrary to what Ramsey suggests with his analysis.
If all of this is keeping you up at night worrying about your investments, Ramsey had some simple advice: stop watching TV.
Nobody can know for certain how the debt situation will play out. If Dave Ramsey is right, making some preparations for not getting a check might be a good idea if you’re a federal employee. If he’s wrong, then you can breathe a sigh of relief knowing you padded your emergency fund and didn’t have to use it.