MYTH: There will be no real consequences if we default on our debt. FACT: In 2011, Congress stalled when approaching the debt ceiling, and only passed an extension with a very small margin of time. As a result, the United States experienced the first credit downgrade since the ratings agencies were established. This increased interest rates, drove up borrowing costs for personal loans and small businesses, and the stock market declined dramatically over the course of a single day. If the government were to actually default, the consequences would be much worse. The Treasury Department estimates that the rise in mortgage interest rates would cost homebuyers an average of $36,000 more over the life of their loans, the average American’s 401(k) would drop by $15,000 and the average IRA by $23,000, and workers nearing retirement would see even more dramatic losses, with an average 401(k) decrease of $37,000. Likewise, student loans would rise 10%, and seniors would not be guaranteed to get their Social Security payments, nor would disabled veterans be guaranteed to receive their pensions. These are just some of the immediate and direct impacts that will occur nationwide. But don’t take my word for it. In 1983, President Ronald Reagan warned against default, writing: This country now possesses the strongest credit in the world. The full consequences of a default – or even the serious prospect of default – by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns. And in 1986 he described what default would look like: “Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility -- two things that set us apart from much of the world. These warnings are backed up by independent fact-checkers and economists. Politifact notes that when the government reaches the debt ceiling, the government would have a little breathing room to send out payments. It could use the cash it already had on hand, plus any new revenue it received in the interim. But that cash supply is not expected to last beyond Nov. 1 at the latest. And the Bipartisan Policy Center said: “On a day to day basis, handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, Defense, military active duty pay) will quickly become impossible.”
Posted on: Tue, 15 Oct 2013 20:34:42 +0000
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