U.S. Debt Default:: What It Means For You
Monday, July 18, 2011
Just two weeks from the Aug. 2 deadline for raising the debt ceiling, Washington lawmakers are finally starting to shed some light on what exactly it would mean for millions of citizens if the United States were to default.
While no one knows exactly how far-reaching the affects of a default could go, some experts are saying interest rates for loans could spike, payments could stop rolling in and the end result could be another recession that would look very similar to the one the nation just came out of.
For Rhode Island’s Congressional Delegation, the message is clear: Raising the debt ceiling is the nation’s only option.
“People need to understand the debt ceiling needs to be raised to pay the bills that are due,” Senator Jack Reed said last week. “This money has already been spent on things like unpaid for wars, unpaid for tax cuts skewed to the wealthiest, and a host of other ‘buy now, pay later’ policies from the last decade. America simply cannot afford to default on our past debts and cause a double-dip recession. We need a balanced approach that won’t undermine our nation’s economic recovery and that will bring our budget under control.”
So what would a debt default mean for you? GoLocalProv has five ways your life could be impacted if a deal isn’t reached over the next couple of weeks.
Higher Rates For Loans And Credit Cards
If the country’s bond rating goes in the tank, it becomes more expensive to borrow money. The trickle down effect would be that an average citizen would be paying higher rates on school or car loans as well as credit cards. Not only will rates increase, it will also become more difficult to secure a loan, which could potentially affect a student’s enrollment in college or the ability to buy a new car.
As if Rhode Island wasn’t already struggling with one of the highest unemployment rates in the country. If borrowing becomes significantly more difficult, there could be a lot less business investment. If that is the case, companies could be forced to freeze new employee hiring and stop expanding for some time.
The one everyone is talking about. Checks are supposed to go out one day after the deadline and most people believe a freeze will not immediately take place. However, future social security payments could be at risk, as President Obama said last week. Rhode Island’s Delegation has steadfastly opposed any cuts to Social Security or Medicare, but the President has maintained that option is still on the table.
A worst case scenario for a Rhode Islander with a car loan and student loans to pay would be if they lost their job as a result of the country defaulting on its debt. That’s because in the event of a default, unemployment checks will be at risk. A bill introduced by House Republicans last week would not make unemployment payments a priority should the nation default.
A Tax Increase
The majority of cities and towns in Rhode Island are finding a way to raise taxes already, whether it be through the cars or property taxes. But if some municipal bonds (which are backed by the Treasury) are affected by a default, some towns may have no choice but to raise taxes even higher.
Not An Option
Now it’s a high-stakes race to the deadline and Congressman James Langevin told GoLocalProv this is a unique opportunity for the country to get its fiscal house in order through a combination of spending cuts and ending breaks for special interests and the wealthiest few who can afford to “give a little more.”
“Refusing to raise the debt ceiling is not an option,” Langevin said. “The debt already exists whether we raise the ceiling or not. We cannot simply stop meeting obligations that have been passed by many Congresses over many years.”
Langevin said a potential default would make for difficult decisions for the country.
“Letting the August 2 deadline pass would mean making choices like defaulting on our debt or not covering Social Security payments, Medicare coverage, Veterans benefits, student loans or funding for our troops overseas,” he said. “This is in addition to losing our top credit rating, which would send the markets into a tailspin, hurting businesses, consumers and likely causing another recession. The President and Democrats in Congress have made tough choices to reach a compromise. The rest of my colleagues need to follow suit.”