President Obama warned this week that if the nation defaults on its debt in August, social security checks might not get mailed out. The Congress is debating raising the debt ceiling which would let the government borrow more, but it’s gridlocked over whether to do so and how to also reduce the deficit. The Treasury Secretary has warned of a “doomsday scenario” if the debt limit is not raised. So APRN’s Libby Casey checked in with Alaska’s members of Congress to find out just how big a deal they think defaulting on the debt would be.
The debt ceiling has been raised repeatedly over the years, in fact when George W. Bush was president, it went up seven times. But now with the deficit higher than ever and concerns about spending, it’s become a line-in-the-sand moment. So if Congress can’t get over its gridlock and raise the debt limit, what’s the big deal?
“It is a parade of horribles.”
Senator Lisa Murkowski says the money flowing out could stop. And that could hit home.
“If you are a military spouse, your husband is deployed, and you’re not certain whether or not you’re going to get paid, whether your husband’s paycheck is going to be coming to pay the rent while he’s in Afghanistan, I can’t imagine that scenario.”
Murkowski also fears social security checks won’t be delivered. Senator Mark Begich says all of the sudden less revenue will be coming in, which means less money to spend.
“Immediately, snap, gone. That means everything from a social security check to education funding to Pell Grants to Defense Department money to Homeland Security, there is no money.”
And Begich says it could bleed out into other personal finances.
“What happens to the average everyday person? If they have a credit card their interest rates are going up immediately, guaranteed, because the markets will respond. If you have an adjustable rate mortgage, you’re going to get adjusted up. If you’re a small business who depends on inventory loans or credit lines, all their rates are going up. Which means almost impossible to get capital.”
Begich explains the nation’s credit rating could go down, making borrowing money more expensive.
“The U.S. just doesn’t bring in enough revenue to pay off all its bills, so it borrows to make up the difference. But if it doesn’t raise the debt limit, the Treasury Department can’t borrow any more money to pay outstanding bills. With the flow of money tight, some payments won’t be made.”
As to which bills will get prioritized is anyone’s guess, says Rudolf Penner. He’s an expert in Congressional spending, and directed the non-partisan Congressional Budget Office back in the 1980s during the Reagan years. Now he’s a senior fellow at the Washington D.C. think tank the Urban Institute. Penner says nothing quite like this has ever happened, so no one knows if the 29 million social security checks that are supposed to go out in early August will be sent.
“Well, it would depend out the Secretary of the Treasury reacted. Some people think he should pay interest on the debt and then apportion the rest of the money somehow to all of the people who are owed or promised money by the U.S. Government. Now I suspect politicians would act quickly to exempt Social Security beneficiaries from that, maybe Medicare beneficiaries, maybe defense. But when you do the arithmetic if you start exempting people like that, essentially the rest of the government has to close down.”
And closing any sector of government or canceling checks could hit not just Americans’ personally but the nation’s reputation in financial markets, says Lisa Murkowski.
“We don’t know because we haven’t been there before. But if you think about how the financial structure of this country is built on your credit rating, and your ability to repay the debts in the debts in a timely manner, you pull out 1 card and the whole house comes tumbling down. That’s not a risk that I’m willing to put our nation in.”
Senator Begich says the nation is still crawling out of the financial crash of 2008… and he’s hearing from experts this could plunge the U.S. deeper into trouble.
“What happened in September 8, it will equal that or worse. That was when the crash occurred, and everything went to hell.”
Now Representative Don Young doesn’t think it’ll come to that. He’s skeptical that the Congress will work out a deal, but he thinks at the last minute President Obama will make the controversial decision to bump up the debt limit on his own.
“The president will use the 14th Amendment that says it’s unconstitutional to have the debt that we have. It’s his responsibility to raise the borrowing capability of the Treasury Department, and have the Treasury Department pay the bills off.”
It’s being debated now how the President could actually do that, and Obama has pledged not to. But Young says regardless he’s not predicting the worst.
“I don’t think that there is a doomsday. I never believed that. But I do think there will be some financial stress. We’re playing Russian roulette right now.”
But when you play Russian roulette there’s a chance a bullet will be in the chamber. And that’s too much risk for Senator Murkowski.
“I don’t think either side knows for certain exactly how bad the situation could be, but I view my responsibility as an elected official to make sure the crisis doesn’t happen. I don’t want to see our bond rating go into the tank, our credit rating going into the tank.”
So whether it will be doomsday if the U-S defaults is, according to the experts, an unknown. Rudolf Penner with the Urban Institute is himself Republican-leaning, but he’s concerned that Congress will play out a game of chicken and ignore President Obama’s warnings.
“I think we don’t know. It could well be doomsday, and for that very reason we shouldn’t try it. There are people in financial markets think minor affair, just a symbol of political theater going on in Washington, but I don’t think we can take that chance. It could be devastating. I think this is the most dangerous moment I’ve witnessed.”
The question is how close to the edge the politicians are willing to push.