If the shutdown continues due to the disagreements between the Republicans in the House and the Democrats in the Senate, and lawmakers fail to raise the nation’s debt ceiling, the nation will default on its debt on Oct. 17, for the first time in history.
Dr. Bruce Buchanan, a government professor at the University of Texas at Austin, said it is “unthinkable” for lawmakers to allow a debt default to occur.
“Entering into a debt default would be a disaster for the world because we are the default currency,” he said, “It would be a level of chaos we have never experienced, the government won’t let it happen.”
The debt ceiling, set by U.S. lawmakers, is a cap on the amount of money that the U.S. government is allowed to borrow. The current debt limit of $16.699 trillion was reached in May, and Oct. 17 has been marked as the day the government will lose its ability to borrow.
A debt default, causing the government to stop paying back its debts, would undoubtedly disrupt world financial markets, raising the cost of borrowing for Americans and causing U.S. bonds to become rejected, stirring up confusion for traders.
While President Barack Obama has demanded that Congress raise the debt ceiling to avoid default, House Speaker John Boehner said Sunday that there will be no increase and no end to the shutdown until President Obama and the Democrats in the Senate negotiate with the Republicans in the House.
Elden Price, the accounting program coordinator and a professor at Coastal Bend College, agrees with Buchanan that a default would cause the economy to take a hit, impacting everyone across the U.S. He also said he fears that the health care system will suffer.
“Interest rates will go up, it will be more difficult to borrow, inflation will go up, business expansion will slow, job creation will decline and jobless claims will increase,” he said.
“I expect that we will soon discover that the grass is not greener on the other side of the Obamacare fence and we will wish we could go back to the way things were. Health care will be difficult to get and expensive.”
“And a government that many do not trust already will be trusted even less,” he added.
Buchanan believes negotiations will happen before a debt default occurs. “Either Boehner will bring the vote to the floor which will cost him his party, or Obama will act, but one or the other will prevent it from happening once they end the game of chicken that they have going,” he said.
The U.S. Treasury issued a report last week detailing the potential effects of a debt default. “A default would be unprecedented and has the potential to be catastrophic,” the Treasury report said. “Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world.”
The shutdown is costing the U.S. a predicted $300 million a day, thousands of federal workers have been furloughed, and surrounding countries are seeing somewhat of a broken and possibly weak or unstable government that is unable to unite.
Price believes the cost of the shutdown is more than the predicted $300 million a day.
“There are so many private businesses and contractors that have been forced to cut back and shut down completely, that the economic impact is still to be determined,” he said.
Price points out the money lost by cities and states due to national parks being closed, causing family trips to go awry and ensuring that foreign visitors will not return.
“If I had planned to visit the Grand Canyon, but the government has closed it, then money my family would have spent in Arizona is gone,” he explains.
“People are laid off or hours cut back. To make it worse, while the government has promised to pay all the federal employees the pay they are losing, what about all the money the business and their employees are losing because of this shut down?”
Buchanan said nations with whom we have ties with are watching closely and expressing concern, wondering how “a country who has managed to become the gold standard has allowed itself to get to this state, and they’re nervous,” he said.
Price said that failure to demand that the government control spending and regulations puts our nation at risk.
“In our personal lives, if we spend more than we make, relying on borrowing to carry us through payday to payday, there comes a time that we will not be allowed to borrow more. The government should be no different,” he said.
“Or our children will be facing debt that cannot be paid and will never know the freedoms that so many have given their lives to protect. Out-of-control spending is passing the cost to future generations and excessive regulations are restricting and inhibiting the growth of business and attacking personal freedoms.”
Lindsey Shaffer is the regional editor at the Bee-Picayune and can be reached at 358-2550, ext. 119, or at regional@mySouTex.com.