It’s clear that most Americans don’t understand the probable effects of Congress refusing to raise the U.S. debt ceiling. My intent here is to spell out the predictable results of such inaction, and what we can do about it.
The first effect would be a cash-flow crisis, making our country unable to pay all of its bills. The national debt isn’t like a long-term mortgage; nations borrow funds through multiple loans, which must be regularly paid off and replaced with new loans.
If we couldn’t pay all of our bills, we either would have to stop paying for many federal programs or default on our loans. If we default on our loans, our credit rating would go down, and we would have to accept higher interest rates. We then would owe much more in interest payments, which would strain our federal budget far more than current interest rates. The interest owed each day could easily double.
We would then have no choice about cutting back drastically on all government functions, to avoid further defaults and the absolute refusal of all creditors to lend us any more money.
That means defense spending, Medicare, Medicaid and Social Security would sustain major cuts. More jobs would be lost. If you’ve followed the problems in Greece, this is how we could get to the same place: severe austerity and riots in the streets.
The stock market would certainly react with another drastic downturn. In addition, our currency would become worth less abroad, making life more expensive.
Those are just the predictable results on which economists appear to agree. It would be a self-inflicted, nationwide disaster. What would follow after that is murkier.
At best, we would have thrown ourselves into another deep recession. At worst, we could become a second-tier nation, unable to afford the social safety net, defense spending, investment programs and standard of living that we have come to take for granted.
If we would prefer that our Congress not play “chicken” with this possible scenario, then our representatives and senators need to hear from us.
Since many tea party Republicans have vowed not to vote for raising the debt ceiling even if serious spending cuts are included, the only way it can get done is if most other elected Republicans team up with Democrats to support it. That’s a problem, because so many Republicans fear losing their seats in the next election if they buck the hardliners on this.
Sending our representatives encouragement and electoral support for raising the debt ceiling is therefore how we can help prevent this calamity.
Moderation must prevail.