News Column

Debt Default: Catastrophe or Just a Mild Heart Attack?

October 16, 2013

Dan Kelly, Reading Eagle

financial storm

Oct. 16--Many economists and financial analysts say failing to raise the debt ceiling before Thursday will cause a financial apocalypse.

First-time homebuyers can't get mortgage loans processed by the Federal Housing Authority, which handles 75 percent of all home mortgages.

If we crash through the debt ceiling, mortgage interest rates could go through the roof, depending on whom you believe.

"Some experts say that not raising the debt ceiling would be catastrophic to the U.S. and world economies, others say that it would not be a big deal at all," said Professor Brittany H. Bramlett of Albright College's political science department. "Someone has got to be wrong."

5 questions answered

What is the debt ceiling?

The limit on how much Congress allows the federal government to borrow, currently $16.7 trillion. Raising the debt ceiling is not new spending but simply allows the government to pay bills it already has incurred.

When do we reach that limit?

On Thursday, the Treasury will be down to about $30 billion on the books.

After Thursday, the government could pay bills for a few days. Sometime between Oct. 22 and Oct. 31, the cash on hand and tax revenue wouldn't be sufficient, according to the Congressional Budget Office. The date isn't exact because it's impossible to foresee precisely how much revenue the government will receive and when.

What impact would a default have on the economy?

Wall Street watchers predict the U.S. stock market -- and foreign markets -- would suffer the financial equivalent of a heart attack if the U.S. defaults on its debts. U.S. borrowing rates could soar, including mortgage rates. Consumers could cut back on spending, and that would hurt businesses.

What happens if the money runs out?

On Nov. 1, when the government will owe $58 billion in Social Security, disability benefits, Medicare payments, and more, things could get ugly.

Some analysts say Social Security payments could be delayed. The government could also fall behind in Medicare reimbursements.

What happens if it doesn't pay the bills?

The Treasury, which has an automated computer system that processes about 2 million bills each day, would likely start bouncing some automated checks, which could quickly trigger defaults.

Sources: Scripps Howard News Service, The Associated Press, TheWeek.com.

Contact Dan Kelly: 610-371-5040 or dkelly@readingeagle.com.

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(c)2013 Reading Eagle (Reading, Pa.)

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Original headline: Debt ceiling: Apocalypse or no big deal?


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Source: (c)2013 Reading Eagle (Reading, Pa.)


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