Ross: Whose default is it?
Once again, members of Congress are toying with the idea of defaulting on the national debt. I know we’ve been here before, and yes, I know Congress always relents at the last minute and raises the debt ceiling, so default will never happen, just like the pandemic ended last year in time for Easter. Just like no one would ever dream of protesting the peaceful transfer of power.
This is one of those made-up crises, where Congress sets a debt limit that prevents the government from borrowing more money even if there are plenty of people willing to lend it. Even Greece was allowed to borrow money when it ran out – but not us, unless the debt ceiling is raised.
Actually, the government hit the borrowing limit months ago. The only reason the Treasury’s checks don’t bounce is that it’s been raiding other accounts, like government retirement funds. But now THAT money is about to run out, too.
So, is this Congress going to let this happen? Are the members really so mad at each other that they would deliberately nuke the financial system?
Of course not! You’d have to elect a bunch of crazy people for that to happen!
But it never hurts to be prepared. So, if the U.S. government does default, here’s what to expect: Federal payroll checks, Social Security checks, and Medicare payments would stop. Private pensions that invest in government bonds would lose their interest payments. Interest rates would jump, so consumer interest rates would go higher, the price of imports would rise, and as for stocks, one study found they would lose about 12% of their value.
So, if you believe the U.S. is about to default, you’d be smart to pay off your credit cards, and keep some cash handy.
However, the lights will stay on, we’d still have water pressure, and the internet should work as long as you can pay the bill.
Looking at the bright side, Greece has defaulted five times since 1800. Heck, it’s been defaulting since the fourth century B.C., when, according to Investopedia, 13 Greek city-states borrowed from the Temple of Delos and never repaid. I’ll bet Apollo was pretty mad.
And yet, it is still a beautiful country with great food.
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