What Will Happen If We Actually Default, and Possibly Even Before The Deadline?

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• Significantly increased interest costs on the national debt
• Long-term negative impacts for the U.S. economy
• Real, tangible, and costly consequences for everyday Americans
• Severe, unpredictable consequences for the U.S. and the world financial system
• Macroeconomic consequences that increase with each day the debt ceiling restrains activity
• An immense amount of unpredictable downside risk to the U.S. economy

 The Center For American Progress lists the above items as what will happen if our legislators don’t lift the debt ceiling in a timely manner. Actually, we can learn from the past and realize that we may not even have to hit the deadline before damage is done. When Standard and Poor’s downgraded the U. S. credit rating in August 2011it said “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened.” An increase in the interest premium paid on the federal debt of between 0.1 percentage points and 0.5 percentage points would cost taxpayers between $120 billion and $600 billion over the next 10 years.

See the Entire Center For American Progress article at www.americanprogress.org/issues/budget/report/2013/10/10/76713/what-should-we-expect-if-the-united-states-defaults-2/

 Virtually every kind of credit used by middle-class Americans—from credit cards to student, auto, and home loans—is connected to interest rates on Treasuries. Typically, the issuers of these credit products make their profits by charging an additional interest spread on top of Treasury rates, so an increase in the interest rate on Treasuries alone will drive up borrowing costs.

 Increased credit costs would have a significant direct effect on the recovery, even in the case of a very short-term default. As investors demand a larger risk premium on Treasuries, this cost will be passed through to financing costs in the housing and auto sectors. After struggling over the past few years, these sectors have recently regained steam and have begun to lead the recovery. Due in part to favorable lending conditions and pent-up demand, auto sales are on pace for their best year since 2007.

 None of these costs are trivial, especially at this fragile moment in the economic recovery. Default will carry long-lived increases in the risk premium paid on Treasury bonds, which filter through to every type of borrowing and banking done by Main Street America. Increased volatility in asset prices and decreases in consumer and business confidence as well as household wealth are harmful to an economy at any point; given the current state of the recovery, even these consequences—which are the least severe and most easily understood ones of a temporary default—will impose real, significant costs on average Americans.

 If the American economy were a typical one, a default would go something like this: Investors would get spooked, pull capital out of U.S. stocks and bonds, take losses, and move their money to safer assets in other countries. Back in the United States, interest rates would rise and asset prices and the U.S. dollar would fall. Imports would become more expensive and inflation would rise. Gross domestic product, or GDP, and employment would fall. A default would be catastrophic, but in an utterly predictable way. Over time, the fall in the value of the dollar would make U.S. manufacturing and exports more competitive, leading the economy out of a deep recession and bringing the country back to reasonable conditions after a mere lost decade or two.
 
 In part, in the conclusion of the article, Michael Madowitz an Economist at the Center for American Progress states that the United States has already been through one financial crisis, which taught us valuable lessons about the financial system. Legislators would be wise to consider those lessons now. The day-to-day U.S. economy is more reliant on a well-functioning financial system than previously thought, and there is a much clearer picture of how destabilizing financial market turmoil is to the real economy. The system is also less stable and less well understood than previously assumed—an especially important lesson for legislators who are proceeding as if they can use the U.S. economy as a bargaining chip in an unrelated, entirely political disagreement.
Political considerations aside, it is all but inconceivable that Congress would be irresponsible enough to not lift the debt ceiling. This belief is likely responsible for the lack of market movement against U.S. Treasuries so far, but the lack of movement underscores how destabilizing it could be if Congress fails to lift the debt ceiling before it affects the global financial system and American families.

It’s time that you spoke up. Contact YOUR Congressmen/women and Senators and tell them to STOP playing politics and do the work that they were elected to do. We’re OUT OF TIME!

Find and contact YOUR Congressmen/women by using this link where all you need is your zip code:
http://www.house.gov/representatives/find/ At this site it is very easy to find who your Congressmen/women are AND to send them an e-mail.

Find and contact YOUR Senators (2) by using this link where all you need is your zip code:
http://www.senate.gov/general/contact_information/senators_cfm.cfm  At this site it is very easy to find who your Senators are AND to send them an e-mail.