Jul
26

How Could a Government Default Affect You?

July 26, 2011

We’ve been hearing a lot about the debt ceiling. So much, in fact, that President Barack Obama went on television last night and asked for help from you and me to work it out.

But do the American people even know what will happen if lawmakers fail to raise the debt ceiling by the August 2 deadline?

Does anyone really know? After all, it’s never happened before.

If the President and the Republican-heavy House can’t come to an agreement by next week, the United States will no longer be able to pay all of its bills.

Now, that’s something many American people can understand.

But a failure to raise the debt ceiling would make life even harder for already struggling Americans and could push our country back into a recession.

The debt limit is the total amount of money the U.S. government can borrow to pay all of its existing expenses and debts, from paychecks for federal employees to interest payments on the national debt.

The country hit the debt ceiling in May. In the past, Congress has raised, extended or redefined the debt limit. If this fails to happen by the August 2 deadline, the U.S. will have to prioritize what bills to pay and what can be defaulted upon.

Here are some of the possible fallouts from a government default:

*Mortgage interest rates could climb high, as could other consumer loans, including car loans or loans for education. In fact, it might become impossible to even get a loan under these circumstances.

*U.S. and Chicago real estate values could fall. Further.

*The stock market could tank again, and the value of Treasury bonds could plummet.

*Your 401K, pension or retirement fund could suffer big losses, thereby delaying retirement for millions of Americans.

*Credit card interest rates could skyrocket.

*Companies could be forced to downsize and job creation could come to a halt.

*Social Security benefits could be suspended.

*Medicare could be cut and the cost of health care could increase.

*The value of the dollar will drop, possibly becoming worthless in other countries. That means it will cost more for travel.

*Military salaries could be limited or delayed.

*Unemployment benefits could be stopped.

*Tax refunds may no longer be paid out.

*More banks and businesses could fold.

*Growth in the economy would slow to a halt, something our already flailing country doesn’t need.

*If we pass the deadline but eventually work it out, the rest of the world might not be satisfied. If any other country even considers lending money to America, it will be at a much higher cost.

In other words, no debt-limit agreement would be catastrophic.

“Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover,” said Timothy Geithner, U.S. Secretary of the Treasury. “Default by the United States is unthinkable.”

So, what can we do about it besides watch and wait? Tell your Congressional representative to get it together.

“We can’t allow the American people to become collateral damage to Washington’s political warfare,” said President Obama in his speech on Monday.

“The American people may have voted for divided government, but they didn’t vote for a dysfunctional government. If you want a balanced approach to reducing the deficit, let your member of Congress know.

“Let’s seize this moment to show why the United States of America is still the greatest nation on Earth.”

Before it’s too late.

Categories: Economy

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Tracey

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