Understanding the Debt Ceiling: What It Means And What Could Happen

Many lawmakers involved in the debt ceiling debate say they want to drag down the level of spending, but Financial Analyst Gary Saliba says it’s important to note – the government has already racked up the bills it now doesn’t want to pay.

Saliba says think of it like this, “It’s as if an individual were to buy a home and borrow a hundred-thousand dollars and agree to make payments every month for thirty years, and six months into it decide, ‘I’m not sure I want to continue to do this.'”

In our lives, we have to pay our bills, or they could follow us for a long time.

Saliba elaborates, “When you make a blunder or a mistake, if you don’t make a payment, if you’re late, if you declare bankruptcy, those actions go in your credit report, and they stay there for years. In many instances, five to seven years.”

The federal government doesn’t have that issue to the same extent.  Saliba notes that ratings agencies can constantly reassess the debt rating of a country, unlike a person.

However, that doesn’t mean the situation isn’t serious.  For example, if we default on our loans, Saliba says, “It is a doomsday scenario actually.”

Saliba explains it would hit hard at home, “I would suspect we could see stock markets down anywhere from ten- to thirty-percent within a month.  Interest rates might rise between a hundred and three-hundred basis points; this is one- to three-percent.”

That means your retirement takes a hit, your savings.

Here in the valley, it could get a lot harder to build those back up.

Saliba says, “Government funding of projects would dry up.  Contractors would not get paid.  Entities that rely on government – Boeing, Lockheed, major contractors, their contracts could potentially be in peril.”

And so Saliba makes a plea to our representatives, our senators, our leaders.

It springs from passion, fury, and just a hint of desperation.

He implores, “Do not mess with the full faith and credit of the United States government.  That should be a sanctity of protection.  All of the arguments that we have and the individuals that we disagree on, healthcare, political spending, budgets or whatnot, those are all operational issues that should be resolved through rules of order – congressional hearings, laws, resolutions. The full faith and credit of the United States and its honor to pay its obligations as it has agreed upon should be sacrosanct.”

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