HUNTSVILLE, Ala. (WHNT) – When the world starts wondering about the stability of the U.S. economy, it costs all of us money.
That’s just one of the many things professor Al Wilhite told WHNT News 19’s Steve Johnson on October 16 during a new weekly in-depth interview segment, Leadership Perspectives.
Wilhite, the Chair of Economics and Information Systems at UAH, shares why the debt ceiling is so important and such a bad subject for a political fight.
First in 2011, and then just a couple of days ago; Congress averted a debt ceiling crisis. President Obama signed the deal to raise the debt ceiling for a few months, ending the crisis, for the time being.
Wilhite said the fact that we had another debt ceiling crisis just a couple of years ago made this latest episode, worse.
“Suddenly all of those bonds that they have that they thought were completely secure, aren’t, and so they start saying ‘well you have to pay us more interest now,’ and just say that because there are contracts, but they start selling this debt around, and suddenly we have a whole new unpriced asset that used to be the most important asset in the world, now perhaps isn’t. What’s going to take its place? We don’t know,” said Wilhite.
“So now the second time around here, we’ve seen this before. Is this what we’re going to see time after time? Even if we never actually cross the line, but we walk right up to it every time, it’s not going to be, that’s now who you put your trust in, somebody who plays chicken every six weeks or every six months,” said Wilhite.
Wilhite said he’s worried no matter which way the world goes with its assets, it will mean bad news for the U.S.
“[Default] is already hurting people around the world, primarily Americans right now. We haven’t defaulted, but the very fact that it’s plausible as we get closer and closer to it and haven’t solved the problem, it becomes increasingly plausible and so the effects start emerging on the American people,” said Wilhite.
However, Wilhite told WHNT’s Steve Johnson that he believes that the U.S. will get a handle on the debt ceiling problem, but that answer will be a short term solution.
Even though things like debt ceilings and government shutdowns feel distant to many Americans, the impacts are very real, according to Wilhite.
“Interest rates on credit cards would start going up, mortgage rates won’t be as available as they were and that will happen in a relatively short period of time. Other than that, then it’s recession, unemployment would start going back up, firms start shutting down,” said Wilhite.
“How long does it take to boil down to the average person? It depends on where it is, and what you do. Here in this town, a lot of people working on government contracts, or secondarily through government contracts, we would feel it much more quickly than others. Just like the shutdown had a bigger impact here in Huntsville than it did in other similar sized towns,” Wilhite added.
Steve Johnson posed the question to Wilhite: “At the risk of getting political, when you hear a politician, and there are some who have said this that defaulting or not raising the debt ceiling does not matter, as an economist, what do you think?”
“They’re wrong, it’s an irresponsible statement. I would hope that our citizenry would send an email saying stop this stupidity,” said Wilhite. “This is a problem, and the world hears this and we have heard the chairman of the IMF, we heard Merkel of Germany, we heard the Chinese say people are saying this doesn’t matter, we want to tell you, it does matter to us.”