Simply put, not raising the debt ceiling will impact our credit card bills, ability to borrow money, gas prices, mortgage rates, small-business loans, department of education funding and anything else tied to America’s credit rating. Is it any wonder both sides of the proverbial political aisle in Washington can’t come to agreeable terms on the issue? Here are some frequently asked questions about how a failure to raise the debt ceiling can impact consumers.
Q: What would it mean if the debt ceiling isn’t raised and how long does Congress have to make a decision?
A: It would mean that the United States would be in default on its debts to other countries. By “credit score” standards that most of us are familiar with in regard to our personal credit, this would be the first credit score lowering in America’s history.
If you’ve seen the popular credit score commercials featuring the three guys in spandex body suits, we would be the tubby one on the right wearing the creepy hockey mask. And just like in our personal lives, when your credit score gets lowered, it becomes increasingly difficult to secure decent credit rates from your creditors (other countries). The effects of a lower national credit score would trickle down to consumers in the short, then long term.
Congress has until the Aug. 2 deadline set by the U.S. Treasury Department — the date, according to Treasury Secretary Timothy Geithner, until which we can continue borrowing before a default decision would be unavoidable.
Q: How would these events in Washington affect my credit card, mortgage and other bills?
A: When America can’t pay its bills, those struggles are immediately passed along to its people in the form of a devalued U.S. dollar and subsequent increase in gas prices and other imported goods. If the U.S. defaults on its loans, interest rates on government borrowing would rise dramatically in some cases. This would mean higher interest rates on outstanding credit card balances, college loans, car payments and mortgages as the national prime lending rate increases. Consumers most seriously affected by a U.S. default would be those with already marginal credit, which is amounting to more and more Americans in light of the extended recession. Finally, it would also mean big losses in the stock market and also for 401(k) plans and pensions. If America defaults, it will have a direct effect on Americans’ ability to retire.
Q: What would a failure to raise the debt ceiling mean for education?
A: The U.S. Department of Education already has seen its fair share of cuts in federal government spending. If the debt ceiling isn’t raised and our ability to borrow money without high interest rates is brought to an abrupt halt, education cuts likely would be at the school, district and state levels, with districts likely affected last but more long term.
Q: How would businesses be affected?
A: You don’t have to own one to feel the pain that businesses would feel if America’s credit rating took a hit. Whether you’re an owner or an employee, when businesses are on the receiving end of a pinched line of cash flow, tough decisions often have to be made. Small businesses in particular, with significantly less cash reserves and already scarce credit available to them, would have to make some hard choices quickly. Which offices or branches can we close? Which employees are expendable? Which benefits can we no longer afford for our employees? Small business already has been badly hurt by the recession. A blow of this magnitude might send many businesses that survived the first hit right over the cliff.
The debt ceiling crisis in Washington should be a loud wake-up call to all of us that, unlike Las Vegas, what happens in Congress doesn’t stay in Congress. Whether we like it or not, the U.S. Treasury is our national bank. And when the bank’s ability to get a loan is compromised, all our wallets suffer.
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.