Being the Change I Wish to See

If we don’t raise the debt ceiling, we will default on $14.3 trillion of national debt. That will mean the beginning of economic Armageddon for the U.S. and the world.

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We actually have a real idea of what will happen if the debt ceiling isn’t raised by August 2, 2011 and America defaults on its obligations. It’s a huge deal, it is worth panic, and it will have serious and very long-lasting consequences to our economy, and possibly the world economy. The dire warnings are accurate, not the Republicans who claim Democrats are crying wolf.

How do we know it’s dire? We delayed payments on Treasury bills in 1979, and the long-term consequences were extreme for the rather tiny amount of money involved – $120 million in T-bills. In the Sunday Washington Post on July 10, Brady Dennis published a historical article recounting exactly what happened in the spring of 1979, Delayed payments in 1979 offer glimpse of default consequences.

I highly recommend reading this very concise, no nonsense article.

Then [1979], as now, Congress had been playing a game of chicken with the debt limit, raising it to $830 billion – compared with today’s $14.3 trillion – only after Treasury Secretary W. Michael Blumenthal warned that the country was hours away from the first default in its history.

That last-minute approval, combined with a flood of investor demand for Treasury bills and a series of technical glitches in processing the backlog of paperwork, resulted in thousands of late payments to holders of Treasury bills that were maturing that April and May.

“You hear a lot of people say, ‘The government never defaulted.’ The truth is, yeah, they did .?.?. It might have been small, it might have been inadvertent, but it happened,” said Terry Zivney, a finance professor at Ball State University who co-authored a paper on the episode entitled “The Day the United States Defaulted on Treasury Bills.”

Keep in mind, this was a short period of inadvertent late payments of $120 million in T-bills. This wasn’t anywhere near the degree or scope of the $14.3 trillion default that will happen if an agreement isn’t reached in time now.

“…the series of defaults resulted in a permanent increase in interest rates” of more than half a percent, which over time translated into billions of dollars in increased interest payments on the nation’s debt, a cost shouldered by taxpayers.

Now, imagine this happening with $14.3 trillion of U.S. debt all over the world. Imagine we lose our hard-earned full faith and credit of the United States. It’s a nightmare and will plunge us back into a recession, and possibly much further down than the current recession we are still trying to recover from. This is a path to a second Great Depression. If we default on our current debt, there will be a huge drop in confidence in the U.S. as a safe investment.

The ultimate increase in interest rates won’t be only 0.5%. Rates will be much higher. Our current debt interest rates are dirt-cheap, which makes it possible for us to carry such a large amount of debt right now. We the taxpayers will have to pay those much higher interest rates, and you can forget about reducing our national debt in our lifetime. It will fall on our children and grandchildren because we failed to act properly. Their standard of living will be considerably below what we enjoy today in the middle of a long recovery from a deep recession. Those generations will not likely see an economy we enjoyed in the 1990′s.

Tax increases will be mandatory to make it possible for us to pay the interest on the debt. Everyone will have their taxes raised considerably. The wars we are in will have to end very soon because we won’t be able to afford them. Every government institution will have significant, painful budget cuts, except perhaps the enforcement section of the IRS. We’ll need every penny of revenue we can find.

This fiscal disaster will trickle down to the states and local governments, seriously straining local budgets. We may not have police, firefighters, and teachers any longer. Streets won’t be repaired, sewer and water lines will go unattended, garbage won’t be collected, and local children and family services will cease to exist (Medicaid, food stamps, rent assistance, child care assistance, head start for at-risk kids, no public schools, etc.).

Social security, Medicare, and Veterans’ benefits will be reduced more and more as time goes on. Soldiers and air traffic controllers may not get paychecks, and literally any government agency may be shut down because their employees can’t be paid.

Unemployment will jump because all government agencies; federal, state and local; will have to lay off a lot of people to free up money to pay the interest on the debt. This will lower tax revenue even more because far fewer people will be paying taxes. Imagine unemployment rising in the private sector because the public and private sectors are interdependent. We currently have an unemployment rate of 9.1%. Imagine that going up to 25-30%. Imagine the U.S. as a third-world country for real.

The Republicans are the road block in this process. If we default, it will be their fault, and if Americans have any brains in their heads left at all, the Republican party and its Tea Party faction will disappear. It will be the Republicans’ fault because they are the ones demanding a deal to have the debt ceiling raised. This bill should be a single-sentence bill that flies through the House and Senate, and is immediately signed by the President. Having to make a deal to do what must be done for the good of the country is unprecedented, unconscionable, and unacceptable.

Have you called your Congressperson and demanded he or she introduce a single sentence bill and vote for raising the debt ceiling without any strings attached? If not, call now. We only have a little over 2 weeks left to raise the debt ceiling. Phone: 202-224-3121. Ask for your Congressperson’s office.

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Technorati Tags: 1979 Treasury bill delayed payments, a second Great Depression possible, consequences of failure to raise the debt ceiling, economic Armageddon, full faith and credit of the U.S. government, national debt ceiling, Republicans will be responsible for the default

1979 Treasury bill delayed payments, a second Great Depression possible, consequences of failure to raise the debt ceiling, economic Armageddon, full faith and credit of the U.S. government, national debt ceiling, Republicans will be responsible for the default