College of Charleston Economics Professor Mark Witte looks at the possibilities and how the debt ceiling could impact average Americans.
Another day, another Washington deadline clock continues to tick away.
In about a week, the United States will breach the federal debt ceiling. Less than two weeks ago, politicians failed to pass a continuing resolution designed to keep the federal government open.
The only certain thing we know today is that none of the key players in the federal spending impasse are very happy right now.
So what will happen if the deadline passes and there is no deal?
College of Charleston Economics Professor Mark Witte says if congress balks at raising the debt ceiling, there’s some evidence that international investors could think twice about investing in United States Treasury bonds. He says that could lead to a moderate increase in interest rates, which could have a negative impact on the US economy.
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Witte says if interest rates inch up, some businesses could feel the pain.
“The biggest impacts will probably be felt by the businesses involved in short-term debt,” explains Witte. “The problem is that many firms often finance certain parts of their business with short-term debt. With very low interest rates, many barely profitable firms can continue to operate but higher interest rates will make financing those payments more difficult.”
Witte says if the debt ceiling is hit, the average American should not see an immediate impact. However, a lot is riding on what happens on Wall Street.
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“The real question depends on whether the market is concerned about future problems financing government debt and thus pushes interest rates up or if the market is concerned with political uncertainty and pushes interest rates down,” says Witte. “Higher interest rates would be bad for any individual with debt at a variable interest rate, while lower interest rates would be bad for individuals with large savings accounts who depend on interest income.”
Meanwhile, the debates heat up as the countdown clock winds down.