Should there be no agreement on raising the country's debt limit, one of Millionaire investors’ biggest national concerns could be realized.
When it comes to the simmering debt ceiling debate, soon to reach a full boil, the old saying applies: Those who cannot remember the past are doomed to repeat it. But who can forget the imbroglio of August 2011, when a bruising down-to-the-wire battle over whether to raise the country’s borrowing limit brought about the first ever reduction in the U.S. credit rating, which in turn set off a chain of market swings?
And now, as the sage Yogi Berra observed, “It’s déjà vu all over again,” with the White House and Congress in stalemate and the federal government partially shutdown while the clock ticks down to the Oct. 17, the deadline by which Congress must decide whether to raise the debt ceiling and under what conditions. If it does not, the United State will not be able to pay its bills in full.
Past debates over the debt ceiling have focused on the federal government's size and scope, but this current battle is tied to Republican opposition to the Affordable Health Care Act, parts of which went into effect on Oct. 1.
Should there be no agreement, one of Millionaire investors’ biggest national concerns could be realized. Eighty percent of Millionaires surveyed in the first quarter of 2013 by Spectrem’s Millionaire Corner said they are concerned about the national debt, up from 76 percent last year (they are, justifiably it seems, even more concerned about the political environment (85 percent) and government gridlock (87 percent).
The debt ceiling is a cap set by Congress on the amount of debt the federal government can legally borrow. The current debt limit is $16,699 trillion, which was reached in May. The U.S. Treasury has implemented “extraordinary measures” to pay the country’s bills.
The debt ceiling, which has been raised 79 times since 1940, does not open the floodgates for more spending. It allows the Treasury to borrow the money it needs to pay all U.S. bills and other legal obligations for services already rendered and pre-approved benefits in full and on time. For example, on Oct. 23, the government is scheduled to pay $12 billion in Social Security benefits.
The U.S. has never defaulted on its obligations. The most likely outcomes should there be failure to reach a bipartisan agreement include a rise in interest rates and a roiling of the markets. Treasury Department warnings are more dire. “A default would be unprecedented and has the potential to be catastrophic,” a Department’s report states. “Credit markets could freeze, the value of the dollar could plummet…the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”
Two years ago, Standard & Poor’s reduced the country’s AAA credit rating over the debt ceiling fight. On Wednesday, the rating agency announced that this current shutdown or debt ceiling debate would not affect the U.S. debt rating.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.