What Happens If the Debt Ceiling Isn't Raised?
Once the debt ceiling is reached, Treasury cannot auction new Treasury notes. It must rely on incoming revenue to pay ongoing Federal government expenses. This happened in 1996, and Treasury announced it could not send out Social Security checks.
Competing Federal regulations make it unclear how Treasury could decide which bills to pay, and which to delay. Owners of the debt would get concerned that they may not get paid.
If Treasury did actually default on its interest payments, three things would happen. First, the federal government could no longer pay any its employees' salaries or benefits. All those receiving Social Security, Medicare, and Medicaid payments would go without. Federal buildings, and services, would close. Second, the yields of Treasury notes sold on the secondary market would rise. This would create higher interest rates, increasing the cost of doing business and buying a home. This would slow economic growth. Third, foreigners would dump their holdings. This would cause the dollar to plummet, probably removing its status as the world's reserve currency. The standard of living in America would decline. This would make it highly unlikely that the U.S. could ever repay its debt. For all these reasons, Congress shouldn't monkey around with raising the debt ceiling. If members are concerned with government spending, they should get serious about adopting a more conservative fiscal policy long before the debt ceiling needs to be raised. (Article updated August 16, 2011)
Ya load sixteen tons and what do ya get?
