Americans Don’t Get How Bad Hitting the Debt Ceiling Would Be

Nearly 40 percent of Americans think the U.S. could go past the debt limit deadline without major problems. They are likely wrong.

A wildfire-induced tornado of hot ash dances across a ridgetop as the sun sets May 13, 2002 near Rancho Santa Margarita, CA. 
National Journal
Matt Berman
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Matt Berman
Oct. 7, 2013, 12:25 p.m.

No one knows ex­actly what will hap­pen if the United States passes the dead­line for rais­ing the debt lim­it on Oct. 17. That in­cludes the Treas­ury De­part­ment, which calls a pos­sible breach eco­nom­ic­ally “cata­stroph­ic.” But that char­ac­ter­iz­a­tion is not stop­ping 39 per­cent of Amer­ic­ans from think­ing that there’s noth­ing ma­jor to fear.

That fact alone should be ter­ri­fy­ing.

A new poll from Pew shows that, while 47 per­cent of Amer­ic­ans think rais­ing the debt ceil­ing is “ab­so­lutely es­sen­tial to avoid crisis,” 54 per­cent of Re­pub­lic­ans, 28 per­cent of Demo­crats, and 38 per­cent of in­de­pend­ents think the U.S. can go past the dead­line “without ma­jor prob­lems.” Just 36 per­cent of Re­pub­lic­ans think rais­ing the lim­it is cru­cial.

The 39 per­cent of Amer­ic­ans who think ex­ceed­ing the dead­line would be no big deal are likely very, very wrong. For now, the Treas­ury has set the dead­line at Oct. 17. After that point, the gov­ern­ment will just have $30 bil­lion cash-on-hand to meet its ob­lig­a­tions. By Nov. 1, those ob­lig­a­tions would in­clude $18 bil­lion in Medi­care pay­ments, $25 bil­lion in So­cial Se­cur­ity pay­ments, and $12 bil­lion in mil­it­ary pay­ments.

Fail­ing to make those pay­ments alone sounds really, really bad. But this wouldn’t just im­pact the people re­li­ant on gov­ern­ment money. Per Bloomber­gBusi­nes­s­Week:

Fail­ure by the world’s largest bor­row­er to pay its debt — un­pre­ced­en­ted in mod­ern his­tory — will dev­ast­ate stock mar­kets from Brazil to Zurich, halt a $5 tril­lion lend­ing mech­an­ism for in­vestors who rely on Treas­ur­ies, blow up bor­row­ing costs for bil­lions of people and com­pan­ies, rav­age the dol­lar, and throw the U.S. and world eco­nom­ies in­to a re­ces­sion that prob­ably would be­come a de­pres­sion. Among the dozens of money man­agers, eco­nom­ists, bankers, traders, and former gov­ern­ment of­fi­cials in­ter­viewed for this story, few view a U.S. de­fault as any­thing but a fin­an­cial apo­ca­lypse.

An­oth­er way of look­ing at the im­pact on the glob­al eco­nomy, as they put it, is as an im­me­di­ate eco­nom­ic crisis that’s, at a min­im­um, way lar­ger than any­thing faced in the fall of 2008.

But as long as a siz­able num­ber of Amer­ic­ans — and a ma­jor­ity of Re­pub­lic­ans — view de­fault as something less than tox­ic, the pos­sib­il­ity of de­fault re­mains.

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