Alternate Realities: What If The Debt Ceiling Isn’t Raised?
There has been a lot of rumors and speculations over the raising of the debt ceiling in the past few months. As August 2nd is looming as a deadline, people are starting to get nervous over whether America is going to default on its loans. What would happen if this occurs? Some people claim the sky will start falling, while others believe it is just a scare tactic to increase on spending. The truth is: No one knows for sure. You can only hypothesize the outcome. Here are a few things that could happen if we don’t increase the debt ceiling and default…
Think this couldn’t happen? If interest rates rise due to uncertainties in the American economy, the entire world would be effected. This is not just an American issue. Do you like the cushy way you live? Forget about it. If we don’t have a way of paying for different structures within our society, those structures will fall. There could be a run on the banks where you won’t be able to get your money (like what happened during the Great Depression). The government simply won’t be able to guarantee your money will be there. What the government currently spends will be cut – and some people might think this is a good thing – but that includes airline controls, water supplies, sewage, garbage collection, safety crews, education, and the list goes on. If you don’t think it couldn’t happen, you may be about to find out that it can…Hopefully, you don’t rely on any government spending programs.
This is actually a misnomer. Checks don’t go out now. They are all automated. No one sits down and writes a check and mails it. Currently, there is no way of figuring out how this will be altered – nor if it is even legal. Things that can be affected, though, are people who receive: Social Security, Medicare, Medicaid, Welfare, Veterans Benefits, Food Stamps, IRS Refunds, Disability Checks, Student Loans, and Grants. Know anybody like that? Are you ready to help your elderly parents out with the bills? This is not to say that the government may be benevolent and make sure that the people who need help the most won’t get their checks, but this goes much deeper into our society than we think. Doctors and hospitals rely on Medicare and insurance to keep their doors open. Cities and states rely on money from the government to supplement what local taxes spend for firefighters and police. You can point the finger at anyone you want: The President, the Congress, John Boehner, Nancy Pelosi, Harry Reid – whomever – but right now they are all controlling a very tenuous situation for us all.
This is the simple economics of supply and demand. If demand for products outweighs the ready supply, the cost goes up. Sadly, in the world we live in, we get products from other countries that people buy. Just about everything you purchase today is shipped in from someplace else. In fact, one of the reasons we are in this situation is because America has stopped making products. If we default on our loans – which is just like if you stopped paying on your car or home – the first thing that is going to happen is that supplies will stop coming in. That means when you go to Walmart, you are going to see less and less products on the shelves. Less food. Less medicine. Less clothing. Less everything. The demand for these products hasn’t gone away, just the supply of them. So, when this situation happens, the prices go up. How much? One could only guess at that. However, in Germany, after World War One, Europe put the screws to them because they were broke and had caused so many problems, so prices rose. People still needed bread. But when they went to buy a loaf of it, the cost was no longer 19 cents. It was more like $800/loaf! Their money (in marks) had become so devalued because so much was owed to the rest of the world at high interest rates, that people literally carried suitcases of money to the grocers. The same thing happened in Hungary following World War 2. If the loans become increased because we default on what we owe, a similar circumstance could happen here.
The United States has about $9 trillion dollars in debt that it owes to outside sources. That is a nine followed by twelve zeroes. If we default on that, the outcome to the world economy will be devastating. No games. No questions. Devastating. By comparison do you remember how the fall of Lehman Brothers effected the economy? It was pretty bad, right? Well, Lehman Brothers defaulted on a mere $600 Billion. What may possibly happen here is FIFTEEN TIMES that amount! So, think about all of your savings and stocks and IRAs and 401Ks. They got crushed when Lehman Brothers fell. They will be non-existent if the U.S. economy defaults. I am not a survivalist, but it might be a good time to start storing up on canned goods.
We owe 9 trillion dollars. Every bank or company or individual or foreign central bank that owned U.S. treasuries (i.e., U.S. debt) is going to be asking the same question of anyone holding a bad loan: How much is it really worth? If the answer is “nothing“, then we will have a problem. Those people who are holding the bad debt are going to want what is owed to them and they are going to want it all at once. It is the same thing if you went into your bank and found out the vault was empty and they have no way to back it up. You are going to be angry. You’re going to demand what is rightfully yours. When countries throw a temper tantrum, the results can be more severe. Luckily, for us, China needs our economy as much as we use theirs. But the U.S. doesn’t “own” any companies in China. They rent them. Those places could all be shut down and the product that’s been manufactured will become China’s to help pay off our debt to them. If you default on your home loan the bank takes your house after a few months. The same thing will happen here. We’ll either have to find a way to pay these institutions and governments in the way of land or commodities, or they will come and try to take it. Since we can’t afford to pay our military, then we can thank the government for not repealing our second Amendment rights.
Do I think it is going to be this extreme? No. I think the government will come to an agreement before any of this happens. It’s posturing and following Party lines right now. The biggest fear I have is that the Tea Party will try to shoot this down. They aren’t professional politicians (even though we all say we can’t stand politicians) and it is showing in the way they are reacting to this situation. It’s our own fault as a country for falling into the fear that people were pushing. They are amateurs playing politics and, hopefully, cooler heads will prevail. If this does bother you, though, you should write to your local congressman or senator and let them know how you feel – one way or another.