The United States debt ceiling has become a popular, and controversial, topic in the media recently.
According to CNN, “the U.S. will likely start to default on its obligations over the summer or in the early fall if Congress doesn’t address the debt ceiling before then.”
Setting the politics aside, there are real financial consequences to the country — and by proxy, to you and me — if our politicians don’t address the debt ceiling.
What exactly will happen if we start to default? And how likely is it that we’ll default?
That’s what a listener of the Clark Howard Podcast recently asked.
What Will Happen if the United States Doesn’t Address the Debt Ceiling and Defaults on Its Obligations?
The CNN report cited the Bipartisan Policy Center, the Congressional Budget Office and Goldman Sachs to predict when the United States will begin to default on its debts if Congress doesn’t address the debt ceiling.
These projections on when we’ll start to default fell between July and September.
What, exactly, would happen if we reach that point? And what would it mean for us as individuals?
That’s what a listener wondered on the March 1 podcast episode.
Asked Brian in Florida: “Though the government default seems more like political theater, it is possible that the U.S. could default [on its debt] later this year or sometime in the future? How does this affect holders of I-bonds or other government-backed securities?”
Clark separated his answer into the potential short-term consequences as well as the long-term budget issues the United States needs to solve.
If Congress doesn’t address the debt ceiling, Clark says, the United States would in theory still need to meet its debt obligations.
“If people around the world no longer trust that the United States will meet its promises to pay its debt, it means the interest we have to pay for the borrowings we do will ultimately rise,” Clark says.
“And that is a huge problem for all of us as taxpayers and citizens.”
The Bill Is Coming Due on Social Security, Medicare and Medicaid
The long-term United States budget issues go beyond addressing the current debt ceiling, Clark says.
We have an aging population. That necessitates a lot of government money to support programs such as Social Security and Medicare.
Those programs, and the money allocated for them, are currently on “autopilot,” Clark says. With fewer young people working, the current level of spending on those programs isn’t sustainable.
“The one good thing that could come out of this, as you said, ‘political theater,’ is if it forces us to face the reality that we’re going to have to change how we fund and what we pay out for Medicare, Medicaid and Social Security,” Clark says.
“If the United States is going to remain strong, we cannot continue to run massive budget deficits.”
Clark: We Need Our Politicians To Put Aside Short-Term Thinking
Back to the original question. Just how bad does Clark think it will be if Congress can’t come to a resolution?
“Would it be horrible if the world doubted our commitment to meet our debt obligations? Absolutely,” Clark says. “Now, you can look at that through a political lens if you want. That’s just straight, raw, true economics.”
Politicians often are incentivized to play to the voters in their constituents and their political party. But the government debt is something that could hurt all Americans if it’s not resolved, Clark says. He thinks we need to look out for our long-term financial health and prioritize that over immediate media and voter brownie points.
“Right now both political parties have decided to put blinders on and say that all this obligation of the federal government is off the table,” Clark says.
“We need some grown-up people to stop trying to score short-term political points and demagogue and we need to deal with the reality that we are spending significantly more money than is coming in. And that will come to great harm for us individually and us as a country.”
Final Thoughts
The debt ceiling, defaulting on our debts and figuring out a realistic plan to address programs like Social Security are vital to our financial future as a nation, Clark says.
He’s aware that the debt ceiling is a political flashpoint for many. But for him, it’s basic blocking and tackling. And it will require mature, bipartisan leadership with an eye toward keeping us in a position of long-term economic strength.
