WASHINGTON – A default on U.S. debt, while unlikely, would have catastrophic repercussions on consumers, businesses and global financial markets, a gathering of economic experts said Tuesday.
The possibility of default on the nation’s debt brought together lobbyists, analysts and legislators from both sides of the political spectrum to discuss the devastating impact if the U.S. fails to pay its bills.
“If the U.S. defaults on its debt, lending, the lifeblood of our economy, would dry up, the dollar’s value could drop and we could see dramatic increases in interest rates on everything from mortgages and auto loans to credit cards,” said Rep. Maxine Waters, D-Calif., top Democrat on the House Financial Service Committee who convened the panel.
A bipartisan panel, including Rep. Waters and others from the private sector, convened as debt ceiling negotiations bogged down on Tuesday. The panelists warned that a default could tarnish the good name of the American economic system for foreign investors.
“The treasury bonds are the risk-free assets, they set the benchmark not only in the United States for other rates but worldwide,” said Jim Chessen, chief economist at the American Bankers Association.
Tangible effects of the debate over the debt ceiling, panelists said, have reached American consumers through changes in the equity markets.
“We haven’t seen a change in interest rates yet, but last week we did see a drop in the stock market…” said Scott Talbott, senior vice president for public policy at the Financial Services Roundtable. Talbott added that a drop in the stock market as a consequence of default would hit Americans’ 401K and IRA plans
Businesses large and small, as well as consumer spending and confidence already have felt the pangs of the debt ceiling debate—and panelists warned that spending will scale back as a result of economic uncertainty.
At a time when the U.S. economy is slowly recovering from the crisis in 2008, failure to pay bills on time could effectively set it back.
“A real default would halt that [progress] and actually reverse it,” Talbott said.
Dismal though the warnings may be, a default would be an “unprecedented event, according to Standard & Poor’s rating analyst Marie Cavanaugh analyst. “It’s unlikely to occur,” she said.