By Eliot L. Engel – Member of Congress

Defaulting on Debt Would Be Disastrous

The U.S. government’s “debt ceiling," refers to the ability of our government to borrow money to pay for programs already budgeted by Congress. After we reach this limit, the government will simply not have enough money to fulfill its obligations.  President Obama and Congressional leaders have been negotiating a long-term budget deal.  Unfortunately, the demand by House Republicans to tie massive, and in my opinion, irresponsible budget cuts to a debt ceiling increase gambles with the economic well-being of our country.

We need to be responsible in spending, but we do not have to use our social safety net as the source of relief.  I do not believe balancing our nation’s budget should be done at the sole expense of seniors, veterans, the disabled, or children, and I have written to President Obama urging him to take Medicare, Medicaid and Social Security out of the talks.  Before we risk our country's ability to pay back its debts – accrued by both parties – by forcing devastating cuts to these programs, let's pass the debt ceiling increase and then negotiate a proper budget .

It would be disastrous for America to default on its debts.  The Federal government relies on a rolling stream of credit to function.  According to the director of the non-partisan Congressional Budget Office, a debt ceiling default could ADD $130 billion to our deficit over the next decade in interest payments on our current debt alone. In short, money would become so expensive that the price of every government program would spike, with adverse consequences haunting us for years.  While a government shutdown would be a problem, a government default is a catastrophe. The default would badly impact the lives of everyday American citizens. Here are some examples of how:

1 – Interest Rates.  The U.S. economy would slow to a virtual standstill, with the U.S. dollar value plummeting, and the credit rating spinning down the drain. Interest rates would skyrocket.  New home loans, mortgages, credit cards, car loans, student loans, etc. would have a much greater chance of rejection, and rates would go through the roof.  It would result in higher payments, and less money circulating.  It would burden already-cash-strapped families in need of credit and grind our economy to a halt.

2 – Payments.  Government paychecks and benefit checks would stop.  Military service members, including those currently in combat, would not get paid.  Social security and pension recipients would not get their checks.  Government employees (including teachers, firefighters, and police officers), and doctors in need of Medicare reimbursements would not receive their salaries, or their payments.

3 – Closures. Government offices would close and employees would be furloughed.  Vital replenishment of food and weapons for our troops overseas would be halted. Anyone seeking a passport, social security assistance, care at veterans hospitals, or simply visiting National Parks and Landmarks, would be unable to do so. 

4 – Layoffs.  Unemployment is already too high, and a default would make it worse.  Unemployment would surge as businesses lose credit, and thus be forced to cut back on payroll.  American families would lose more buying power and have to cut back even more than they are today.  The end result would be a double-dip recession or perhaps a full-fledged depression.

5 – Pensions.  It only took a stalemate in talks to send the stock market crashing.  Should the country actually default, the stock market could face a day that rivals the dark days in 2008, 2001, 1987, and even potentially 1929.  Pensions for millions are tied to the stock market, and lifetimes of work could be lost in a blink of an eye.  Pensions are tied to the health of the stock market, if the market crashes, millions of Americans will watch their nest eggs vanish.

If it gets to the point where default becomes likely, I urge the President to invoke the 14th Amendment.  It states that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”  This means it is unconstitutional to default on the debt owed to the bondholders of the United States, the largest one being the American people.  A long-term budget plan is needed to keep the debt from growing, but it should never have been coupled with the Constitutional requirement to pay our debts on time.  Not to do so would be grossly irresponsible, and I refuse to believe our country, and our government, would be so reckless.

Sincerely, Eliot L. Engel - Member of Congress