If the debt ceiling isn't raised, many, including President Barack Obama and the Treasury Department, warn that the country will risk unprecedented default. That default could cause Americans to face rising interest rates. It could also mean that the value of the U.S. dollar would drop compared to other currencies. As interest rates increase, the cost of borrowing rises, so individual mortgages, car loans and student loans could become significantly more expensive. As individual Americans' personal finances take a possible hit, some financial experts have warned that America's AAA credit rating could also be downgraded, threatening an already drooping stock market.
Krugman reminds of us a very interesting question and answer session between the President and Marc Ambinder last December:
Obama, at his press conference last December, announcing his surrender to the GOP on tax cuts; the questioner was Marc Ambinder:
Q Mr. President, thank you. How do these negotiations affect negotiations or talks with Republicans about raising the debt limit? Because it would seem that they have a significant amount of leverage over the White House now, going in. Was there ever any attempt by the White House to include raising the debt limit as a part of this package?
THE PRESIDENT: When you say it would seem they’ll have a significant amount of leverage over the White House, what do you mean?
Q Just in the sense that they’ll say essentially we’re not going to raise the — we’re not going to agree to it unless the White House is able to or willing to agree to significant spending cuts across the board that probably go deeper and further than what you’re willing to do. I mean, what leverage would you have –
THE PRESIDENT: Look, here’s my expectation — and I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen. And so I think that there will be significant discussions about the debt limit vote. That’s something that nobody ever likes to vote on. But once John Boehner is sworn in as Speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower.
And so my expectation is, is that we will have tough negotiations around the budget, but that ultimately we can arrive at a position that is keeping the government open, keeping Social Security checks going out, keeping veterans services being provided, but at the same time is prudent when it comes to taxpayer dollars.
Pedro Nicolaci da Costa, "Default cloud hangs over U.S. job market," Reuters (July 31, 2011)
Progressive Co-Chair Rep. Raúl M. Grijalva Statement on Emerging Debt Deal, Official Statement (July 31, 2011)
Gregory Floyd, "It's Time to Question Labor's Ties to Democrats," HuffPost (July 30, 2011)
"Debt Ceiling Fiasco and Student Loans," AEM (July 30, 2011)
"Who's Terrified? Debt Ceiling Fiasco and Student Loans," AEM (July 29, 2011)
"Call to Action: Tell Leaders in D.C. to Raise the Debt Ceiling," AEM (July 28, 2011)
"Sell Those Indenture Instruments Immediately! The Debt Ceiling Disaster and Student Loans," AEM (July 25, 2011)
"The Debt Ceiling Fiasco and Student Loans," AEM (July 25, 2011)