As the clock ticks closer to a national debt default, with President Joe Biden and House Speaker McCarthy (R-CA) meeting to try to hash out a deal, politicians and experts are voicing their predictions about the potential impact if deficit spending is not approved.
Urged on by former President Donald Trump in his CNN town hall and later through his social media, some House Republicans want to make a firm stand and demand spending concessions before relenting on raising the debt ceiling. They have already passed a bill in the lower chamber, called the Limit, Save, Grow Act, to do just that, though the bill is in all probability dead once it hits the Democrat-controlled Senate, reports The Hill.
However, several fiscally conservative members have acknowledged that a default could bring dire consequences. U.S. Rep. Jake Ellzey (R-TX) even suggested that a default could open the door to China’s yuan supplanting the dollar as the world’s reserve currency, per the Dallas Morning News.
Another Texas Republican Congressman, Roger Williams, insisted that Biden should blink first as government spending has spiraled out of control. Still, the Weatherford car dealer acknowledged that a default could cause an interest rate spike and hammer businesses.
For their part, Biden’s allies have been vocal in predicting the worst should the unthinkable happen. U.S. Treasury Secretary Janet Yellen warned last Thursday that the very bedrock of the country’s financial system could be destroyed by the default.
According to the real estate website Zillow, the cascading impact of default could see mortgage rates rise as high as 8.4% as lenders fear making riskier loans in an economy experiencing massive job loss, per NPR. The current 30-year fixed rate in Texas is 6.375%.
The debt ceiling occurs because there is a deficit every year between the government’s tax revenue and what the government spends. The government usually increases that ceiling to account for this deficit.
In the event of an unprecedented default, the cost of borrowing for the government would theoretically increase, and, in turn, all other loans in the larger economy will become more expensive.