The clock is ticking as the United States inches closer to defaulting on its debt for the first time in history. If Congress is unable to reach an agreement, the consequences to Alabama and the nation could be devastating.
Time is of the essence. Last week, U.S. Treasury Secretary Janet Yellen notified Congress that federal government could default on its debt as early as June 1. Yellen warned that “waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
Actual default would be much more severe than these potential consequences for delaying action on suspending or increasing the debt limit. All Alabamians would feel the toll.
U.S. Rep. Jerry Carl (R-Mobile) is optimistic that default will be avoided. “We’re not going to get there,” he said Monday. “No elected officials want us to get there.”
While his proclamation is somewhat reassuring, it is not guaranteed, particularly with both sides digging in at just over three weeks before the potential default deadline. Where do things stand?
Late last month, U.S. House Republicans narrowly passed a bill to raise the current $31.4 trillion debt limit by $1.5 trillion. In exchange, the House approved $4.8 trillion in spending cuts.
The bill passed 217-215 and has no chance of clearing the U.S. Senate, as Democrats have been unwilling to negotiate a debt limit increase in return for spending cuts. President Joe Biden indicated those discussions would have to come separately. However, it will be impossible to pass an increase without some House Republican support.
U.S. Sen. Katie Britt (R-Montgomery) said this week that the country cannot continue to add debt without taking measures to curb its spending problem, telling reporters that is “not only fiscally irresponsible, that is morally irresponsible.” Britt continued, “We have to say enough is enough to rein in spending and create accountability.”
Complicating negotiations is the nearly two-week recess the U.S. House is set to go on starting May 19. Biden is scheduled to travel abroad for nearly a week during that time. An agreement can still be reached, but after next week it becomes more difficult.
The first step towards an agreement may start Tuesday when Biden sits down with congressional leaders to open negotiations. While this is a step in the right direction, optimism does not abound. One side will have to give in to breach the impasse.
The last major debt limit battle was in 2011, when, after months of negotiation, Congress and President Barack Obama agreed to increase the debt limit to $16.39 trillion in exchange for over $1 trillion in spending cuts. Just 10 years later, the limit had nearly doubled to its current level of $31.381 trillion.
In 2000, the federal debt subject to the limit was “just” $5.6 trillion. Through unsustainable spending policies and massive aid packages the federal government has increased the nation’s debt by almost $26 trillion in little more than two decades. Congressional Republicans must hold the line and demand an end to this out-of-control spending and borrowing.
How will it affect Alabamians if an agreement is not reached by June 1?
First, the federal government would have to prioritize debt payments above all other government functions. Cuts to benefits programs such as Social Security, Medicare, and Medicaid would likely follow. National defense could be next on the chopping block. As one of the most federally dependent states per capita, Alabama would feel an immediate impact.
There would also be impacts to the overall economy. According to a recent report by Moody’s Analytics, “the blow to the economy would be cataclysmic” if a prolonged breach of the debt limit occurs. Moody’s estimates it would cost the U.S. more than 7 million jobs, pushing U.S. unemployment to 8%, more than double the current rate.
Alabama’s unemployment rate is currently 2.3%. If it “only” doubled, that means over 50,000 more unemployed Alabamians.
Default would also wreak havoc on the stock market, cutting share prices by almost 20% and “wiping out $10 trillion in household wealth,” according to Moody’s. A decade from now, the economy would still not be fully recovered. The current livelihood of Alabama residents, as well as the security of their retirement investments, would be greatly compromised.
Over the last five years, the federal government added over $9 trillion in new debt. Nobody wants to default. The repercussions would be devastating for all Americans. However, out-of-control government growth and borrowing against future generations must stop. Congressional Republicans hold the power to make a better future for Alabama and the nation.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: Commentary@1819News.com.
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