DENVER (CBS4)- On Capitol Hill, Republicans and Democrats are fighting over spending cuts that will accompany the debt deal. Both sides say they’re making progress, but not enough to put an end to the debate.
Republicans don’t want tax increases; Democrats don’t want to cut Social Security and Medicare. A national default would affect nearly every American in some way.
If congress doesn’t raise the debt ceiling by the August 2 deadline, the government will have money, but not nearly enough to pay all of its bills.
University of Denver economist Mac Clouse said what would be worse is the message it will send to the global economy.
“Our economy unstable, we can’t be trusted to fulfill our obligations, and it may suggest that we may be very risky,” said Clouse.
The implications are grim for everyone. The markets would go into a tailspin, impacting retirements, mortgages and credit card rates. In order to avoid a default, the government will have to make some tough choices.
“There are a lot of people who think the Social Security trust funds have already been covering us when we got into trouble in May, so those dollars may have already been used,” said Clouse.
Another option, print more money, would be an act of desperation according to Clouse.
Clouse said it would cause the value of the dollar to tank and interest rates to soar. That would mean loans for everything from cars to college would cost more.
“The other alternative is a massive, huge tax increase. Instantaneous,” said Clouse.