Debt Deadlock Chills Consumers
MICHEL MARTIN, host: I'm Michel Martin and this is TELL ME MORE from NPR News. My thanks to Tony Cox for sitting in this week so I could participate in the Aspen Ideas Festival, and I was reminded again of how important it is to have the right to discuss ideas freely and that millions around the world are denied that right and are fighting for it. In a few minutes we'll hear from a reporter who wrote about the 2009 pro-democracy demonstrations in Iran and paid a very heavy price.
That conversation in a few minutes. But first, back to a pressing debate in this country. The deadline for raising the debt ceiling is approaching fast. Yesterday, President Obama spoke to reporters at the White House and he pressed congressional leaders, particularly Republicans, to be more open to compromise. That party's leaders have demanded major spending cuts in return for a higher debt limit but have rejected any Democratic calls to raise revenue, especially by raising taxes. President Obama scolded GOP leaders as inflexible in his remarks yesterday and called for an end to tax policies that favor people like corporate jet owners and the oil industry, as well as for quote millionaires and billionaires, and at one point the president compared lawmakers unfavorably to his own children when it comes to meeting a deadline.
President BARACK OBAMA: Malia and Sasha generally finish their homework a day ahead of time. Malia's 13, Sasha's 10, and it is impressive. They don't wait until the night before. They're not pulling all-nighters. They're 13 and 10. You know, Congress can do the same thing. If you know you've got to do something, just do it.
MARTIN: Actually, I think Malia's almost 13. I think she has a birthday coming up, but in keeping with the theme, President Obama took Congress to task for spending too much time in recess and not enough time addressing priorities like the debt limit, and in response to that Senator David Vitter, a Republican of Louisiana, responded this way.
Senator DAVID VITTER: Let's stay here next week. Let's not recess. Let's not even have a pro forum session. Let's work, but let's not be here just to be here. Let's be on the floor debating in a constructive way the biggest challenge our country faces, which is spending and debt.
MARTIN: Well, we don't know at this point whether that will be constructive, but Senate Majority Leader Harry Reid has now canceled the 4th of July recess for the Senate anyway. So we thought it was a good time to talk about what this continued standoff might mean for the U.S. economy and actually for our own pocketbooks, so we've called upon Marilyn Geewax. She is NPR's senior business editor. Also with us, Wall Street Journal economics reporter Sudeep Reddy.
They've both been with us before to try to unravel all this. Welcome back, thank you both so much for joining us.
SUDEEP REDDY: Thank you, Michel.
MARILYN GEEWAX: Hi.
MARTIN: Sudeep, before we start out, I want to just get some clarity on one point. The Treasury Department announced in May that the nation had already reached the approximately 14.3 trillion dollar debt ceiling, so how is it that we're still functioning financially despite that?
REDDY: The Treasury Department actually has a number of accounts that it can use to move money around to delay what is considered the inevitable of running out of money, and that's what it's in the process of doing and what it's been doing since mid-May. It's been drawing down accounts that it will pay back later. It's been borrowing from a fund that is generally used to help other countries and foreign exchange operations, doing a lot of unusual operations and
MARTIN: (Unintelligible) we would do, right, if our paycheck was delayed. We'd be kind of borrowing from Peter to pay Paul.
REDDY: You're tackling every credit line and you'll have somewhere - that's why it's not really a precise date around August 2nd and there's a little bit of flexibility around that, but we know that we're really running out of time. We're running on fumes right now.
MARTIN: So here is the money question. What happens if the debt ceiling isn't raised?
REDDY: That is the interesting question. There's a reason people say that it would be catastrophic, that this is a really dangerous proposition, and that's nobody really knows what the problem would be. The U.S. is seen as the reserve, the dollar is the reserve currency of the world. Everybody around the world has put their faith in the U.S. that this will not be a problem, and that's why it's just inconceivable what will happen if this is a problem.
That's when you start hearing about financial calamities, financial crises the likes that we've never seen before, and that's the risk, is that nobody has any idea the depth of what would happen.
MARTIN: Marilyn, what would happen to individuals if the debt ceiling isn't raised? Are there ways in which we as just regular people would experience this?
GEEWAX: Absolutely. I've talked to a number of economists about this to try to track down what would be the impact on people, and one thing just right off the bat is a hike in interest rates. Now, here's the way to think about this. For every dollar that the government spends, we take in about sixty cents, so there's 40 cents short all the time. We are always running short. Now, to make up that difference between what we spend and what we take in, we've got to borrow money.
Well, people loan us that money pretty cheaply, dirt cheap really, because they assume that the United States is going to pay them back and there is really no risk there. So we have very low interest rates. People all over the world buy our treasuries. But what if we on August 2nd say hey, wow, great, thank you very much, Chinese investors and people in Europe, we appreciate your support but we're not going to pay you back.
Well, that would certainly cause potentially all sorts of chaos, but at the very least, even if they thought sooner or later we'll straighten it out, they would want a much higher interest rate. So interest rates would go up for treasuries to get people to continue to loan us money. Now, those treasuries service a benchmark for all sorts of other kinds of interest rates. So if you have a credit card, a home equity loan, things like mortgage rates are very closely tied to what treasuries are doing.
So any time you would have a hike in Treasury interest rates, it will filter out to all kinds of things. From your home, your car, your credit cards, everything.
MARTIN: So in the way, let's say if you had a credit card and you missed a payment and the credit card company said okay, you know, not that you would, but say, Marilyn, okay, you missed a payment so I'm jacking your rate up.
GEEWAX: Jacking your rate up, right, that's what happens all the time with other people who are borrowers. If you don't pay your bills, then the interest rates go up and that's whether you're a corporation, whether you're a person, interest rates go up, or even worse, at some point they'll say, you know what, I'm just cutting you off. I'm not going to allow you any money. So if we're spending a dollar, we're taking in sixty cents, we're running short all the time, we need people to loan us that money, and if they don't, we're either stuck with, number one, much higher interest rates, or much more catastrophically, no money.
MARTIN: We're talking about efforts to raise the national debt ceiling. We're talking about what might happen if that doesn't happen. Our guests are Wall Street Journal reporter Sudeep Reddy and NPR senior business editor Marilyn Geewax. That's who was talking just now. You know, the thing about it is that both sides seem to be really dug into their positions. I mean, the Republicans are saying that if - that they're not willing to raise the debt ceiling without this commitment for deep spending cuts.
And they're not - they're saying they're not willing to - because they say, look, you know it's gone on too long. It's long past time to sort of reign in the size of the government. They say, look, we campaigned on this. This was our promise to our constituents, end of story, and they say that tax breaks aren't feasible right now because that will further stall the economy. The Democrats and the president are saying that it's an unbalanced approach.
It's unfair that too few people have reaped too much benefit from too little the sector of the economy. It's time to balance it out and that if you - and that too deep spending cuts will be too damaging to the economy. It just seems like irreconcilable positions.
GEEWAX: It's a very tough debate right now because both sides have in a sense truth to both sides of it. On one hand, let's say if you say we're not going to raise the debt ceiling and we're going to make this into a crisis, let's push this because we've got to do something about this uncontrolled debt that we keep running up year after year - so if you do that, you could - let's think of some other economic impacts. This first thing, most economists estimate about 800,000 federal workers could get furloughed. That means people who work at, say, the Department of Veterans Affairs, they would be out of work.
Well, we already have a terrible job market. Do you really want to see another 800,000 people, you know, not working? But there's also all these government benefits that might not be paid. Just in the month of August alone, Medicare and Medicaid will spend about $69 billion. Well, if you're a doctor of hospital expecting to get that Medicare payment, and you don't get it, maybe you lay off nurses and staff.
It ripples out tremendously throughout the economy. So the people who say, such as Secretary Geithner, this is much too risky. We can't risk having higher interest rates, we can't risk doing this to the job market. It's just too risky. Don't do this. Republicans, on the other hand, say, this has gone on long enough. There is a risk in doing nothing. We have to address this underlying fact that we just spend 40 percent more than we take in. At some point you have to draw a line. Those are the two battle lines.
MARTIN: Sudeep, what are economists saying? You know, there's this old joke, if you want, you know, five opinions, ask for economists. So I just have to assume that there is a wide variety of opinions about this. But I'd like to know what some of them are about what the effects of this could be. Does anybody not think this would be a dire situation?
REDDY: There are some people who think that the U.S. would actually have a little bit more time than we say. But when you're already running on fumes, there's only so far you can go to push this out. Everybody understands and that's what's so maddening about this. Everybody understands that this is a self-defeating proposition. If you don't pay your bills, then interest rates are going to rise, not only for consumers, but for the government.
And then all that money that the U.S. spends in servicing its existing debt will actually - it'll cost more. And so then you're taking money away from all those other programs and you have to cut even more out of the budget in the end. So everyone really sees that. And I think economists have generally understood that - at least mainstream economists, have understood that both Democrats and Republicans have been rather disingenuous in this.
Democrats have not fully acknowledged that this is an urgent problem and that you have to make some kind of cuts. They don't necessarily have to take place today, but they have to be in the plan for the coming years. And Republicans have been especially disingenuous in suggesting that you could solve this problem merely by cutting the small parts of the budget without getting into some other areas.
They've certainly talked about other areas like Medicare. But even the House Republican budget, which passed with all Republicans in the House voting for it, would add $6 trillion to the debt and require raising the debt ceiling to over $20 trillion. And so to say that they don't want to support raising the debt ceiling is just ridiculous because the budget they pass would require the debt ceiling to be raised.
MARTIN: So, finally, Marilyn, before we let you go, we only have about 30 seconds left. Is there anything that you're - I hate this term, but I'll use it - average citizen can do? Like with the, you know, Y2K they said, you know, put water in. You know, you can't - is there anything you can do to prepare for this?
GEEWAX: Well, just make sure that your house is in order. Say you're a federal worker, you may be facing a furlough. So if you are dependent on that government check in one form or another, make sure you've got plenty of savings. But of course, that's not very good for consumer spending. So that's trouble there too.
MARTIN: Marilyn Geewax is NPR's senior business editor. Sudeep Reddy is an economics reporter for the Wall Street Journal. They were both kind enough to join us once again in our Washington, D.C. studios. Thank you both so much for joining us.
GEEWAX: You're welcome.
REDDY: Thank you, Michel.
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