What Happens To Average Joes If U.S. Defaults?

Host Michel Martin and NPR Senior Business Editor Marilyn Geewax check the facts behind the debt debates. Geewax explains how poor people would be both harmed and helped by government spending cuts, and how Americans can safeguard their credit if a U.S. default happens.

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MICHEL MARTIN, host: Joining us now is NPR's senior business editor, Marilyn Geewax, for more perspective on the views we've just heard. Marilyn, I'd like you to pick up on what Congressman Cleaver was talking about, saying that people who are already of lower income are likely to be disproportionately disadvantaged by the consequences of the debt ceiling not being raised. Expand on that. Is that true in your view? And why would that be so?

MARILYN GEEWAX: Yes. You could accurately say that poorer people would be disproportionately harmed by spending cuts. But then, Michel, it's also fair to note that poor people tend to be disproportionately helped by government spending. So just think of one example. In the recent recession, it got so bad that the job market was terrible. Congress decided to step in and try to help by extending unemployment benefits. So a lot of jobless Americans ended up getting 99 weeks of benefits, thanks to that extra federal help, rather than the more traditional 26 weeks.

Now, going forward, is that going to happen again? Probably not. That spending won't happen. So if you lose your job next year, you might not be able to get two years of government checks. So a policy change like that would disproportionately hurt the poor, but you were disproportionately helped.

MARTIN: Shelby Blakely, I want to turn now to her perspective. We heard from her earlier. She's a citizen journalist and an activist with the Tea Party Patriots. That's just one of the Tea Party groups. Her argument is that government should just reduce its spending. Is that a realistic way to address this problem?

GEEWAX: Well, yes. If you want to reduce spending going forward, that is exactly what does have to happen. But it's also accurate to say, as the congressman did, that really what the debt ceiling is about is spending that's already happened. It's in the past. And so there's a question here about how do you - it is accurate to say that you need to pay your bills from the past, but the Tea Party does raise an accurate point that again and again the debt ceiling is raised and Congress always keeps exceeding it.

MARTIN: But the point that Congressman Cleaver made, you're saying that's accurate that the debt is to pay for things that the government has already paid for.

GEEWAX: Yes.

MARTIN: Or commitments that have already been made.

GEEWAX: Commitments that have been made to vendors, subcontractors. You say you're already going to, you know, please help expand this airport. And they do the paving and you need to pay them. But there won't be money there to make those payments.

MARTIN: What is the argument - the argument that some are making about why the debt ceiling does not need to be raised, their argument is that this is just fear mongering. That it's never happened before. But it is true that it's never happened before. This would be an historic, you know, event. But the argument is that the rest of the world knows that, in essence, you know, we're good for it.

You know, we may not raise the debt ceiling by Tuesday. But at the end of the day the resources are there to pay these obligations so it really isn't that big of a deal. Could you address that? What are economists saying about that perspective?

GEEWAX: You know, because this is so uncharted, we don't know. This hasn't really happened before so we're not entirely sure what's going to happen. But a lot of the indications right now are that people do believe eventually we'll be good for it. But it's like your credit card. If you miss a payment and you say, well, I'm good for it, I'll get back to you next month, hey, it's still going to show up in your credit score. You're not supposed to miss your credit card payment.

So you may end up having to get stuck with higher interest rates on your credit card for a long time going forward just because you missed that one month. And that's sort of the situation that we're in with the federal government, where you don't want to miss any of your payments to anyone. Because if that happened, you would be downgraded on your credit and that reverberates out to everyone if we have higher interest rates.

MARTIN: And finally, is there an immediate impact that the average person would feel if the debt limit is not raised on Tuesday?

GEEWAX: It may sound like, well, I don't own any Treasury securities, so what is it to me? I don't care if the interest rates are higher. But remember, those securities are benchmarks for all sorts of loans. So your car loan, that would go up. Credit cards, home equity loans. Many, many things are pegged to those Treasury interest rates.

MARTIN: That's NPR's senior business editor, Marilyn Geewax. Marilyn, thanks so much for joining us once again.

GEEWAX: You're welcome.

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