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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
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And I'm Michele Norris.
President Obama has invited Republican and Democratic leaders of Congress back to the White House Thursday for more talks aimed at cutting the Federal deficit. They have just four weeks to raise the debt ceiling or run the risk of a government default. President Obama wants a deal within the next two weeks.
BARACK OBAMA: We know that it's going to require tough decisions. I think it's better for us to take those tough decisions sooner rather than later.
NPR's Scott Horsley reports on what could happen if Congress does not raise the debt ceiling.
SCOTT HORSLEY: U.S. officials, from the Treasury secretary to the Federal Reserve chairman, have issued dire warnings of what will happen if the debt ceiling is not raised before the August 2nd deadline. The picture that takes shape is a calamity of almost Biblical proportions.
(SOUNDBITE FROM THE MOVIE, "GHOSTBUSTERS")
DAVID MARGULIES: What do you mean, Biblical?
DAN AYKROYD: What he means is Old Testament, Mr. Mayor.
BILL MURRAY: Yes. Exactly.
AYKROYD: Real wrath of God type stuff. Fire and brimstone coming down from the sky.
MURRAY: Human sacrifice, dogs and cats living together, mass hysteria.
HORSLEY: Okay. Maybe the "Ghostbusters" scenario is a stretch. But not by much if the government that borrows money to pay more than 40 percent of its bills suddenly find its credit card is no longer working.
JAY POWELL: That means after August 3, we'd be entirely dependent upon incoming cash flows to pay our bills.
HORSLEY: Jay Powell served as undersecretary of the Treasury during the first Bush administration. He's now a scholar at the Bipartisan Policy Center and he looked at what would happen if the government had to operate like a shopkeeper, paying each day's bills with whatever cash is in the register.
POWELL: It doesn't balance very well at all.
HORSLEY: The trouble would start as soon as the government exhausts its borrowing authority August 2nd. Taxes would keep coming in, some $12 billion the following day, but that wouldn't begin to cover the daily expenses.
POWELL: The problem is that $23 billion in Social Security payments are supposed to go out on August 3, and there's a really good chance that we don't have the cash to pay that.
HORSLEY: In addition to Social Security, there are bills for Medicare and Medicaid, defense contractors, and federal workers who expect to be paid. Within 24 hours, the government would be $20 billion behind. And the delinquent bills continue to pile up with each passing day.
POWELL: Very quickly, you're dragging 20, 30, 40, 50, 75 billion dollars in unpaid bills.
HORSLEY: Just as the government is trying to decide between stiffing Social Security recipients or active-duty military, a $29 billion interest payment comes due on Monday, August 15. That's also the day that $27 billion worth of Treasury bonds mature.
Ordinarily, the government would sell new bonds to pay off the old ones. But in these circumstances, finding buyers might not be that easy. Jim Kessler, who is with the Washington think tank Third Way, says Treasury bonds would have lost their key selling point, a rock-solid reputation for safety.
JIM KESSLER: They're the Volvos of investments. To get people back into Treasury bonds, you're going to have to give them some sort of deal. And that deal is bad for taxpayers. It's bad for the economy.
HORSLEY: To attract new buyers, the government would have to pay a higher interest rate. And Powell says that higher rate would ricochet throughout the economy.
POWELL: That will affect credit card interest rates, mortgage interest rates. Every kind of consumer debt and business debt is priced off of Treasuries. That's not going to help the economy, it's going to hurt the economy. It's going to hurt the housing market.
HORSLEY: The stock market would drop and so would the value of the dollar, resulting in higher gasoline prices. Third Way's Kessler says even a short gap in the government's borrowing authority would slow economic growth at an estimated cost of some 650,000 jobs. And while the default might be temporary, Kessler says the damage would be lasting.
KESSLER: You can cheat on your spouse and maybe your marriage will survive, but your marriage will never be the same again. And you can default on your debts as a nation and your country will survive. But the way your country is viewed will never be the same again.
HORSLEY: Of course, we don't have to find out how dire these consequences are, so long as Congress and the president can make a deal before the deadline.
Scott Horsley, NPR News, Washington.
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